Saying Goodbye to 2021
The year is finally behind us and it's time to say goodbye. I don't know about you, but I'm ready. I'm ready to leave 2021 and get ready for the exciting opportunities that are in store for us in 2022!
However, before we can do that, we need to finish off our books for 2021. We'll cover the usual things that you should look at as the year winds down. We will also cover things that are specific to COVID-19, such as the wage and rent subsidies, CERB and CEBA.
Let's dive right in.
Get Organized
Let's get a sense of where we are financially at the end of the year. That means you're running a few financial reports in your accounting software, including:
an income statement
a balance sheet
a cash flow statement
You'll be able to review those reports and think about what you need to change in the new year. Are your profits lower than expected? You may need to make some operational changes to address that. Are your profits higher? Than maybe it's time to make some purchases and invest back into your business. (Note: always talk to your accountant before you make any big purchases.)
Organize Your Write-Offs
Ideally, you have been saving your receipts and tracking your expenses all year long. If not, now is the time to do so. When you organize your write-offs, it's a great time to go through and see if there is anything that needs to be done.
You want to make sure that you have not missed anything. Every single expense that you don't properly track is more taxes that you have to pay. No one wants that!
If you haven't done so yet, you're going to want to make sure you download our tax return prep checklist that covers the different things that you need. It includes a great checklist of different types of business expenses, including: advertising, auto/transportation, charitable donations, home maintenance, insurance (business & home), interest paid, legal, accounting and professional fees, meals, entertainment, office expenses, professional development, professional dues, memberships, property tax, utilities, rent or mortgage interest, software, and subscriptions.
COVID-19 Considerations
The government provided many programs for self-employed individuals and businesses during COVID-19. Let's outline these programs and how they will affect your taxes.
CRB, CRCB, and CRSB (Canada Recovery Benefit, Canada Recovery Caregiver Benefit, Canada Recovery Sickness Benefit)
CRB (Canada Recovery Benefit) replaced the CERB and is for employed and self-employed individuals whose income is affected by COVID-19 and are not eligible for EI.
The other two programs are for employed and self-employed individuals. It supports those who cannot work because they have contracted COVID-19, have to isolate or care for a family member who has COVID-19, or have an underlying health issue that puts them at greater risk of contracting COVID-19.
The CRA withheld 10% for each of these programs when it was paid out, however, that does not mean it's all the taxes you have to pay. CRB must be included in your taxable income on your tax return.
Additionally, if you earned more than $38,000 in 2021, and received the CRB, you must repay $0.50 for every dollar you earned in excess of $38,000.
CEWS and CERS (Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy)
Both of these programs were designed to help keep businesses open during the pandemic and lower operating expenses. Any amounts received for either of these programs are taxable for income tax purposes ad must be included on your personal or corporate tax return.
In terms of timing, the Income Tax Act deems the business to have received a payment immediately before the end of the period it relates to, not when you applied for it or received it. So, if you apply for a wage subsidy in February 2022 for a period ending in December 2021, it would be included in your 2021 tax return.
The CEWS is taxable for income tax purposes. Employers must include the amount of CEWS received as taxable income on their personal, corporate or partnership income tax return. In terms of timing, subsection 125.7(3) of the Income Tax Act (ITA) deems the qualifying entity to have received a CEWS payment immediately before the end of the qualifying four-week period it relates to — and not when it was applied for or received.
CEBA (Canada Emergency Business Account)
Loans up to $60,000 were made available under the CEBA in two phases. Up to $20,000 of the loan may be forgiven if you meet the program's conditions and the outstanding loan balance is paid off by December 31, 2022.
The forgivable part of the loan is included as income in the year that it was received. However, if any part of the loan that is forgivable is repaid (i.e. certain requirements were not met), then that would be a deductible.
Start 2022 off on the right foot!
I truly believe that there are many exciting things in store for 2022 and I want all of you to start off the year on the right foot. So make sure you're organizing yourself now to be able to have a smooth tax season and so that you can leave 2021 behind you.
If you want to talk about your taxes, your business finances or how you can strategize for a strong 2022, I would encourage you to book a call here so we can talk some more.
