28 - Wednesday, August 24, 1988 - North Shore News

AT ONE time or another,
most of us dream of being
our own boss, running our
own business from home. °

Few of us, however, complete
the daydream with visions of los-
ing money. Yet, in fact, that’s ox-
actly what happens to most small
businesses for a period of time be-
fore they become profitable.

On start-up of an unincor-
porated, small, one- or two-person
family business, for example, you
probably will claim losses for a few
years on your tax return before
you will begin paying taxes on
profits. In order to legitimately
claim such losses, however, there
are certain tests you must pass to
the satisfaction of Revenue
Canada, who may not question
your losses until three or four

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The first of these tests is to
establish that your activity does, in
fact, constitute a business, not a
hobby, and that there is a reason-
able expectation your business can
turn a profit. When trying to
assess a reasonable expectation,
the taxman takes into account a
number of issues. These may in-
clude your training, your intention
to make a profit at the time of
starting the business, whether the
business is sufficiently capitalized,
and whether you run it in a
businesslike manner, for example,
having a business plan.

Revenue Canada also will throw

.into the equation the profit and

loss record of the business over all
its years in operation.

If you pass these tests, Revenue
Canada will then try to determine

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whether all the expenses you
deduct are, in fact, deductible.
And this is where a number of
taxpayers run into trouble.

Expenses incurred to earn
business income (which also in-
cludes a loss) are deductible. These
include, for example, day to day
expenses for office supplies, salary
to an assistant, the cost of enter-
tainment and travel, and interest
expense on business loans. They
also include depreciation (also
called capital cost allowance) on
business assets (capital costs or ex-
penditures) such as the purchase of
office equipment — computers or
office furniture, for example.

You also are permitted to deduct
expenses related to operating your
business from your home. If you
own your home, a portion of the
interest on the mortgage is an

Let's say you lose your glasses. Or let's
say you break your glasses An extra pair can

sure come in handy

And when you buy a pair of glasses at
Western Optical, you can choose a spare pair
from Western Opucal’s Special Collecuen
for only $20, Single vision lenses

Tinting extra.

So let's say you need a pair for indoors,
and sunglasses for reading and another for

allowable deduction. If you rent, a
portion of your rent is allowable.

A percentage of your utilities,
property taxes and insurance also
qualify. When deducting such ex-
penses, you must apportion them
according to business and non-
business uscs on a_ reasonable
basis. If you use two rooms in
your eight-room home as offices, a
reasonable formula for apportion-
ing costs could be to assign one-
quarter of allowable expenses to
the business.

It is important for the small
business owner to be fully aware of

what constitutes a legitimate
business expense. If Revenue
Canada concludes that you’ve

taken too many deductions or
deductions that you shouldn’t
have, you not only must pay the
taxes you are considered to owe,

Si

en
ess

but you also will be charged inter-
est on the amount owing. And,
since the rules for deductions for
the self-employed are likely to
become tougher in 1988, it’s a
good idea to stay alert to the com-
ing changes.

Moneycare is general financial
advice by Canada’s chartered ac-
countants. Margaret Dunn is in
Practice in Toronto.

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everything else. Or one for the office,
another pair for sports. One for dressing up,

another for dressing down. Whatever your

reason, buy a pair and get the spare for only
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Offer expires August 31, 1988.

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