Thursday, November 12, 2009

Filing Taxes

“Screw everyone but the tax man.”

The following information came from Johnny Demos, of Selective Income Tax: 604-460-6466 and the website of the Sex Professionals of Canada (SPOC):

Why pay taxes?

It is money paid to a government to fund its programs and services. Examples are roads, public utilities, education, health care, economic development, cultural activities, national defense, and law enforcement. Without a tax system, a government would not have any money to provide services.

Filing taxes allows you to save for an RRSP, buy a home, and make any other large purchases without questions from CCRA (Canada Customs and Revenue Agency). If you do not file, and live in a home or apartment, pay your rent, buy things, and are pretty much self-sustaining, the government may question how you can live with 'no income'.

Eighteen percent of all the claimed income you have made in your life can be invested into an RRSP for your future. There is no better time to plan for the future than now, so when the day comes that you want to retire, you will have a nice little nest egg waiting for you. You also get GST rebates, rent credits, claims on dependants and/or children, credits for donations, and many other ways to get benefits.

Sex work is technically considered 'self-employed'. A beneficial tax for sex workers is the Canada Pension Plan contribution paid out of our net business income, (The profit that remains after paying business expenses to earn money such as phone, car, rent, advertising etc.). It is beneficial because the government gives it back when you turn 65 and your contributions determine how much you get back. It also comes with a built in insurance policy benefit for death or severe disability that can be triggered before retirement. This is important to protect your family in case something happens.

Unlike private insurance policies, you qualify based on your contributions and not your profession. There are minimum contribution amounts in terms of years and dollars per year. This is why it is important to file your income tax and pay the CPP. Your contribution also reduces your taxable income. Also, if you wish to, you may pay more so that later you will receive a larger benefit.

What is the downside?

Since you do not get deductions taken from your pay like Income Tax, Employment Insurance and so on, you will most likely not get a tax refund.

Do I have to pay taxes?

The Canadian tax system is based on self-assessment. Each of us has the responsibility to ensure our tax return includes all necessary information for reporting income, claiming tax deductions and tax credits, and, finally, calculating our tax liability. In complying with the tax laws we all have the right to pay as little tax as is legally possible.

How can I claim my taxes, if what I do is considered illegal? Won’t I get arrested?

Being a sex worker is not illegal in Canada. Also, the CCRA is not a law enforcement agency. Their only mandate is to collect taxes. They only contact law enforcement if you avoid paying taxes or commit tax fraud. Therefore, there is absolutely no risk to you for claiming your taxes. When filing your taxes, it is perfectly acceptable to use a generic term like 'entertainment’ as your occupation. (One SPOC member has been filing for years using the term ‘escort and tourist service’).

What about income earned outside of Canada?

Income earned, whether in Canada or outside Canada, must be declared. CRA has tabled monthly or yearly averages to convert currency for each country. If a country outside of Canada taxed foreign income, CRA will let you claim a tax credit for the foreign taxes you’ve paid.

How does paying tax work? What am I taxed on?

In Canada we are subject to Federal and Provincial tax rates depending on our taxable income bracket. Our federal tax owing is then reduced by non-refundable tax credits. For self-employed individuals, gross business income minus business expenses equals net income. In most cases, net income is usually taxable income.

What can I write off?

Agent fees – including GST, Socan, fines, DJ tips.
Travel – hotel, taxi, car rental, ferry, airplane, luggage, driver.
Meals – all bars, restaurants, groceries when working out of town.
Advertising – posters, business cards, photography, photo film, gifts to audience, ads.
Auto – gas, repairs, parking tickets, towing charges, BCAA, license and registration, Aircare, car wash, car loan interest, insurance, lease payments, capital cost of value of vehicle.
Cell phone minutes and long distance calls relating to business
Home Expenses – rent, mortgage interest, property tax, gas, hydro, strata fees, insurance.
Office Expenses – postage, courier, business license, computer, internet, printer, desk, filing cabinets, furniture or fixtures for office.
Costumes and supplies – costumes, shoes, tanning, nails, drycleaning, props, cd’s, lingerie, jewellery, hair appointments and products, makeup, sex toys, condoms, lubes, towels, gloves, equipment.
Miscellaneous expenses – RRSP contributions, tuition, charitable donations, child care, child fitness programs, accounting fees, dental, chiropractor, massage therapy, cosmetic surgery, prescription drugs, botox, laser surgery, eyeglasses, contact lenses.

What can I not write off?

Any expense used as personal and non-business related. Examples would be going to the movies, food or coffee in town, gym membership, alcohol, cigarettes, personal hygiene products such as soap, shampoo, tampons, deodorants, toothpaste, and toothbrush.

What receipts should I keep?

Keep all receipts listed for six years.

How do you suggest keeping my receipts and records in order?

Staples or Office Depot sell a receipt organizer binder. Johnny Demos' services include free envelopes with labels listing the allowable writeoffs. (604-460-6466)

What should I file my taxes under?

You file your taxes under your own name (sole proprietorship) but your business income and expenses can be filed under your own name or business name (stage name / alias). If you choose to file your business under a name other than your legal name then you must perform a name search first and then, when accepted, register the name with BC Registries.

How much does it generally cost to get my taxes done?

Between $200 - $500 per year depending if receipts have to be organized or calculated. There is also a $100 free for filing a GST return. All fees are deductible as a business expense.

What happens if I haven’t paid my taxes in a few years?

CRA will continue to charge interest (Bank of Canada Rate) on taxes owed to them. CRA would send your file to collections and eventually garnish your wages thru your place of employment. They could also freeze and liquidate your bank account.

Do I have to claim tips?

Yes.

(Exotic Dancers) What happens if I lost my contracts for each week I worked?

Each agency charges a small fee for a printout of your dancing history for each year. My company has accounts set up for each agency and I will request this information for you at your convenience.

What happens if the government disagrees with my accountant’s calculations?

CRA will reassess your return and inform you of any changes on a notice of reassessment. If you disagree with the reassessment, you can file a Notice of Objection. You must file the Notice of Objection within 90 days from the mailing date of the Notice of Reassessment. I would call CRA first to discuss the matter before filing.

What is the proper way to file GST info?

There are two methods of filing a GST return. First is the simplified method where you report GST collected on income and claim GST paid on business expenses (Input Tax Credits). Second method (which I recommend) is the quick method. Here, you receive a tax break on GST collected. You still collect 5% GST on income earned but you submit 2.6% on the first $30,000 and 3.6% on income above $30,000. This method is beneficial to taxpayers with small amounts of business expenses. It is also easier to calculate. Johnny Demos also recommends you file your GST on a yearly basis.

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