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Claiming Automobile Expenses

One of the more common expenses claimed by taxpayers is automobile expenses (applies to any motor vehicle such as a van, bus, pickup truck, station wagon, SUV, or other truck). Many individuals use their automobiles for work or business and incur personal expenses in doing so. It is important to note that only expenses of a business nature are eligible as a deduction against their related income. As such, the Canada Revenue Agency (CRA) has strict requirements in ensuring that only business-related expenses are claimed. As a result, the retention of automobile tax records becomes imperative for every taxpayer that uses an automobile for work or business.

Maintaining Automobile Expenses

Several software applications now exist to easily keep track of total mileage, business mileage and reasons for the trip, and expenses. The type of expenses to keep track of can be broken down into two categories. They are operating and fixed expenses.

Operating Expenses

The types of operating expenses related to an automobile include gasoline, maintenance, and repairs (such as oil changes and car washes), insurance, license, and registration fees. Such expenses may vary in relation to the number of kilometers driven.

Fixed Expenses

Fixed expenses differ from operating expenses in that they relate to the automobile itself as opposed to the number of kilometers driven. When an automobile is purchased, it would relate to the capital cost allowance and interest expense when financed. In the case of a leased automobile, such expenses would include the lease payments. It is important to note that there are special rules and restrictions which limit the portion of actual costs that can be included in your total expenses. You can consult with your Padgett Business Services representative to obtain more information on what these special rules and limitations are.

Deductible Expenses

Because your automobile will most likely be utilized for both business and personal reasons, it is essential that the total automobile expenses be allocated between these two uses on a reasonable basis in order to arrive at only the deductible portion for income tax purposes. The best method to achieve this will involve the distance traveled calculated by taking the total kilometers driven for business purposes divided by the total kilometers driven for both business and personal goals. Certain expenses such as parking expenses incurred while on a business trip and car repairs made because of an accident while on a business trip do not have to be prorated. However, such expenses incurred resulting from a personal trip made are not deductible.

Underused Housing Tax – the Federal one!

The Underused Housing Tax (“UHT”) is a new Federal tax of 1% on the value of vacant or underused housing in Canada that took effect on January 1, 2022. In reading that first line, you probably think this doesn’t apply to you. Think again. Think of penalties of $5,000 for individuals and $10,000 for corporations.

There are many situations where there will be an exemption from this 1% tax, but you’d still be required to file the new UHT annual return (UHT-2900) or be assessed those penalties. We’ve heard of many cases in the past where people have been assessed a $1,500 penalty for not filing a T1135 form reporting their foreign assets, even though they declared all the income on those foreign assets. So don’t assume CRA won’t assess those penalties, just because you qualify for an exemption from this tax.

There are many details about this new tax and its exemptions. Here are a few key points to consider:

  • Only residential properties are affected – detached or semi-detached homes that contain 3 dwelling units or less; a townhouse; a condo; duplexes and triplexes.
  • Canadian citizens and permanent residents qualify for an exemption from the 1% tax and filing of the annual return – but this exemption doesn’t apply if you are a partner of a partnership, or a trustee (other than a personal representative for a deceased taxpayer).
  • There’s no exemption from filing the return for private corporations.
  • Don’t confuse this tax with other “vacancy” taxes on residential properties that are provincial or municipal-based. This is a federal tax.
  • There is no time limit for the CRA to assess the UHT, penalties, and interest.

The first UHT return is due on April 30th, 2023, for residential properties held as of December 31, 2022. Contact your Padgett advisor to discuss your situation.

RRSP Contributions & TFSA Limit

RRSP Contributions

March 1, 2023 is the deadline to make RRSP contributions to be eligible for a deduction in your 2022 personal tax return. Contributions made after this date will not be deductible against 2022 income. The contribution limit for 2022 is $29,210 although this may be less if you have an employer-provided pension plan or deferred profit-sharing plan. Your overall contribution room may also be reduced if you overcontributed in prior years, or higher if you haven’t maximized your past years’ RRSP contributions. There is only a $2,000 margin for overcontribution errors. Beyond this amount, you will have to pay a 1% per month penalty tax on overcontributions. You should review your RRSP contribution room on the Notice of Assessment for your 2021 tax year issued to you by the Canada Revenue Agency (“CRA”).

