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Accounting question
- Thread starter nobbie48
- Start date
matt365
Well-known member
Pretty sure you don't depreciate tools, just write them off entirely if they're business related.
Thats the way I do it.
I'm a self employed licensed carpenter and general contractor.
You can write off a work truck (or van) over a 5 year period. Depreciation of the original purchase price, spread over 5 years.
Insurance, work phone, vehicle maintenance, fuel (% determined for business use), work clothing, office supplies, work meals -its all the cost of doing business. Comes off the top.
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Thats the way I do it.
I'm a self employed licensed carpenter and general contractor.
You can write off a work truck (or van) over a 5 year period. Depreciation of the original purchase price, spread over 5 years.
Insurance, work phone, vehicle maintenance, fuel (% determined for business use), work clothing, office supplies, work meals -its all the cost of doing business. Comes off the top.
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My accountant generally wants under $100 as an expense and over that as an asset to be depreciated. Tools in a contracting business may not follow that pattern. When I was in that game many tools wouldnt last a year (either stolen or broken), depreciating them over a long period wouldnt make sense.
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sburns
Well-known member
Check out the CRA website, it should have a list of items which can be written off /claimed for tax purposes. It's one of the few gov sites which is worth looking at. Pretty sure @matt365 has it correct. Plus you are constantly buying new gear all the time, keeping track of depreciation wouldn't be worth it, unless it's a really high ticket item.
We just expensed tools as the jobs came up and never used them as an asset to be claimed over an extended period of time.
As @GreyGhost mentioned tools are broken, stolen, etc all the time. Impossible to track to such detail depending on size of operation.
Unless your ‘tool’ is your car, boat, or something large and substantial. Let’s say 20-50k minimum. Then that’s a diff story.
Regular tools…expense as they come.
As @GreyGhost mentioned tools are broken, stolen, etc all the time. Impossible to track to such detail depending on size of operation.
Unless your ‘tool’ is your car, boat, or something large and substantial. Let’s say 20-50k minimum. Then that’s a diff story.
Regular tools…expense as they come.
It kinda tricky. Our general rule has been anything over $500 gets entered into a depreciation file. Things like my Festool drywall sanders at around $2000 each have a life span of 3 to 4years so they get depreciated over time. My aluminum brake will last me 20 years so again depreciated over time. If you can justify that a tool will not last the year regardless of cost you can depreciate it over a shorter time. As for vehicles and fuel you should keep a log of work vs personal but most small business owners that I know just use a percentage that seems reasonable.
ie we have a personal car that is not a right off, my truck and it’s fuel I use 20/80 persona/ business but my van is 100% business.
You really can claim what ever you like but you best keep it reasonable or they start to ask questions and that sucks even if they don’t find anything.
Just the time and stress dealing with cra or even wsib will take years off your life.
I bought a hot tub this year and wanted to right it off as an expense in the depreciation file. I’m getting older and feeling sore after a hard day.
My accountant said not unless I’m opening a spa
On the other hand there is a reason I’m ok with having a truck payment for a nice work truck but the family car is bought with what ever I can find in the couch.
ie we have a personal car that is not a right off, my truck and it’s fuel I use 20/80 persona/ business but my van is 100% business.
You really can claim what ever you like but you best keep it reasonable or they start to ask questions and that sucks even if they don’t find anything.
Just the time and stress dealing with cra or even wsib will take years off your life.
I bought a hot tub this year and wanted to right it off as an expense in the depreciation file. I’m getting older and feeling sore after a hard day.
My accountant said not unless I’m opening a spa
On the other hand there is a reason I’m ok with having a truck payment for a nice work truck but the family car is bought with what ever I can find in the couch.
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
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
The best tool your new contractor friend can have is an actual account, or at the minimum a bookkeeping service that is familiar with a contracting business .
It’s substantial, wsib, personal tax obligations, the cost of the bookkeeping service , if a corporation is formed / the annual audit fees, permits if your municipality requires them to operate a business .
There’s a reason there are so many moonlight construction crews , doing it right is a lot of work and expense .
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It’s substantial, wsib, personal tax obligations, the cost of the bookkeeping service , if a corporation is formed / the annual audit fees, permits if your municipality requires them to operate a business .
There’s a reason there are so many moonlight construction crews , doing it right is a lot of work and expense .
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matt365
Well-known member
This is why I keep mine simple. I work for a homeowner, not another business, so I don't need wsib. I pay my own accident benefit insurance. The second I work for another contractor, I need wsib for at least a 6 month period (as far as I understand...)
I recommend subtrades, I don't have them bill me, they bill the homeowner directly. No liability for me, but I also can't make a % on their work (which I'm fine with), and their wsib is none of my concern. I make a bit less, but have far less hassle.
I'm sole proprietor. My taxable income is calculated at the end of the year.
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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.
In case someone doesn't understand the depreciation angle...
