24 - Wednesday, September 2, 1992 —- North Shore News

‘Tax planning pays off for self-employed

WHEN YOU go into business for yourself, be sure you
pay eriough attention to the business of saving income tax.
Self-employment, whether full time or as a sideline, opens
up a wonderful world of tax planning denied to the ordi-

nary employee.

“In these difficulk: times, many
people are turning hobbies into
sources of extra income,’ said
Elio Luongo, tax manager for
KPMG Peat Marwick Thorne,
chartered accountants.

“Other people, who have been
laid off or forced to retire early,
are going out on their own
because they can’t find another
job.”*

As long as your activities are
considered a business with a ‘‘rea-
sonable expectation of profit,”
you may deduct virtually all ex-
penses incurred toward reaching
that profit.

“In fact, if your expenses ex-

ceed your income, you may use.

those business losses to reduce
your employment, investment and
pension income — and reduce
your income tax,"’ said Luongo.

AS we continue our anpual tax
tips series, note this information
can help get your planning under
way. But you will probably neéd
to do more research and possibly
consult with a tax expert before
rearranging your finances or tak-
ing other steps.

Your business can have a
year-end other than Dec. 31,
Luongo said, so choose carefully
when you start out. The year-end
determines when you report the
income. '

‘*For example, if your business
year runs March 1, 1992 to Feb.
28, 1993, you report the income
only when you file your 1993 tax
return,’’ he said. ‘‘So you
wouldn't have to pay tax on that
‘business income, most of which

Michael
Grenby

DOLLARS AND SENSE
was earned in 1992, until April 30
1994,

“Of course, if you expect losses
during the first years, you may
want to avoid deferral. So you
could choose a Dec. 31 year-end
and claim those losses as soon as
possible against your personal in-
come.””

Paying family members —
spouse, children, perhaps even a
parent or other relative — in a
lower tax bracket than you is
another way to save tax, said
Luongo. *‘This shifts inecme out
of your hands into theirs, and
they will pay less tax and in some
cases none at all.”’

However, they must actually do
some work and be paid the fair
market value for their services. As
an employer, you must withhold

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‘WOODWARDS:

and remit required payroll
deductions.

Claim all reasonable expenses
incurred in the operation of your
business and keep all receipts on
file.

When yeu take a client or
potential client out for a meal,
you may deduct only 80% of the
expense.

“This limitation also applies to
business entertainment expenses
like theatre, concert or sporting
event tickets,’’ Luongo said.

You may deduct the cost of a
vehicle you use for business pur-
poses. If you mix business and
personal use, keep a log and claim
the business percentage of the
total expenses.

“If you drive from home to
your place of business, that’s con-
sidered personal use,’’ Luongo
said. ‘Instead, try to plan the day
so you don’t go directly to and
from home. If you stop at a sup-
plier or client on the way, the trip
will be considered business use of
the vehicle.”’

To avoid the possible limit on
the amount of interest you may
claim if you take out a loan to
buy a car, try to pay cash for the
car and borrow money for other
business purposes, Luongo said.

Having a home office entities
you to deduct a reasonable por-
uon of expenses like repairs and
maintenance, electricity, heating,
water. rent or mortgage interest,

any

property taxes and insurance.

You may also claim deprecia-
tion although this could endanger
the principle residence exemption
of your home.

Make sure your home office
meets Revenue Canada’s defini-
tion, (see page 17 of the Business
and Professional Income Tax
Guide; ask your loca! tax office
for a copy).

You aren’t allowed to use home
office expenses to create or in-
crease a self-employment loss, but
may carry them forward to a
future year.

You may want to register for
the GST even if you don’t have to
Gif business revenues don’t exceed
$30,000 a vear). You'll face some
paperwork but will then be able to
get back the GST your business
pays on its purchases.

Mike Grenby is a North
Shore-based columnist: and in-
dependent financial adviser. who
works with individuals; he will
answer your questions as space
allows.— Write to him c/o The
North Shore News,, 1139 Lonsdale
oe North Vancouver V7M

Chopper rides raise funds

THE NUMBER of children in-
fected with the HIV virus con-
tinues to climb, and so does
the need for research dollars.

In an attempt to respond to,

much-needed funding. radio
stations 97 KISS FM = and
Country 1130 CKWX, as well
as Lower Mainland businesses
BC Tel Mobility Cellular and
Vancouver Helicopters, have
come up with a unique and ex-
citing way to raise money.

It’s called Chopper Rides for
Charity, and for a minimum
donation of $360, people can
ride over rush-hour traffic in a

helicopter with reporter Katie
Rebak,

Individuals can book a flight
for friends and co-workers, or
simply indulge in the adventure
themselves.

Donations are tax deductible

and will help support HIV
research, services, education
and hope. .
The fundraiser takes place
from Monday, Sept. 14 to Fri-
day, Sept. 25. and early book-,
ings for flights are advisable:

For more information and to
schedule a flight call 877-4426
or 877-4425.

Hehe stops you,”
it’s. a life sentence