As per the Canada Revenue Agency, there is GST/HST included in mileage rates and mileage being charged to a client is considered income.
For provinces that do not participate in the Harmonized Tax program, the mileage rate will only include the 5% GST tax rate.
For participating provinces, the mileage will include 11-15% HST depending on the province.
When invoicing a client for the mileage driven on their behalf (in order to provide the goods/services) you need to break out the tax. Once you have the pre-tax rate you multiply that by the number of kilometers driven and then apply the tax.
Example: Ontario – if you are charging $0.52 per kilometer…
16 kilometers driven
$0.52/1.13 = $0.46
$0.46 is the pre-tax amount
16 kms x $0.46 = $7.36 x HST = $8.32
There is often much confusion over what is an allowable business deduction. We've compiled a list
of the expenses that our clients ask us about the most. So we are sharing the CRA rules right here for each of those expenses.
You want to look your best while running your business, especially when you have to meet with clients or customers. That means investing in clothing, makeup, and grooming, though you can’t claim these costs as independent contractor business expenses. This also means you can’t claim a deduction for coveralls, special shoes, gloves, or work wear. However, if your employer reimbursed you for these coveralls, etc then it is not considered a taxable benefit for you in regards to your taxes.
If you buy snacks to eat while you you work, you can’t deduct them. The CRA does make an exception for self-employed bicycle couriers and rickshaw drivers, though. If you work in one of these professions, the CRA views some of your daily snacks as fuel to keep your transportation going. As a result, you get to claim a deduction just like truck drivers claim a deduction for petrol. You can claim a flat $17.50 for snack money for every eight-hour shift you work.
When you work from home as an independent contractor, you might want to get out for a change of scenery sometimes. Keep in mind that if you work from a coffee shop for the day, you can’t claim the coffee and pastries you consume as business expenses. But if you meet a customer at an eatery or take clients to a show, you can write off 50% of the meal and entertainment expenses as long as you discuss business. In addition, if you travel for your business, you may also write off half your food costs while on the road.
You can’t write off personal costs as independent contractor business expenses on your tax return. If you buy paper and pencils for your children to use, you can’t write off those costs as office expenses. Similarly, if you buy a computer or office equipment for personal use, you can’t claim it as a business expense.
Lucky for you, the CRA has a process in place for purchases you use for both business and personal matters. This lets you figure out which portion you use for business and write off that percentage of your expense. For example, let’s say you buy a computer you use 80% of the time for work. This means that 80% of its costs counts as a business expense.
When it comes to deducting business expenses for repair and maintenance, you can’t deduct:
Keep in mind that you can deduct labour and materials costs for minor repairs or maintenance of property you use in earning business income. For instance, if you pay someone to repair the cracked screen on your business smartphone and you don’t have insurance coverage, you can deduct that expense.
Cash registers and credit card machines often print out receipts on thermal paper containing a wealth of information, including detailed description of the items purchased, the date and time purchased, and the price. The issue with these thermal receipts is that they fade over time. If you refer back to them months or years later to verify a purchase, you might have a problem reading the faded receipts. In order to circumvent this problem, I am recommending that you photocopy each thermal receipt. This is imperative to do in the event that you have to justify an expense to the Canada Revenue Agency.
Another method to save these thermal receipts for future viewing is to store them electronically. According to the Canada Revenue Agency website, your receipts:
o Must be kept in Canada unless permission is granted to keep them elsewhere;
o Must be made available to a CRA representative upon request;
o Includes electronic records that are created and maintained by computerized record-keeping systems.
o CRA considers you to have electronic records if you create, process, maintain, and store your information in an electronic format.
o It must be an accurate reproduction with the intention of it taking the place of the paper document.
o It gives the same information as the paper document.
o The significant details of the image are not obscured because of limitations in resolution, tonality or hue.
o The electronic records must be kept in an electronically readable format.
o Scanned images of paper documents, records, or books of accounts that are kept in electronic format are acceptable if proper imaging practices are followed and documented.
o If a gasoline receipt has been issued, it must have the vehicle odometer reading written on it.
o If a client or customer has been taken out for a meal, the receipt must have the name of the client, name of the company and contain contact details including phone number.
As I have illustrated above, it is important that you either photocopy or scan your thermal receipts. The onus is on you to do this on an ongoing basis. I recommend that you do this on a daily basis in order to better manage this task.
The general CRA rule is that all gifts given to employees are considered to be taxable benefits by the Canada Revenue Agency except for the following exemptions:
The annual and long-service awards are considered to be separate, that is both may be received in the same year.
Anything above the $500 amount in either case is considered to be a taxable benefit, for which the employer may have to make source deductions.
There are certain restrictions, however. If you want to use your employee gifts as tax deductions in Canada you must:
Be careful what you give as an employer. Items such as gift certificates or stocks that are easily converted into cash will be considered as taxable employee benefits by the CRA, as will performance-related awards and bonuses. This includes:
According to the CRA, you may deduct all reasonable business expenses from your business income on your tax return, and entertainment and meals qualify as business expenses if they are incurred in the pursuit of establishing or maintaining clients.
