2013 tax workshop

Galloway Botteselle & Company

Taxes - Taxes - From Resident From Resident to Practitionerto Practitioner

Presented by:Brian Blamey & Selena Nisbet

January 30, 2013

Galloway Botteselle & Company

OutlineOutline

• What can I deduct? What can I deduct? • Home office, meals, auto Home office, meals, auto

expensesexpenses• Keeping good recordsKeeping good records• Tax installmentsTax installments• IncorporationIncorporation

Galloway Botteselle & Company

Why is This Important?Why is This Important?

• Physicians are in the top tenth Physicians are in the top tenth percentile of income earners percentile of income earners in Canadain Canada

• Structuring yourself properly Structuring yourself properly can have huge effect on taxescan have huge effect on taxes

• Goal is to minimize taxes and Goal is to minimize taxes and increase after-tax incomeincrease after-tax income

Galloway Botteselle & Company

ResidentsResidents

• Deductions are limitedDeductions are limited• BCMA, CoPS BCMA, CoPS • CMPA not allowedCMPA not allowed• Automobile (if required by Automobile (if required by

employer)employer)

• CreditsCredits• TuitionTuition• Student loan interestStudent loan interest

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Deductible Expense vs. Deductible Expense vs. Tax CreditTax Credit

• Deductible Deductible expensesexpenses• Professional Professional

exp.exp.• RRSPRRSP• Child CareChild Care• MovingMoving

• Tax Savings is Tax Savings is based on your based on your tax brackettax bracket

• Tax CreditsTax Credits• TuitionTuition• Student loan Student loan

interestinterest-5 yr CF-5 yr CF

• DonationsDonations-5 yr CF-5 yr CF

• Medical expensesMedical expenses

• Tax savings is Tax savings is the same (20%) the same (20%) in all tax in all tax bracketsbrackets

Galloway Botteselle & Company

Personal Tax Rates-Personal Tax Rates-20122012

0.0%

20.1%22.7%

29.7%32.5%

38.3%40.7%

43.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

<$11k $11-37k $37-43k $43-74k $74-85k $85-103k $103-132k >$132k

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When to claimWhen to claim

• Tuition fees-ASAPTuition fees-ASAP• Student loan interest-ASAPStudent loan interest-ASAP• RRSP-$10k contributionRRSP-$10k contribution

• Income-$65k. Tax savings is Income-$65k. Tax savings is $2,970$2,970

• Income-$150k. Tax savings is Income-$150k. Tax savings is $4,370$4,370

• Return for 1 year is 44%Return for 1 year is 44%

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Self-employedSelf-employed

• Moonlighting while a residentMoonlighting while a resident• After residency is completedAfter residency is completed• Must report:Must report:

• Self-employed incomeSelf-employed income• Can deduct related expensesCan deduct related expenses

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Can I deduct _____?Can I deduct _____?

Yes, if...Yes, if...• Expenses are Expenses are

incurred to incurred to earn incomeearn income

• Expenses are Expenses are reasonable in reasonable in amountamount

• Is allowed by Is allowed by the Income Tax the Income Tax ActAct

Not, if...Not, if...• Personal or Personal or

living expensesliving expenses• Capital Capital

ExpendituresExpenditures• Denied by Denied by

Income Tax ActIncome Tax Act

Galloway Botteselle & Company

Business Expense Business Expense SummarySummary(T2125)(T2125)

• Accounting and legal feesAccounting and legal fees• Advertising and promotionAdvertising and promotion• Meals and entertainment Meals and entertainment • Annual license fees and professional Annual license fees and professional

duesdues• Bank chargesBank charges• InsuranceInsurance

• liabilityliability• officeoffice• Business overheadBusiness overhead

Galloway Botteselle & Company

Business Expense Business Expense SummarySummary

• Interest on loans and lease Interest on loans and lease paymentspayments

• Convention expenses (2 per Convention expenses (2 per year)year)

• Maintenance & repair of office Maintenance & repair of office + equipment+ equipment

• Professional development Professional development

Galloway Botteselle & Company

Business Expense Business Expense SummarySummary

• Office expensesOffice expenses• Postage, stationery, supplies, Postage, stationery, supplies,

etc.etc.

• Salaries and employee Salaries and employee benefitsbenefits

• Telephone (business portion)Telephone (business portion)• Travel expensesTravel expenses

Galloway Botteselle & Company

Business Expense Business Expense SummarySummary

• Expenses incurred as a Expenses incurred as a residentresident• Medical libraryMedical library• ExamsExams• Computer and other assetsComputer and other assets

Galloway Botteselle & Company

Automobile ExpensesAutomobile Expenses

• Need to determine business Need to determine business portion of auto expenses.portion of auto expenses.

