Filing Taxes in Canada: A Guide for the Rehabilitative Practitioner
Many of us find accounting, figuring out what business expenses we can deduct, and filing taxes in Canada tedious and often confusing. Daniel Toma, chartered accountant, gave an insightful talk about taxes for physiotherapists and other rehabilitative practitioners, his talk is packed with gems that answer many of our tax-related questions.
We have recorded his talk and included the video below; we have also summarized the talk so that you can follow along for your convenience.
Here is a recording of Daniel Toma's talk:
Books & Records
Record keeping and organization are extremely important when it comes to filing taxes in Canada for your physiotherapy business or other rehabilitative business. The last thing you want is to find yourself scrambling at the end of the fiscal year to try to locate your receipts, invoices, and expenses. Here are some of Daniel's suggestions to keep you organized and legal in the eyes of the Canada Revenue Agency (CRA):
- Credit card statements aren't enough, keep all of your receipts: Credit card statements do not fly as much with the CRA as we think they would, because they can say "You bought gas, but how do we know that was gas and not candy?" However, a scanned copy is just as valid as a paper copy! So you can throw out your shoebox full of receipts and move on into the 21st.
- Track your income
- Invoice the clinic(s) you work for
- Mileage log: Keep a mileage log if you have a car and use it to commute for work.
- Staying organized: Track your expenses. If you do not want to use accounting software, you can also stay organized with Excel or any other similar spreadsheet program. Below is a list of common accounting software:
Common Accounting Software
- Freshbooks - Has become really popular, it is not the most advanced software, but it is easy to use.
- Jane - More practice management and only tackles the income side of your practice and other things related to your clients.
- QuickBooks - More advanced for accounting and is preferable for larger businesses.
- Wave - Free accounting software that is gaining popularity with small businesses.
- Xero - Accounting software for small businesses.
- Receipt Bank - Another platform suitable both for accountants and businesses.
Am I a Contractor or am I an Employee?
This is a question that comes up a lot: Am I a contractor or am I an employee?
Here is an example of how this can be confusing: Let's say you are working for a single clinic, the CRA can view you as an employee and not a contractor, in which case you cannot deduct expenses. If you do deduct expenses, this can be detrimental to both the clinic you work for and for you.
But we have no desire to frighten you, taxes can already be frightening enough as is it. What is important to take away is that it is very important to be able to identify whether you are a contractor or an employee. Although no one thing, in particular, will make you a contractor, on a combined basis, a few of these items might cause you to be placed in one of the two categories. Below is a table to help you find the most suitable category for you:
If you would like to get further information on this subject matter and determine whether you are a contractor or an employee, take a look at this informative site from the CRA: RC4110, which covers this topic in greater detail.
Sole Proprietor vs. Corporation
Let us now discuss the differences between a sole proprietorship and a corporation:
What is Personal Service Business?
A personal business service is a business that a corporation carries on to provide services to another entity that an officer or employee would usually perform. Basically, you are incorporated but are really acting as an employee.
- The CRA has taken the stance of disallowing expense deductions for the corporation and removing eligibility for the small business deduction. This means a federal corporate tax rate of 28% plus provincial tax of 11.5% = 39.5%
- So what does this mean? Touching back to our discussion of employee vs. contractor, if you are incorporated and you tell the CRA that you are a contractor but the CRA says no, you are actually an employee, they will deny the small business deduction and tax the corporation at a very high rate and disallow expense deductions; it is very, very harsh! So if you are a rehabilitative practitioner contractor who is also incorporated it is especially important not to fulfill an employee-like function as the consequences are more severe.
What Expenses Can You Deduct?
Can I deduct this dinner? Can I deduct this car I bought for my daughter for her 16th birthday? This electric bike I bought for my son? What business expenses can I claim? The realm of business deductions is quite often a confusing one, we are here to help:
- As per the CRA, you can deduct any reasonable expenses you incur to earn income.
- Expenses you cannot deduct: A personal portion of expenses, expenses of a personal nature such as clothing (unless it is mandatory for the job and is unsuitable for daily wear), non-business travel, non-business meals, tax penalties, “unreasonable” expenses - see CRA website for further detail. The CRA looks very closely at whether your deductions are personal (i.e. casino road trip) or business-related.
- Expenses must usually be exclusively for business, otherwise, if a “mixed” business/personal expense is eligible the personal portion must be accounted for.
- Note: Different guidelines exist for employees and require a T2200 signed by the employer. As an employee, there are also fewer opportunities to claim expenses.
Expense Categories You Can Deduct (CRA):
Home Office Expenses
Do you have a home office? What can you deduct for your home office? Can you deduct the new diamond-studded toilet seat cover you bought? Probably not, however, here is what you can deduct and some precautions to keep in mind:
- Home office expenses are based on the exclusive office space as a percentage of the total area of the home.
- The expenses can take a percent of the following expenses: Heat, electricity, insurance, maintenance, mortgage interest (not principal), property tax, other expenses (such as water, painting etc.).
- Home office expenses cannot be used to create a loss.
- Expenses that are specifically incurred for your business can be 100% deductible, such as your home office printer, supplies, etc.
- Beware of taking CCA if it is your principal residence.
Auto expenses is often an area that is not handled correctly by business owners because they do not want to keep the records.
There are 2 options here:
- Full logbook: This is the preferred method. Keeping a logbook using an app or a piece of paper. A full logbook shows each trip, date, kilometres in/out, destination and the reason for the trip. If you have not kept a logbook, you can ballpark this information, however, keep in mind that this might not really fly with the CRA. To then calculate your expenses, you apply a percentage of total kilometres against all related auto costs.
- Simplified logbook: Use full base year, then three-month sample logbook for any year (if within 10% of the base year).
Contrary to what some people believe, you should not apply a per kilometre mileage formula for claiming auto expenses for businesses.
Expenses vs. Capital Assets
And last but not least, on the topic of expenses, not all expenses are created equal! What is the difference between expenses and capital asset purchases?
- Expenses are for the current period whereas capital assets have a useful life extending beyond one year and are not intended for sale during the normal course of business.
- Capital assets are recorded in your tax return and depreciate over time, whereas expenses are deducted in the current year.
That was a lot to take in, but we hope that Daniel and we here at Embodia have made it as simple as possible. If you have further questions, do not hesitate to contact Daniel or Embodia.
Now that you have learned all about your business expenses, what business expenses you can claim and how to file taxes in Canada, we invite you to learn more about how to grow your business by checking out one of Embodia's great continuing education physiotherapy courses on the subject of physiotherapy business:
If the above course sounds interesting, check out our blog about it, in which we tell you more about the course and also include a sample video!
May your business flourish and be fruitful!
About the Instructor:
Daniel Toma, Chartered Accountant
Daniel Toma is a Toronto based Chartered Accountant providing accounting and tax services to small businesses and individuals. Following his experience at a national accounting firm, he established a practice devoted to building solid client relationships and services for many clients in the healthcare field. With keen interests in tax planning, entrepreneurship, and technology, he transfers these passions to his role by going beyond the numbers when assessing each client's situation. What is the best tax strategy to maximize wealth? How can one's business be more profitable? How can technology improve record-keeping? Such questions are just the beginning of the process to determine how to optimize a client's situation.
Building strong relationships and helping clients reach their objectives is the cornerstone of his practice. To receive quality professional service at an affordable rate contact him to start a conversation.
Blog editor: Nataliya Zlotnikov