Do you owe more than $26k, not including a mortgage?

[Melbosa]

So when do we get back to the debt conversation? Wow explosion thread!!!!  Good on you all for working through this conversation.

[Thorin]

Okay, since this has turned kinda into a all-about-money-and-taxes-and-debt thread, I was just trying to predict my wife's future cheques using the Payroll Deductions Online Calculator.  Then I wondered which province actually has the lowest taxes.  So I started punching in the same income, but changing the province, and recording the tax that would be withheld from the paycheque.  I went with $3,000 semi-monthly (24 times a year) for a total $72,000 income.  This is probably a little less than what some of us make, but still in the ballpark (except Tom, TOM IS RICH ).  Here's the tax withheld from the paycheque for each province:


QB  $367.25 * seems to be missing prov tax, and qpp and ei seem different
NV  $574.80
BC  $601.03
NWT $615.43
YK  $640.57
ON  $648.91
AB  $656.19
NB  $709.73
SK  $713.36
NL  $716.08
MB  $755.30
PEI $767.40
NS  $780.45


This is only personal income tax withheld from your paycheque, this doesn't in any way reflect the sales tax many of the provinces have.  However, based solely on this, Alberta should stop bragging about having the lowest taxes!

And these are semi-monthly, so Nova Scotia withholds $124.26 more than Alberta twice per month.  That's $248.52 less take-home pay per month!

So when do we get back to the debt conversation? Wow explosion thread!!!!  Good on you all for working through this conversation.

Yeah, I was writing this post while you popped that in there   Also, many of our threads go off the rails like this, even the ones that were split to avoid going off the rails.

[Tom]

Okay, since this has turned kinda into a all-about-money-and-taxes-and-debt thread, I was just trying to predict my wife's future cheques using the Payroll Deductions Online Calculator.  Then I wondered which province actually has the lowest taxes.  So I started punching in the same income, but changing the province, and recording the tax that would be withheld from the paycheque.  I went with $3,000 semi-monthly (24 times a year) for a total $72,000 income.  This is probably a little less than what some of us make, but still in the ballpark (except Tom, TOM IS RICH ).

You say that, but after the bank charges its 2.5% what I get before tax is $59904, which after setting aside 30% I'm left with is $41932.

[Lazybones]

You say that, but after the bank charges its 2.5% what I get before tax is $59904, which after setting aside 30% I'm left with is $41932.

I thought you banked with PC?

[Tom]

You say that, but after the bank charges its 2.5% what I get before tax is $59904, which after setting aside 30% I'm left with is $41932.

I thought you banked with PC?

They charge 2.5% for the US->CAD conversion. I checked out another bank and they charged 3%... Soo yeah.

All that said, I could live fairly comfortably on $20k.

[Thorin]

(except Tom, TOM IS RICH ).

You say that, but after the bank charges its 2.5% what I get before tax is $59904, which after setting aside 30% I'm left with is $41932.

$59,904 per cheque is pretty good, even if it is only once a month.

Okay, kidding, I understand that's your annual, not monthly.  Remember that you need to keep receipts and that you can write off thousands of dollars.  That means your $59,904 is gross revenue, then you take off, say $8,000 in business expenses, then that leaves you $51,904.  Let's round that to $52,000.  That's what you end up paying tax on, that'd be about $4,333 per month.  The online calculator says you'd have the following deductions: $778.94 for tax, $200.05 for CPP.  Since you have to pay both the employee and employer portion of the CPP, that means you can expect to owe about $780 for tax plus $400 for CPP per month, or $1,180.  So from $4,333, you have to save $1,180; that's 27.2%.  So you're right on the money with saving that 30%.  Although I think you could find more than $8,000 to write off if you do some digging into all the rules about what you can write off.

[Tom]

(except Tom, TOM IS RICH ).

You say that, but after the bank charges its 2.5% what I get before tax is $59904, which after setting aside 30% I'm left with is $41932.

$59,904 per cheque is pretty good, even if it is only once a month.

