Taxes in Canada - T1 income for the proprietor

Bruce_C49Bruce_C49 Member Posts: 39

Wave is an excellent software package for the self employed (proprietor) entrepreneur. It easily keeps track of billings, collections and disbursements. It allows the entrepreneur to see his or her income at a glance.

The income of a proprietor is revenue less expenses. There is no T4s issued for a proprietor - although a proprietor can have employees under their business number xxxx xxxxx RP0001.

The Wave accounting information can be easily transferred to the T2125 (business income) schedule on a T1 return. There are a few adjustments to reconcile accounting income with taxable income:

  • Meals and Entertainment - 50% of the total recorded on the Wave expense for M&E
  • Office-in-the-Home - this is an advantageous expense but must be applied carefuly
  • Business use of personal vehicle.

Your "business income" calculated from the T2125 schedule is transferred to your T1 page. The income (if over the provincial and federal minimums) is subject to taxation at your marginal rate of taxation. In addition, there is Canada Pension Plan (CPP) payable on self employment earnings (4.95% x 2).

The fiscal and calendar year ends of a proprietorship is December 31st.

Comments

  • ddmeddme Member Posts: 4

    Hi,
    Do I write a journal entry for CPP, Income tax and Provincial tax paid? I am Sole Proprietorship now?
    thanks

  • JamieDJamieD Administrator Posts: 1,091 admin

    Hey @ddme! I feel as though we will need a little bit more information here -- are you referring to filing your own income tax? Or are you referring to filing taxes as an employer for your business? We would need to get a stronger sense of what exactly you're referring to here so we can get to the bottom of this. Let me know when you get a chance and perhaps @Bruce_C49 you can take a look at this as well!

  • ddmeddme Member Posts: 4

    I am a Sole Proprietorship, I am the only employee, but I had to pay CPP and Income Tax to the CRA, so would I put CPP payment in as a Journal entry (Putting into CPP is taken from my yearly earnings)? I think Income Tax is probably not added, or is that added as well?
    I am just not sure because of being a Sole Proprietor. But if I add these entries, it will bring down my income, so I am not sure how it works, especially with CPP.
    thanks

  • JordanDJordanD Administrator Posts: 269 admin

    @ddme I'm understanding correctly here, you are likely referring to income taxes specifically as you would be taking draws from your business. To the best of my knowledge, business owners of sole props are typically required to take draws from the business as opposed to paying themselves as employees This article should clarify this further [https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html

    Keeping this in mind, you would likely want to account for these sorts of tax payments through a journal entry that would resemble the steps in this article: https://support.waveapps.com/hc/en-us/articles/208623466-How-to-handle-sales-tax-returns-and-refunds-from-your-government

    edited June 19, 2019
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