Tax tips for the self employed Canadian.

Posted: April 21, 2013 in Taxes
Tags: , ,

I guess it stands to reason that this would be a useful and timely post given the time of year? Here are a few tips that you might find useful. Maybe you already know about these, maybe you don’t.

  • Office in the home deduction. If you operate a home-based business and your office is in a converted room (a bedroom?) you can deduct a portion of the home costs (mortgage interest, property taxes, utilities, home insurance and home repairs) as an office in the home deduction. The proportion would be:  All of the above costs x room for business use divided by number of rooms in the house. This is already on the T2125 statement of revenue and expenses.
  • Splitting pension income with a spouse. You may have a qualifying pension (PSSA pension, private sector pension or public sector pension) plus a registered retirement income fund (RRIF) in addition to business income. You and your spouse can elect to split your pension (up to 50%) by filing a T1032 form. Regardless of your spouse’s age he/she will qualify for the $2,000 pension income deduction so there could be significant tax savings. This is a great tax planning device if the transferring spouse also has Old Age Security (OAS) benefits that might otherwise have to be clawed back on the T1 return.
  • Tax Free Savings Accounts (TFSAs). These are very useful tax savings vehicles. If you have business income and pension income and have T3 or T5 slips with interest or dividends or capital gains, this income could be taxed at your (high) marginal rate outside a TFSA. You can transfer in $5,500 per year into a TFSA for you as well as your spouse. The income earned inside the TFSA is not taxable. Be careful though, the TFSA is not fee-free. Depending on the investment vehicle chosen you could be subject to deferred sales charge fees if you sell. Ideally you want no-load funds in a TFSA so you have immediate access to your funds if you need them.
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