Income tax can be a scary thing, but knowing what expenses you can and cannot write off can remove a lot of that fear. And writing off everything you are allowed can also lower your tax bill.
A great rule of thumb is to be organized, keep a detailed appointment book, and save all receipts, bills, etc., in one place. If you’re a spreadsheet person, then you can enter them yourself and save time/$ at tax time.
Most RMTs know they can write off dues, insurance, office supplies, and the costs of supplies like lotions, balms, sheets, towels and equipment like tables and chairs, but there are a few areas where it isn’t as clear.
Here are a few of the most common ones I see.
As a self-employed person, you are allowed to write off expenses relating to travel. Errands made specifically for practice-related activities (pick up supplies/equipment, etc), if you drive to a course, trips between clinics/clinc-to-house-call, would qualify.
Additionally, if you can prove that your house is the home base of operations for your practice, then the expense of travelling elsewhere to earn income (house to clinic or house to house call) is deductible.
For example, if all your files are updated and stored at home, if your household landline (I know, a disappearing trend, but some still have one) is the # you have on your business cards, if you communicate/schedule clients mostly from home and/or if a good part of your practice is carried out in a home treatment room, then you would be able to write off the commute to a clinic/space you also work out of. If you just have a home office and pretty much all your clients are treated at a single clinic or rented space, you likely wouldn’t qualify.
There are two ways to report those trips that do qualify – % of use or mileage.
For % of use, you keep all your receipts pertaining to the automobile in question (lease/loan interest, insurance, plates, repairs, oil changes, CAA, etc) and establish a percentage use of the vehicle for work activities. The CRA has been cracking down in the last few years and challenging the % people are reporting so if you go this route, you need to keep a log for a year showing all trips taken and whether they were business or personal, then do the math for work percentage use. In subsequent years, you need only do it for 3mos to demonstrate the % hasn’t significantly changed. Bit of a pain, but this is the only really acceptable backup for the CRA should they question you.
The other way is simply to track mileage. This works easiest if you do a lot of repeat business – count the # of trips in a year and multiply by the return mileage base-to-dstination times the allowable rate ($0.55/km for 2015). If you do a lot of non-repeat business and for other errands, a trip odometer and googlemaps are wonderful things.
If your commute to work is more than 40km* then you are also allowed a meal expense. Either keep your receipt for whatever you buy, or use the CRA’s per diem rate of $17/meal (times 50% as with all meals and entertainment expenses).
The cost of the course, mileage to/from the course and if the course runs more than half a day, a meal allowance, are all allowable.
Home Office/Home Treatment Room
You can write off a percentage of your household bills if you have a home office and/or treatment room. Add up all your house expenses – mortgage interest/rent, property tax, insurance, all utilities, any repairs & maintenance, etc. For the % of use, use square footage or your best estimate of how big the work space(s) is relative to the whole house. Fifteen to twenty percent is the usual.
If you use your cell for work, you can write off a % of all your bills. Again, you need to be able to defend the % you choose if you ever get audited so be honest. Even 10% of $50/month helps get those taxes down.
If you are an HST collector, then you want to back the tax out of all expenses (these are called Input Tax Credits) and use their total to reduce the HST you owe. Use the pre-tax amount for your write-off.
If you are not an HST collector, then you want the total paid – including HST – as your expense amount. Remember that there’s HST on household utilities, cellphone bills and gasoline receipts. There is none in your CMTO dues.