Okay, kidding, I understand that's your annual, not monthly.  Remember that you need to keep receipts and that you can write off thousands of dollars.  That means your $59,904 is gross revenue, then you take off, say $8,000 in business expenses, then that leaves you $51,904.  Let's round that to $52,000.  That's what you end up paying tax on, that'd be about $4,333 per month.  The online calculator says you'd have the following deductions: $778.94 for tax, $200.05 for CPP.  Since you have to pay both the employee and employer portion of the CPP, that means you can expect to owe about $780 for tax plus $400 for CPP per month, or $1,180.  So from $4,333, you have to save $1,180; that's 27.2%.  So you're right on the money with saving that 30%.  Although I think you could find more than $8,000 to write off if you do some digging into all the rules about what you can write off.

Yeah, its something I need to look into.

Hm, can I claim my internet as completely business related? Or only a portion like the rest of my living expenses? Thats $1000/yr right there. Then there's my dedicated server which I do use for business, at another $1000/yr. I figure $1900 for 20% ($2200 for 25%) of my living expenses (rent, utilities)

You think I can deduct office furniture? (I need a new couch, computer desk, some shelves and a tv stand). What about improvements to the trailer, since I'm renting, can I claim that as added rent costs? I think that might be a bit iffy. Same with getting new appliances.

[Thorin]

Okay, this won't be a quick answer   There are a few different pots of write-offs, and I'll describe them below.

First, there's things that you own (computers, routers, etc) that you use for your business; these depreciate (lose value), and it is the depreciation that you can write off.  Lets say you own a computer that you bought for $2,000 and it depreciates 25% this year.  That's $2,000 x 25% = $500 deprecation that you can claim this year.  Next year, you have to list the computer as worth only $1,500, and at 25% deprecation you can claim $375.  The year after that, you have to list the computer as worth only $1,125.  Etc.  Oh, computer equipment actually depreciates at 55% these days, cars at 30%, buildings at 5%.  Anything that you buy mainly for your business you can claim depreciation on - computers, networking gear, printers and NAS, computer desks and chairs, filing cabinets, shelving units for work use, etc.  You can try to claim anything you want, but if you get audited you have to show that it's used for the business, so a couch probably wouldn't be allowed (unless you're a psychiatrist?).  Oh, and this stuff is called CCA, or Capital Cost Allowance.

Second, there's things that you rent or pay monthly for (servers, internet connection, mobile phone used for office, software subscriptions, professional insurance) that you use only for your business; these can be written off at full value.  The key here is that if audited you need to show that these were exclusively or almost exclusively used for the business.  For instance, if a doctor's office has TV service in their waiting room, they can write off the cable bill, whereas my cable bill at home is presumed to be for my private enjoyment not my customers', and therefore I can't write it off.

Third, there's business-use-of-home expenses (rent, lot rent, gas for heat, electricity, water and sewer, garbage disposal, home insurance).  This is the stuff where you have to work out the percentage of the home used for your business, and then you can only claim a percentage of those expenses - the rest is considered personal expenses for living rather than expenses for carrying out your business.  They say to look at the square footage of your home and determine how much of it is used for work, and if the work area is also a living area (for instance, if you work in your living room and also watch movies after work in your living room then it's not being used for work 100% of the time) then you have to do some math with how many hours in a day you work divided by how many hours there are in a day.  However, in my big house I simply put 25% and screw the math; I'm sure you can do the same.  Lets say your rent is $400 a month and you say that 25% of your house is used for your business; that means you can write off $1,200 ($100/month for 12 months).  If you own your place and have a mortgage, you would write off 25% of the mortgage interest and 25% of the property tax.

Fourth, there's incidental expenses (travel expenses to visit a client site, meals when meeting with clients, office supplies like pencils and paper and paperclips, mailing costs, etc).  As long as you have a receipt for these you can write them off directly as well.

I don't think you can claim the couch or TV stand, but the computer desk and shelves make sense.  Renos to the trailer can't be claimed because you don't own the property you're improving, but if you're friendly with your landlord they could increase your rent and then let you pay part of the rent via the renos; although that will mean they have higher income on paper and therefore a higher tax bill.  New appliances can only be claimed if you're using them for the business - for instance if you had a laundromat service then washing machines can be written off.

