Canadian tax question - urgent

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consultantjournal
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Canadian tax question - urgent

Postby consultantjournal » Mon Apr 30, 2007 4:15 pm

Hi -- if I have too many medical expenses and CCA credits (for small business), why do my taxes increase if I reduce the CCA at all? I don't want to carry forward the medical to next year, as much of it is from last year. CCA can be carried forward for many years. But, if I have too much CCA, why do my taxes increase when I reduce it?
Andrea Coutu
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Postby consultantjournal » Mon Apr 30, 2007 4:54 pm

I should add that the tax deadline for self-employed people is June 15, so this is urgent, but not due today!
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lostmind
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Postby lostmind » Mon Apr 30, 2007 6:03 pm

From my understanding (and it's been 10 years since I took a taxation course) CCA (Capital Cost Allowance?) is essentially depreciation expense... the more expense you have, the less tax you pay... so when you reduce the CCA you claim, your taxes should go up? It would make sense if the equation is something like: Income - Allowable deductions (CCA and whatnot) = Taxable Income and then Taxable Income * Taxation rate = Taxes due (grossly simplified)? If your taxable income is higher, then you will be paying more taxes...

I believe you can carry forward CCA without penalty if you wish - so you don't have to claim it this year if your income is low or something.

However, this is one area where I find real value in paying an accountant to do my taxes. I filled out my own taxes and thought I owed nearly $9k. Paid $200 to an accountant to go over things and she managed to get me an $87 refund. And I took advanced accounting at BCIT - there was several tax courses and I aced them all! Lol, goes to show that a professional who deals with the subject everyday has an advantage over those of us who just think we know all the allowable deductions and strategies. Of course, I should disclose that my situation is possibly not the norm, as I own 3 companies and thus have several sources of income and a bunch of deductions available.

consultantjournal
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Postby consultantjournal » Mon Apr 30, 2007 7:16 pm

lostmind wrote:From my understanding (and it's been 10 years since I took a taxation course) CCA (Capital Cost Allowance?) is essentially depreciation expense... the more expense you have, the less tax you pay... so when you reduce the CCA you claim, your taxes should go up? It would make sense if the equation is something like: Income - Allowable deductions (CCA and whatnot) = Taxable Income and then Taxable Income * Taxation rate = Taxes due (grossly simplified)? If your taxable income is higher, then you will be paying more taxes...

I believe you can carry forward CCA without penalty if you wish - so you don't have to claim it this year if your income is low or something.

However, this is one area where I find real value in paying an accountant to do my taxes. I filled out my own taxes and thought I owed nearly $9k. Paid $200 to an accountant to go over things and she managed to get me an $87 refund. And I took advanced accounting at BCIT - there was several tax courses and I aced them all! Lol, goes to show that a professional who deals with the subject everyday has an advantage over those of us who just think we know all the allowable deductions and strategies. Of course, I should disclose that my situation is possibly not the norm, as I own 3 companies and thus have several sources of income and a bunch of deductions available.


THanks.

Well, I have a ton of family medical expenses, so I have a ton of unused non-refundable tax credits. Quicktax is telling me to use those credits instead of CCA. But when I decrease my CCA, the taxes go up. If it's true that I have unused non-refundable tax credits, my tax shouldn't change. Right?

I have used an accountant for 5 of 10 years. However, of the two accountants I've used, neither has ever saved me money. I decided to do it myself this year. However, this niggling CCA issue is a problem. Quicktax tech support doesn't even understand what I'm asking and they won't escalate my question to an English-speaking person who has proper training. I've already talked to three of their reps who are unable to help and disconnect me from the service as a way of escaping the question!
Andrea Coutu
Consultant Journal
www.consultantjournal.com

consultantjournal
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Joined: Wed Apr 04, 2007 9:50 pm
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Postby consultantjournal » Mon Apr 30, 2007 10:58 pm

I've determined that, while deferring CCA did not increase my federal or provincial taxes, it did increase my pensionable income. Thus I had to pay more CPP premiums. I wonder if it is better to pay more CPP or to carry CCA forward? I ended up using the CCA so I had lower CPP, but I have no idea whether this was the way to go!
Andrea Coutu
Consultant Journal
www.consultantjournal.com


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