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Busy season is here. Time to dust off the toolbox, buy some new work boots – and file your 2016 income tax return. As a self-employed General Contractor, you may (or may not know) the rules are different for you than the general public. Whether you’re a new small business owner or just looking to brush up on your knowledge, see our top tax tips for General Contractors below.
If you wanted to file early but spring snuck up on you, don’t sweat it – yet. The deadline for filing your tax return is June 15, 2017 for people who were self-employed in 2016. But any amounts owed will still need to be paid by May 1, 2017 – the deadline for personal tax returns.
Now that you know when to file, here are some tax tips on what and how to file, as well as how to avoid issues with Canada Revenue Agency (CRA).
First Up… Your GST/ HST number.
You’ve got one, right? With the current market’s steady demand for General Contractors, many self-employed men and women working in this field require a GST/ HST number. If you’re uncertain whether you need a GST/HST number, consult this CRA checklist.
If you made over $30,000 in sales in 2016, you need to have one. You also need to know that the $30,000 benchmark refers to total sales, not profit.
Failing to obtain a GST/ HST number can prove costly to you and your company. CRA can – and will – retroactively charge you and require you pay full amounts owed upfront. Plus, you’ll be on their radar and may be more closely monitored going forward.
To get back some of the GST/ HST you’ve paid out, claim it via Input Tax Credits (ITCs) on your GST/ HST return. You should be doing this at the end of each reporting period, but you have until four years from the end of that reporting period to retroactively file – unless you made more than $6 million in the previous two fiscal years. Then you only have two years. Learn more about ITCs here.
The Right Tools
As a self-employed General Contractor or owner of a small contracting company, the entirety of what you spend on tools is considered a deductible business expense.
Unlike tradespeople employed by a third-party company, there is no limit to the amount you can claim – simply add the cost of tools as a line-item business expense as you would any other on Form T2125, your Statement of Business or Professional Activities.
As always, remember to keep records and receipts – and don’t just stuff them in your glove box. If you get audited, you’ll be required to show them to the CRA.
An organized filing system will save you a ton of time – and sifting through old stacks of sun-bleached receipts during an audit is not something you or your Accountant will be happy to have to do.
Beep Beep – Claiming Motor Vehicle Expenses
Do you claim all your work truck expenses through CRA? While self-employed General Contractors with a valid GST/ HST number are eligible to claim Motor Vehicle expenses in Part 17 of Form T2125, you must specify the ‘Business use part’ (i.e. time you actually use the vehicle for work). Do so by calculating the kilometres you drove in the fiscal year that were part of earning business income as a percentage of the total kilometres you drove in the fiscal year.
A very useful tax tip is as follows: if you only own one vehicle, CRA is unlikely to believe 100% of the usage of your vehicle was for work. Did you drive your kids to school? Go to a game? Help a friend move some furniture? Avoid getting audited by always being honest about your business vehicle expenses. In case of an audit, however, here is a very useful tool you can use to track you (and your team’s) location and kilometres driven. Be proactive, not reactive, to avoid trouble down the road.
Mitigating cash flow disruptions when paying back CRA
Owe a large chunk of money to CRA? Read our guest post on Mitigating Cash Flow Disruptions When Paying Back the CRA on Wagepoint. If you still have questions about filing your tax return, CRA has a great T4002 guide that you can download or view here.
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