If you give a client a gift certificate to a restaurant or a pair of tickets to a hockey game, those gifts are considered to be meals and entertainment expenses; as a result, you may write off half of their value. Keep the receipts for your records and a few notes indicating how the expense was business related with the customers name and contact details including telephone number written on the receipt. In some cases, you may also be able to claim 100 percent of the cost of client gifts as an advertising or promotional expense.
Receipts must be itemized in order to be considered a valid business expenditure. An itemized receipt shows the items that were purchased and price associated with that item. If the item on the receipt is not obvious as to what it was that you purchased, then you must write on the receipt what that item really is. Often stores use SKU numbers or parts reference number and if you do not write down what it is, then you will not be able to claim it as an expense to the business.
At times the cashier will give you a credit card payment slip. This does not qualify as an accepted receipt because it does not indicate what was purchased.
To the left is a GOOD receipt.
This is a bad receipt but it has been corrected.
There are 2 things wrong with this receipt.
1 The first item is not clear as to what was purchased.
2 There is a personal item on a business receipt.
Write beside the items that are not clear explaining what you purchased.
Cross off all personal items and deduct those from the total.
Only the business- related items are allowed to be expensed.
Going forward, pay for personal items separately.
This receipt does not say what you purchased. Even though it is a gas station receipt, you can purchase more than fuel at a gas station. You must prove what you purchased.
Does this sound familiar? You sold a product or a service and your customer has yet to pay. We have all experienced this. Companies spend a lot of time chasing customers for payments when their time would be better spent acquiring more business.
Then there are the customers that are habitually late. You send out the invoice and then a statement marked 'Past Due'. You pick up the phone to call them to hear promises that they will get that payment out promptly. Another week goes by and unless the mailbox ate the cheque; it was never sent.
Under most circumstances I think it makes sense to give customers the benefit of the doubt; most really are well-meaning people or companies who intend to, and usually do, pay you … eventually. Their habitual late payments, however, can hurt your cash flow. That’s bad for the financial health of your business, so you’re wise to take action to nip the problem of late payments in the bud and prevent new clients from becoming late payers.
Where do you begin? By using one or more of the following tactics, which can help motivate your clients to pay on time:
Choose the right payment terms
You should add two weeks to estimate the actual date when you’ll receive payment. For example: If you want to get paid in 30 days, consider using payment terms of 13 days or less.
For the service industry, consider C.O.D. Once the service has been fulfilled, complete an invoice in front of the customer, either electronically or pen to paper, then request payment before leaving. Once you leave, it is so easy for the customer to come up with ways to wiggle out of paying the bill by searching for something to complain about. However, if you are in front of the customer and hand them an invoice, that is their opportunity to voice any concerns and are more likely to pay if you have your hand out requesting payment for services rendered.
Ensure that invoicing gets out the same day or the very next day. Any delays will add to the delays in payment.
Offer a small discount for paying early
A little positive reinforcement might help you get paid on time. Consider offering clients a discount of 1 or 2% if you receive their payment a certain number of days before the invoice due date.
Institute a late payment fee
Unfortunately, not all customers will be motivated at the prospect of saving money. They might pay up on time, however, if paying late comes at a cost. Even an amount as small as 1.5% might grab their attention and get that cheque in the mail.
Give the option to pay electronically online
By enabling clients to pay instantly through an online payment service like PayPal or E-Transfer, you make it more convenient to pay. And it allows customers who are short on funds to pay using their credit card if they choose PayPal. That way, you’re not stuck waiting until they have money in the bank.
Download an accounting app onto your phone so you can do an invoice while still with the customer and you can email it to them immediately. This saves on all the costs involved in mailing an invoice. And yes, ask for payment while you are still in their presence.
Send a gentle reminder when an invoice is a week past due
In many cases, invoices simply get lost in the shuffle. By politely following up with clients after invoices are a week past due, you can put them back on your customers’ radar.
Do not do more work for the client if their account is 30 days past due
Tough Love. Sometimes temporarily ceasing to provide services or products is the only way to get a client to understand that they don't have options.... they must pay you.
Pick up the phone
An invoice and/or a statement that arrives in your Email's inbox or the mailbox at your home or business is easy to ignore. A friendly phone call asking when you expect payment can often produce better results. Yes, then there are those customers who will tell you whatever you want to hear just to get you off the phone.
If possible, go to your customer's place of business. Yes, walk right in and ask to speak to the owner. In my experience this does produce immediate results in most cases. They can't ignore your invoice or phone call when you are face-to-face with them. This goes back to my earlier point of requesting payment as soon as the service is complete. You can't walk into a clothing store, choose a sweater and walk out citing that you pay later.
While there’s no guarantee any of these will in every case prevent late payments, they will work with some customers—and you’ll have the peace of mind knowing you’re doing what you can to alleviate the issue.
Regardless of how you decide to go about minimizing the problem of late payments, make sure you’re upfront about your payment terms and conditions in your client agreements and on your invoices. Communicating clearly and allowing no room for misinterpretation gives you leverage when following up with clients who have run behind on paying.
I also encourage you to never, ever underestimate the power of maintaining harmonious professional relationships with your clients. Regardless of how frustrated you may be, keep your cool and remain respectful when checking on invoices that have gone overdue.
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