Anyway, I think you should first go list all the computers, keyboards, mice, networking gear, external drives, comptuer desks, computer chairs, and other office furniture you have, determine how much they would cost to replace, and write that down; when you're done, determine what CCA class they fall in (most likely the 55% computer class and the 20% furniture class).  Do the math and write down how much depreciation you can claim this year.  Then list all of the monthly bills that are solely for the business, such as internet, mobile phone, software subscriptions, server rentals, and professional insurance.  Do the math and write down how many business bills you can claim this year.  Last but not least list your rent, lot rent, gas bill, power bill, home/renter's insurance, water bill, garbage bill, and any other household bill that your business also uses (home phone and cable TV are normally excluded), multiply by 25%, and write down the total as how much you can claim for business-use-of-home expenses.

And if anyone asks, you started operating as a self-employed person on January 1st of this year; that makes the math a lot easier, otherwise they'll make you take all your write-offs and reduce them by how many days out of the year you weren't self-employed.

Hopefully that all made sense, feel free to ask further questions

[Thorin]

Oh, I forgot to mention, keep track of exactly how much you paid for bank fees including the cost to convert USD to CAD - this is a direct business expense that you simply write off.

Also, this is helpful to know: employees pay 4.95% of their income into CPP, with the employer paying an equal 4.95% of the employee's income.  As a self-employed person, you pay both these amounts, i.e. 9.9%.

[Tom]

I figured a lot of the stuff I thought up wouldn't pass

So I can't claim any of the internet or my phone. Good to know.

[Lazybones]

If you are going to claim bank fees make sure you print or save the statements... Don't trust they will be online.

[Tom]

If you are going to claim bank fees make sure you print or save the statements... Don't trust they will be online.

There's no explicit statement for them. I deposit a US funds check, and it states on screen that there'll be a fee, and then the rest of it is all displayed in Canadian after the fee is taken out. So all I have are my invoices, and the deposit amount.

[Thorin]

I figured a lot of the stuff I thought up wouldn't pass

So I can't claim any of the internet or my phone. Good to know.

(emphasis mine)

Second, there's things that you rent or pay monthly for (servers, internet connection, mobile phone used for office, software subscriptions, professional insurance)

[..]

list all of the monthly bills that are solely for the business, such as internet, mobile phone, software subscriptions, server rentals, and professional insurance

I said it twice...  Maybe it was just a wall of text and I should've broken it down more.  Internet is absolutely a 100% business bill, as is any phone other than your house phone (which is VOIP for you, isn't it?).

As for cheque-cashing fees, if they're not on the statement then call the bank and demand that they give you some kind of statement that does show them.  Banks in Canada are not allowed to charge you a fee without disclosing to you somehow, somewhere, how much they charged you.

[Tom]

I figured a lot of the stuff I thought up wouldn't pass

So I can't claim any of the internet or my phone. Good to know.

(emphasis mine)

Second, there's things that you rent or pay monthly for (servers, internet connection, mobile phone used for office, software subscriptions, professional insurance)

[..]

list all of the monthly bills that are solely for the business, such as internet, mobile phone, software subscriptions, server rentals, and professional insurance

I said it twice...  Maybe it was just a wall of text and I should've broken it down more.  Internet is absolutely a 100% business bill, as is any phone other than your house phone (which is VOIP for you, isn't it?).

As for cheque-cashing fees, if they're not on the statement then call the bank and demand that they give you some kind of statement that does show them. 

Emphasis mine

Banks in Canada are not allowed to charge you a fee without disclosing to you somehow, somewhere, how much they charged you.

They do, but its only on screen, before the final transaction is made. It doesn't get printed to the receipt, and there's no trace of the original US funds in my account history. The machine essentially does the conversion separately before the deposit.

[Thorin]

internet is too hard to determine what portion is for business and what portion is for home (who sits and counts packets?), so that one's always allowed as a full bill.  Mobile phone is pretty easy to claim as needed for the business, since you have a home phone that you use for all your personal calls.  Claim 'em both, they'll hold up to scrutiny if you're audited (I have yet to be, it's pretty rare to get randomly audited).  The TV on the other hand would be difficult to prove you need for your business, unless you have a different TV somewhere else in the house that you can say you use for personal use.  But they'd call BS on that, I'm sure.