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Fredericton Daily Gleaner ~ Capital Appreciation ~ Self Employed Deadline ~ June 14, 2006 - 10 Jul 2006 by TaxHelp

Self Employed Filing Deadline – Thursday, June 15, 2006.
Roger Haineault

There are many reasons to pursue the path of self-employment – one of the minor and yet not inconsequential for procrastinators is the deferred tax filing deadline. Those that operate their own business (and their spouses) have until June 15 to submit their tax return, and still be considered on-time. That gives me and the others lots of time. After all, we still have until midnight Thursday. It feels even longer if I count by the hours.

That being said, for those of us who owe at that time, the only way to avoid the late filing penalty is to face the music and get it done. If not, first time offenders can expect to pay a fine of five per cent of the unpaid balance plus one per cent per month. Interest has been accumulating since May 1, the Balance-Due Day for the rest of the taxpayers this year.

Many years ago, sole proprietorships and partnerships could select a fiscal year that did not necessarily coincide with the calendar year. To some it was poetry in motion. You could start a business in February and collect 11 months of revenue and profits. And because the business year-end was only in January of the following year, the subsequent tax liability was payable not in the April that followed the start of the business in February, not in the following April, but in the one after that. It would be like earning income last February and not paying the taxes on it until 2008. You’d think it was almost like tearing a page out of the Ho-Ho-Hold the Payments store’s manual. Alas, while the government still allows one to select a non-calendar business year end, they’ve moved to stop all the deferral of unpaid taxes.

As a result, many accounting, bookkeeping and tax practices will be working overtime in the next week or so. You can help yourself if you’re filing by making sure that you have complete records. One of the areas that are most often reviewed by our friends at the Canada Revenue Agency (CRA) is auto expenses. Your best defense is to have a completed vehicle logbook.

While you would think that it is obvious if a car or truck is needed in your business, the problem is in quantifying the amount of the claim. A logbook provides a place for one to record their relevant expenses by the day, month and ultimately, year. It allows one to record the routine like gas and oil, regular maintenance, repairs and car payments and more intermittent expenses such as insurance and vehicle registration.

At one time a logbook, while welcomed, was not always necessary. There was a willingness to reconstruct the expenses based on the travel required by the business. However, recent discussions with the Agency and court findings point more to the seriousness of their resolve. Two Tax Court of Canada cases illustrate the point. In “Juralowicz v The Queen” the CRA denied the claim for the vehicle. The taxpayer meanwhile had maintained a vehicle log and was able to differentiate between reimbursed auto expenses and those that the taxpayer had underwrote. To further emphasize the point, in “Pedersen v. The Queen” the taxpayer claimed travel expenses but was not able to document them with a logbook. While the judge was convinced that there were legitimate expenses, the court found against the taxpayer since there was no adequate evidence to document the claim.

More than seven per cent of all returns filed here in New Brunswick have income from self-employment. For those who choose this option, the benefits are many. The sense of accomplishment is great and the potential tax relief is significant. However, to take full advantage of the laws, make sure you document your efforts!

Roger Haineault is with Help 4 Taxes. He plans on filing his taxes late Thursday evening. You can contact him by phoning 1 (888) 450-1212 or by email at roger@help4taxes.ca if you need a no-charge logbook to spend your last days with.