• Keep a travel logKeep a travel log• Automobile operating expenses Automobile operating expenses

include:include:• fuel and oil, maintenance and fuel and oil, maintenance and

repairsrepairs• insurance, license feesinsurance, license fees• interest on car loansinterest on car loans

Galloway Botteselle & Company

Automobile ExpensesAutomobile Expenses

• Alternative methodAlternative method• Auto allowanceAuto allowance• Travel log still requiredTravel log still required

• 2012 rates2012 rates• $.52 for 1$.52 for 1stst 5000 km 5000 km ($0.53 for 2013)($0.53 for 2013) • $.46 for > 5000 km $.46 for > 5000 km ($0.47 for 2013) ($0.47 for 2013)

Galloway Botteselle & Company

Entertainment Entertainment ExpensesExpenses

• Only deduct 50% of Only deduct 50% of meals/entertainmentmeals/entertainment

• Record client names on Record client names on receiptsreceipts

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Can I deduct aCan I deduct a“Home Office”“Home Office”

• Meet one of two tests…Meet one of two tests…• principal place of businessprincipal place of business

oror

• used on a regular basis to meet used on a regular basis to meet clientsclients

• Business portion is deductibleBusiness portion is deductible• % of rent , mortgage interest, % of rent , mortgage interest,

taxes, utilities etc.taxes, utilities etc.

Galloway Botteselle & Company

Bookkeeping and Bookkeeping and AccountingAccounting

• Keep accurate recordsKeep accurate records• Required for preparing tax Required for preparing tax

return and for CRAreturn and for CRA

• Options for keeping trackOptions for keeping track• QuickBooks, Simply AccountingQuickBooks, Simply Accounting• ExcelExcel• Envelope methodEnvelope method

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Accrual vs. Cash Accrual vs. Cash AccountingAccounting

• Cash AccountingCash Accounting• record expenses and revenue at record expenses and revenue at

the time $$ is paid or receivedthe time $$ is paid or received

• AccrualAccrual• Record expenses when incurred Record expenses when incurred

and revenue when earned no and revenue when earned no matter when the $$ is paid or matter when the $$ is paid or receivedreceived

Galloway Botteselle & Company

10 / 40 / 50 Rule10 / 40 / 50 Rule

10% of your fee goes to 10% of your fee goes to expensesexpenses

40% goes to taxes and CPP40% goes to taxes and CPP

50% is left for you50% is left for you

Galloway Botteselle & Company

InstalmentsInstalments

Set aside 40% for taxes Set aside 40% for taxes every time you receive every time you receive

incomeincome

Galloway Botteselle & Company

Tax InstallmentsTax Installments

• Are a prepayment of current Are a prepayment of current year taxesyear taxes

• If required:If required:• March 15March 15• June 15June 15• September 15September 15• December 15December 15

Galloway Botteselle & Company

Tax InstallmentsTax Installments

• When are installments When are installments required?required?

• When tax owing in the prior When tax owing in the prior year is greater than $3,000year is greater than $3,000

• Only requires about $18,000 Only requires about $18,000 of taxable incomeof taxable income

• Interest charged if not madeInterest charged if not made

Galloway Botteselle & Company

Where to File Your Where to File Your ReturnReturn

• Based on residency on Dec 31Based on residency on Dec 31stst

• Taxes on employment income paid Taxes on employment income paid in province of residence on Dec 31in province of residence on Dec 31

• Taxes on self-employed earnings Taxes on self-employed earnings may be paid in province where may be paid in province where earnedearned

• What about income earned out of What about income earned out of country?country?

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IncorporationIncorporation

Galloway Botteselle & Company

Incorporation:Incorporation:

• An incorporated business is:An incorporated business is:• A separate legal entityA separate legal entity

• You are an employee of your You are an employee of your companycompany• Will receive a T4 slipWill receive a T4 slip

• Corporation pays a lower rate of Corporation pays a lower rate of tax than personallytax than personally

Galloway Botteselle & Company

Personal Tax Rates-Personal Tax Rates-20122012

0.0%

20.1%22.7%

29.7%32.5%

38.3%40.7%

43.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

<$11k $11-37k $37-43k $43-74k $74-85k $85-103k $103-132k >$132k

Galloway Botteselle & Company

Corporate Tax Rates-Corporate Tax Rates-20122012

13.5%

26.5%

$0 - 500,000 > $500,000

The above graph shows the corporate tax rates in British Columbia on active small business income for Canadian Controlled Private Corporations effective January 1, 2012

Galloway Botteselle & Company

When should you When should you incorporate?incorporate?

• If:If:• You can leave at least $30k/yr You can leave at least $30k/yr

in the company, orin the company, or• You can income split with You can income split with

family members, orfamily members, or• Liability is an issueLiability is an issue

Galloway Botteselle & Company

SummarySummary

• Keep proper track of expensesKeep proper track of expenses• Make required instalmentsMake required instalments• Incorporate if beneficialIncorporate if beneficial• RememberRemember

• It’s not what you earn it’s what It’s not what you earn it’s what you keepyou keep

Galloway Botteselle & Company

QuestionQuestionss

Galloway Botteselle & Company

GALLOWAY GALLOWAY BOTTESELLE & BOTTESELLE &

COMPANYCOMPANY

300-2000 West 12300-2000 West 12thth Avenue AvenueVancouver, BC V6J 2G2Vancouver, BC V6J 2G2

604-736-6581604-736-6581

www.gbco.ca@GBCo_CGAs@GBCo_CGAs