Frequently Asked Questions

Why do I have to make tax instalments?

The Canada Revenue Agency (“CRA”) requires a taxpayer who has over $3,000 in taxes owing at end of a tax year to pre-pay their income taxes in quarterly instalments throughout the following tax year. The purpose of this strategy (from the CRA's perspective) is twofold:

1) To put sole proprietors and business owners in the same position as employees throughout Canada who have to pay tax at source (i.e. withheld and remitted throughout the year from every paycheck); and

2) To speed up CRA's cash collection of taxes.

The first time a Taxpayer triggers the requirement to remit instalments quarterly, the payments will begin on September 15th and December 15th respectively. After which, the requirement will continue quarterly on March 15th, June 15th, September 15th and December 15th of the calendar year. Our office will provide an explanatory T1 cover letter when we deliver the final filed T1 personal income tax return outlining the tax instalments the CRA expects a Taxpayer to make throughout the coming year, if any. If instalments are not paid throughout the year after the requirement to do so has been triggered, the CRA may charge interest and penalties on late or unpaid instalment amounts. For example, if a $10,000 instalment was supposed to be paid on September 15th 2014 but wasn't, the CRA will charge interest at the prescribed rate (currently 5% per annum, compounded monthly - this rate is updated quarterly and posted on the CRA website) between the date the instalment was supposed to be paid and the date the 2014 taxes are actually paid. The actual instalment interest that may be assessed is restricted by the amount of tax you actually owe in the next tax year. That is to say, if you were required to remit $40,000 in instalments throughout 2014 but your tax result in the following year (2015) is $15,000 owing you will only be charged instalment interest on $15,000 of unpaid taxes, not the entire $40,000 "requirement". Please note that the CRA’s calculated instalments which a Taxpayer is required to pay in the coming tax year is most commonly calculated based on a formula that uses taxes payable from the previous two tax years. If a Taxpayer could predict how much you would need to pay in taxes in the coming tax year they would want to pay the lesser of the income tax instalments required and the projected tax liability. To put it simply, if a Taxpayer expects to owe less than their required instalments, we recommend only paying instalments up to the amount the Taxpayer is expected to owe. As an illustrative example, in 2014 you had taxes payable of $40,000. This triggered a requirement to pay instalments of $10,000 each in September and December 2015 respectively. Your actual taxes owing at the end of 2014 turned out to be $13,000. As such, you may be subject to instalment interest on paying this $13,000. In this situation we would recommend paying $10,000 on September 15th and $3,000 on December 15th to eliminate the potential instalment interest charges.

What can I claim as a business expense?

The two general rules to keep in mind are as follows:

  1. Reasonability – the expenses should be reasonable in the circumstances
  2. Business purpose – the expense must have been incurred in order to earn business income
Below is a link to the CRA website that lists some of the common expenses that can be deducted. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html Some items that are not specifically mentioned in the list are as follows:

  • Gifts to colleagues, staff, etc. Basically any gift that is due to a business relationship rather than a personal one.
  • Insurance – this includes any malpractice insurance or other business insurance you may purchase. Most the medical doctors we work with only have malpractice insurance.
  • MSP premiums are not deductible.
  • Life insurance - You may want to consider corporate-owned life insurance. It is not tax deductible, however it is paid with corporate, rather than personal, money. To pay a $100 premium you will need to make $115 to pay via the corporation and $177 to pay for it personally.
  • Disability insurance – this is not tax deductible and is generally purchased personally.
  • Clothing – clothing is NOT deductible unless it can only be used for business. For example, a uniform with hospital logo on it is deductible. However a dress shirt that you only wear to work would not be deductible as you could potentially wear it outside of work.
  • Courses or conventions including travel and meals while at these events.
  • Home office expenses
  • If you have significant medical expenses that you pay personally, you may want to consider a private health spending account which allows you to deduct these expenses. BCMA provides a plan to Medical doctors.

Why are so many file preparation procedures double and triple checked?

With respect to the checking, double checking, and triple checking, these are procedures that have been created to reduce the risk of human errors in our system. While we do use the best software in our industry it is still a matter of “garbage in, garbage out.”

Our error rate on corporate and personal files is less than one percent which is very low. In order to keep these rates low, it is necessary to have these specific checks. At each level there are people who use customized checklists and procedures to identify problems which we have encountered in the past. These checklists were created and are modified based on areas of known risk and past errors actually experienced.

While they take time, you are ultimately paying for an accurate and complete end product with few, if any, errors-even minor ones. This also reduces the risk of tax audits or other problems that can arise when there is inconsistency in the numbers.

Should I pay down my corporate debt first or my personal debt?

Extra money in your corporation can be used to pay down corporate debts or taken out for personal use.  The problem with taking it out for personal use is that you end up with less cash after tax than if you leave it in the company and pay down corporate debts. 

When preparing your file we will provide you with a numerical example so that you can make a decision.  Generally, we recommend that if a family has high debt levels they pay down corporate debts earlier as their total debt load will reduce more quickly.  In addition, it is necessary to consider whether there are any prepayment penalties on the business or personal loans (including mortgages) and to factor those costs into the decision.  We should decide once we have estimated the amount of tax owing.

What is the “administration fee”?

When you receive your invoice for personal income tax returns, trust tax returns, and T4/T5 returns, you will notice a line item called "administration fee." The purpose of this fee is to eliminate the need to allocate aggregate time charges among all of our clients.

For example, we spend time obtaining, setting up, and updating our software during the course of preparing your tax returns. Rather than splitting these costs among multiple clients, we accumulate them in a separate account. This account accumulates time charges for the organizing of tax returns, administering the preparation of the returns, collating, assembling the tax returns, managing the deadlines for all of our clients, and final reviews with partners and managers. We accumulate this time in the special account and then effectively split that among all of the returns that we prepare.

Some of you may recall that we used to charge you specifically for the time charges related to collating your tax return (printing, assembling, inserting tax reporting slips). Now we accumulate all of these costs and then split them up. We believe this is a fair solution because a more complicated tax return would bear more time charges but the cost of collating and managing that return through the process is equal to a simple tax return.