Theoretically, a machinist is offered $200,000 a year to rework someone else's parts. He needs to buy a $150,000 machine and will need $50,000 to house it. Having $200,000 in savings he goes for it and his wife's job will put food on the table for a year.
He figures if he spends $200 K and makes $200 K so no tax the first year. After that it's tax on $150 K. Nice and simple for the working stiff.
The reality is the machine can only be depreciated at 30%, 15% the first year, so the government says his costs are only $77500 and he owes tax on $127500, probably around $40,000. He has to borrow it from the bank.
Theoretically, a machinist is offered $200,000 a year to rework someone else's parts. He needs to buy a $150,000 machine and will need $50,000 to house it. Having $200,000 in savings he goes for it and his wife's job will put food on the table for a year.
He figures if he spends $200 K and makes $200 K so no tax the first year. After that it's tax on $150 K. Nice and simple for the working stiff.
The reality is the machine can only be depreciated at 30%, 15% the first year, so the government says his costs are only $77500 and he owes tax on $127500, probably around $40,000. He has to borrow it from the bank.
No not Ivan but I’m sure many of tradesmen have fallen victim to the system.
once you get the rules of the game figured out it’s not that bad.
The first year is the hardest but it typically takes about six or seven years for the boat to stop rocking.
I take it you have no employees either then.
That would make it simpler for sure.
I have two full time employees plus myself and the wife as employees of the company. We do mostly residential renovation. But we started out doing insurance restoration for some larger companies This required wsib right from day one. We have now done a couple small commercial projects and we have done a few kitchen installs for my cabinet supplier. I have also run into needing wsib for working on a rental or a flip property as those are technically a business.
The new van is 100% right off as it is taken home by my Carpenter
It’s not a taxable benefit for him as he is on call and requires his van to be at his home to be dispatched from there.
My truck is my daily and I only right of 80% of the expenses tied to it as it works Monday to Friday with a few Saturday and Sundays in the mix.
After my first audits in my early years they hounded me for a couple years trying to catch me again. All has been good since and they seem to be ok with how I’m doing it now.
You can draw a small wage and the reap the benefits from your business without raising to many red flags.
You get your salary
You get a truck 80% tax free
you can use a lot of company fuel within reason
Any tools get purchased by the business includes lap tops, iPads, phones, work pants, boots, jackets, some household items cleaners ect.
there is a reason I mostly dress like a carpenter 24/7
I generally try to find as many things as I can to let the business buy and keep my personal income as low as possible.
This can be a double edge sword though.
When You go to a bank and want to borrow money to buy something big.
You have been claiming a low household income you can’t qualify for much.
Fortunately I bought my house many years ago while I had a job and I don’t want anymore debt.
In the first couple years back in early 2000’s I tried to get a business LOC to grow. I showed the bank how good that first year was. Their reply was great do that for another 5 and we can talk. Hide your income better and in 5 years you won’t need their LOC.
You get your salary
You get a truck 80% tax free
you can use a lot of company fuel within reason
Any tools get purchased by the business includes lap tops, iPads, phones, work pants, boots, jackets, some household items cleaners ect.
there is a reason I mostly dress like a carpenter 24/7
I generally try to find as many things as I can to let the business buy and keep my personal income as low as possible.
This can be a double edge sword though.
When You go to a bank and want to borrow money to buy something big.
You have been claiming a low household income you can’t qualify for much.
Fortunately I bought my house many years ago while I had a job and I don’t want anymore debt.
In the first couple years back in early 2000’s I tried to get a business LOC to grow. I showed the bank how good that first year was. Their reply was great do that for another 5 and we can talk.
Hide your income better and in 5 years you won’t need their LOC.
matt365
Well-known member
Yeah, no employees. Most times I'm a one man show, but if needed, two of my cousins, and two of my uncles are in the business. I'd just get them to bill the customer direct as well. I might be doing a second story on a house late 2023, so I'll need them for that.
Possibly a garage addition with a loft that got put off from summer 2022. There's always something going on. I've been putting smaller jobs off since covid lockdowns... they're happy to wait until I'm free. I can't complain.
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matt365
Well-known member
there is a reason I mostly dress like a carpenter 24/7
.
You sound like my dad.
There's his work around the house workboots, and his going out to dinner workboots.
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Does he have the wedding workboots? The ones he bought on sale but can still get some more time out of his existing pair so they wait in the closet until the toecaps fall off the working pair. They are a step above the going out to dinner workboots that have had some use but aren't torn up yet.
matt365
Well-known member
Close.
There is the pair you keep incase you do concrete work (since that destroys them). You need a new pair in the winter, so they're somewhat waterproof. Then there is the spare set that's crusty and dried out. You wear it until the soles fall off.
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That’s what my Royers like to do. Used until the soles fall off.Close.
There is the pair you keep incase you do concrete work (since that destroys them). You need a new pair in the winter, so they're somewhat waterproof. Then there is the spare set that's crusty and dried out. You wear it until the soles fall off.
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