If work in the construction or trades business and are an independent contractor or own an incorporated business, there are many opportunities to decrease your tax liability. See some tax tips below:

1. Incorporate – Lower Your Tax Implications
   1. If you are an independent contractor and have not yet incorporated, you may want to consider doing so
   2. Corporations are taxed at a lower rate and have more opportunity for tax deferral and strategy, so regardless of the revenue amount it maybe beneficial to incorporate and do so early on
   3. For more information about incorporation, see our blog post “Incorporation: The Pros and Cons of Incorporation Your Small Business”)
2. GST/HST – Make Sure You Are Compliant
   1. If you are an independent contractor or an incorporated business, you are required by CRA to start collecting/remitting GST/HST on sales that surpass $30,000 of revenue
   2. Once you have surpassed the threshold, open a GST/HST account with CRA right away, as there are benefits to having a GST account open
   3. You would not need to lose a portion of your revenue to GST/HST, as you could charge GST/HST on top of the service cost you would normally bill to your clients. Reflect the GST/HST charged and your GST/HST # on your invoices so your clients can claim these amounts as well
   4. GST/HST paid on materials, supplies, sub-contractors etc. (GST/HST Input Tax Credits/ITCS) can be tracked and offset your GST/HST owing. Therefore the more GST/HST you pay on business transactions, the less you will owe
   5. Make sure you are aware of your remittance schedule for GST/HST, as there can be interest/penalties associated with late filings and payments
3. Cost of Goods Sold – Keep Track and Keep Organized
   1. Costs of goods sold refers to materials purchased, or sub-contractors hired (most likely also billed to their clients) to complete a job
   2. When it comes cost of goods sold, this typically is the highest cost items for a construction company and can become a red flag for auditors and therefore it is important to track them accurately
   3. The best way to keep these costs organized would be to use a business account to pay for them as it will be easier to keep track of them – independent contractor or corporation
   4. Always request an invoice or receipt from a supplier or sub-contractor, sub-contractors should provide their GST/HST # and amount of GST/HST paid in their invoices and keep them for 6 years as CRA may request them in an audit
   5. If you have a larger company with many transactions, it may be easier to do bookkeeping more frequently, by a professional and/or on an accounting software
   6. If there is use of a personal account for business transactions, keep these transactions organized. You can highlight business purchases on the personal card statements, keep those receipts separate from ones from the business account, use an Excel spreadsheet etc.
   7. It is also advised to not use cash when paying for any business expenses as CRA could deem these expenses inadmissible. Pay suppliers and sub-contractors directly through transactions in your bank account such as E-transfers etc. instead (If using E-transfers, make sure to keep track of who each transfer is for as some banks do not reflect that information on the statement, it maybe beneficial to indicate on the invoice/receipt that it was paid by E-transfer and date)
   8. When it comes to subcontractors, keep a detailed log of names of individuals or corporations, GST/HST # if they charge GST/HST, SINs if there is not a GST/HST # and addresses, and update as necessary
   9. Corporations may need to make T5018 – Statement of Contract Payments slips at year-end to record payments to contractors. These are required if over 50% of business income is from construction activities and slips are required for any sub-contractors paid over $500 in the fiscal year. Note that the amount reflected on this slip should be the gross total (including GST/HST)
   10. At year-end, if you have materials that have not been used yet you should do an inventory count and there will be an adjustment for this
4. Equipment – Keep Track of New Additions and Disposals
   1. For the construction industry, another large cost is all the equipment
   2. Equipment that have a useful life of more than one year are considered property, plant, and equipment assets (PP&E) (ex: drills, vehicles, excavators etc.)
   3. Supplies are smaller tools that are used up within the year of purchase and are considered an expense (ex: nails, screwdrivers etc.)
   4. Often, large equipment can be rented out, or purchased with a loan or financed – keep track of these payments and interest paid
   5. When it comes to PP&E – it is important to keep track each year of the additions and disposals of these assets to accurately track amortization
   6. If equipment is purchased within a fiscal year, this is considered an addition. For additions, it is important to keep track of purchase documents, loan/financing documents if applicable. Keep in mind that equipment should be purchased in the corporation name if incorporated, not personal names and any assets purchased before incorporation should be “sold” to the company
   7. If equipment is damaged or sold within a fiscal year, this is considered a disposal. Keep sales documents or write off documentation
   8. If you have a vehicle used for business, keep a detailed log of trips – business and personal to properly adjust the expenses
   9. For more information on PP&E, see our blog post “Capital Assets – What Are They and How Can They Help You?”

At Jibe Accounting, we are familiar with the construction/trades industry and can help you from beginning to end of the tax process; some services we provide being incorporation, bookkeeping, T1 Personal Tax Returns, T2 Corporate Tax Returns, T5018 slip filings, T4/T5 slip filings etc.