When you run a business in Ontario, even a small business from your home, you must include all business income and expenses when filing your personal tax return. This includes part-time and self-generated income from renting space in your home, selling homemade goods, or providing services like home renovation and repairs, lawn care, driving or cleaning. Failing to report all income may result in prosecution and penalties.
Tips on reporting your business income:
CRA Guide T4002 will help you calculate business or professional income to report on your tax return. · For each business, file a separate completed Form T2125 with your tax return.
· Keep separate records for all income sources.
· Support all records with original documents like sales invoices, cash register tapes, receipts, fee statements, and contracts.
· Keep supporting documents – CRA may ask to see them. Learn more at cra-arc.gc.ca.
Deducting your business expenses:
Deduct business expenses to bring your taxable income down. All expenses should be supported with a sales invoice or receipt. Some of the eligible business expenses you can deduct are:
· Start-up costs
· Business tax, fees, licenses and dues
· Interest charges
· Maintenance and repairs
· Motor vehicle expenses
· Legal, the accounting and other professional fees
· Office expenses
Calculating business-use-of-home deductions:
If you run a business from your home, you can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:
It is your principal place of business, or
You use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers or patients.
For example – If your home office is 12 x 12 feet in a 1500 square-foot house, then your calculation of the allowable portion of business-use-of-home expenses would be: 144 divided by 1500 = 10%.
After you have calculated the percentage of the home used for your business, you can apply this percentage to the following allowable household expenses:
· Cleaning materials
· Home maintenance
If you own the home your business operates in, you can also claim a portion of your:
· Home insurance
· Property taxes
· Mortgage interest
How to deduct your business expenses on your income tax return:
· Complete the “Calculation of work-space-in-the-home expenses” portion of Form T777, Statement of Employment Expenses
· Enter the lower amount of line 24 or 25 of Form T777 on line 9945 of your income tax return, and
· On line 229 of your income tax return, enter the allowable amount of your employment expenses from the total expenses line of Form T777.
Do you qualify for tax credits?
Visit Ontario.ca/taxcredits to learn about tax credits that can help your business lower costs, hire and train workers, and better compete in the marketplace.
Filing due date for business owners:
If you or your spouse or common-law partner conducted a business in 2016, your tax return for 2016 has to be filed on or before June 15, 2017. However, if you have a balance owing for 2016, you have to pay it on or before April 30, 2017.
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