Tax Considerations
“An investment in knowledge pays the best interest.”
~ Benjamin Franklin
There are two taxes that practitioners in private practice generally need to be aware of. Speak to your accountant to see if there are any other deductions (or exemptions) you need to be considering during the year.
GST
If you are making more than $30,000 income in a 12 MONTH PERIOD (not calendar year) you must register for a GST number and you must begin charging 5% on your services and remitting that to the government. Depending on how you set up your practice, it can also be advantageous for you to set up your GST structure prior to hitting the $30,000, as you are able to claim back GST on any business related purchases if you have a GST number. If you are making any big purchases in your first year (such as furnishing an office), speak to your accountant to see what timing works best for you.
When charging GST you can embed the tax within your fees or add on top – just make sure to let your clients know so they can be prepared.
For more information about collecting GST and how to apply for a GST number, follow the link here –> www.cra-arc.gc.ca/
NOTE: Certain designations are considered GST/HST exempt so they would not be required to collect GST/HST on their services. For example: Registered Social Workers and Registered Psychologists are currently considered tax exempt. Please check with your regulatory bodies and your accountant to determine your specific circumstances.
CPP Contributions
Canadian Pension Plan is completely separate from your collected GST/HST or any income taxes you might owe. CPP can be a huge shock at tax time if you haven’t been planning for the extra 9.9% on your taxable earnings. Even if you don’t owe any federal taxes or GST/HST, you can not avoid paying into your Canadian Pension Plan.
How to make it hurt less: Make sure that in your budget planning you are considering this extra expense. You must pay 9.9% towards your CPP after the first $3500 earned and up to a maximum of $53,600 as of 2015. You can check HERE for the most up-to-date numbers as the annual maximum cut-off changes yearly.
What this cut-off means is the most you would have to pay for your 2015 taxes would be$4,959.90. You only pay CPP on your taxable income so, for example, if you only end up claiming $24,000 taxable income, you only pay CPP on $20,500 that year, or $2,029.50.
Again, pretty please check with your accountant to make sure you have your bases covered but make sure you are setting this amount aside throughout the year to be safe.
Action Item: Keep it Separated
Create a plan for how you will keep your GST and CPP separate from your income.
Decide if you will transfer these taxes weekly, bi-weekly, monthly. What makes sense for you? If you don’t have income yet, guess at what would work for you and then once you start seeing clients, you can test it out.