I found out about depreciating assets and wsib the hard way my first year.
I was doing quite well so I bought an enclosed trailer, then a used van, then a bunch of tools. I was drawing a salary of $1000 a week as a sole proprietor not incorporated. Planning to pay tax at the end of the year on $52,000.
Nope all the assets get added to income. My personal income.
Taxes owing on $145,000 income was considerably more than I was expecting.
Part two
I was paying wsib on my own income based on my $52,000 a year salary.
Ahha but now my income was $145,000 with all those assets. So wsib audits me and wants another 8% on the difference.
Then wsib find I paid a few sub trades that didn’t have wsib. So I owe on them as well. The invoice from my sub trade did not break out material and labour.
So you pay wsib on the full invoice Including materials
I had a good first year but second and third years were spent paying for the mistakes made in that year.
Now I and my wife are employees of my limited company and have a regular pay checks like the others and try to keep the business as separate from me as possible.
The truck, trailers, tools and van belong to the company and any invoice from sub trades must have a line for materials and one for labour as well as your wsib clearance and hst number. I have made exception on the wsib of some trades but always break out labour and material so I only have to pay on the labour portion.
Sorry to go on and on but I like forwarding those lessons I wish I had of known
Ivan, is that you???
That sounds like the predicament he's in. He's a super guy and does A-1 work but naive, thinking the government has his interests in mind.
It doesn't help that the first accountant he came across screwed him royally. It would be nice if the police took a few cops off of radar duty and took on a few fraud cases instead.
The vehicle is about the only predictable asset in the system. Basically, you pay a rip off standby charge if you have access to the vehicle after working hours. The numbers are sickening, especially if the vehicle is a massive van full of tools. The government says if you have a vehicle parked in your driveway you could use it to pick up a case of beer from time to time. Hertz would want big money to leave a vehicle in your driveway so you get a big taxable benefit. Two percent of the vehicle value per month if owned and two thirds of the lease cost if leased.
Quality tools cost decent bucks and a full time tradesman can't get away with cheap battery tools.
Rubbing salt in the wounds, when you start out they only allow you half the depreciation because you didn't have the asset the full year. Because you're a day short of a full year you only get half the depreciation. It makes a huge difference in cash flow.
Interesting little tidbit:
I was involved in the construction of the Sun Life Towers at King and University and noticed all the lights were connected by twist-lock plugs. I thought it was to cut the electricians out of the service loop.
Instead it was more related to depreciation. If a light is wired in hard it's a fixture, a part of the building, and gets depreciated at 4% per year. If it gets plugged in it is a lamp and gets a 100% write off. When there's six figures of lights it means a substantial improvement in cash flow for the owner.
In my case, once I found out how badly they were going to tax me I transferred the Astro van into my name and paid myself mileage. It was also less paperwork. The transfer was not unlike a father to son deal with no safety or sales tax.
If I kept the van in the company name I would be paying 2% taxable benefit a month on a $30,000 vehicle, even when I had racked up 250,000 km on it, it was six years old and worth $2,000.
Re WSIB, I incorporated and paid myself wages, paying a percentage to them. I never had a claim but was audited once. The very nice Polish lady found two errors. One said I owed them $300 and the other they owed me $700. She said to ask for a cheque because the credits get screwed up.
All this legislation from a bunch of arrogant pricks that work(?) seven or eight months a year, getting undocumented expense allowances, housing allowances and free lunches.