TFSA Limit

The Tax-Free Savings Account limit was increased to $6,500 for 2023. Be sure to track your TFSA contributions since there are penalties for overcontributions and there’s no margin for error like with the RRSP. Although CRA does keep track of your TFSA contribution room, information on contributions you make to your TFSA is not automatically uploaded to CRA by your financial institution. The CRA receives this information only annually and it takes time for CRA to process this information. So be careful of this timing delay if you are verifying your TFSA contribution room through the CRA portal “My Account”

First-time home buyers tax credit – also known as the Home Buyers Amount. This credit will be doubled from $5,000 to $10,000 as of 2022. At a 15% tax credit rate, this translates into $1,500 of tax savings for qualifying home buyers. You are a “first-time” home buyer if neither you nor your spouse/common-law partner, owned a home in the year you bought the new home, nor in any of the previous 4 calendar years. If you have a disability, you might not have to be a “first-time” home buyer to qualify if the reason for the new home purchase is to live in a home that is more accessible and suited to your needs. Be sure to advise your Padgett advisor if you bought a home in 2022 and you think you may qualify. Also, be sure you’ve advised CRA of your change of address.

Home Accessibility Credit – this credit has also doubled. The amount of expenses eligible for credit for 2022 has increased from $10,000 to $20,000. At the 15% tax credit rate, this converts to $3,000 of tax savings on eligible expenses. This credit is to assist individuals to gain access to, or to be more mobile or functional in their dwelling, or reduce their risks related thereto. Modifications will generally qualify if the individual qualifies for the disability tax credit or is 65 years or older.

These expenses can be paid on behalf of yourself, or in some cases for certain dependents. The expenses should be of an enduring nature and integrated into the home. In general, if the item purchased will not become a permanent part of the home, it is not eligible. Of course, detailed invoices, agreements, and receipts need to be kept should the CRA want to verify the claim. The expenses will not be reduced by any federal or provincial government assistance provided. Examples of qualified renovations include grab bars and handrails, walk-in bathtubs or wheel-in showers, wheelchair ramps, widening doorways for wheelchair accessibility, or lowering existing counters and cupboards among others. The expenditures may also qualify for the medical expense tax credit, and some provincial credits as well (British Colombia, Ontario, New Brunswick, and to a lesser extent Quebec) – a potential double or triple claim.

Multi-Generation Home Renovation Tax Credit – this is a new tax credit effective January 1, 2023. Its purpose is to help taxpayers to care for adult relatives in their own homes by providing some tax relief on expenses incurred to build a secondary suite for the family member who is a senior, or an adult who has a disability, to move into. The secondary suite must be a self-contained housing unit that has a private entrance, kitchen, bathroom, and sleeping area. Additionally, the home being renovated must be inhabited or reasonably expected to be inhabited within 12 months after the end of the renovations. Routine repairs, appliances, electronic home-entertainment systems, security monitoring, housekeeping, and interest costs relating to the renovation won’t qualify for the credit. The tax credit is 15% of the expenses, a maximum of $50,000, which works out to a maximum credit of $7,500. The credit is also refundable. This means that if the tax credit is more than your taxes payable, you will get a refund.


2023 Automobile Deduction Limits and Expense Benefit Rates for Business

The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes is increased to $36,000 (plus applicable federal and provincial sales taxes) for non-zero emission vehicles and to $61 000 for eligible zero-emission passenger vehicles.  These ceilings restrict the cost of a vehicle on which CCA may be claimed for business purposes.

The limit on deductible leasing costs increases to $950 per month (plus applicable federal and provincial sales taxes). This limit, which ensures that the level of deductions for leased and purchased vehicles is consistent, is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.

The limit on the deduction of tax-exempt allowances paid by employers to employees increased to 68¢ per kilometer for the first 5,000 kilometers driven and 62¢ for each additional kilometer. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, maintenance, and fuel costs.

The maximum allowable interest deduction for amounts borrowed to purchase an automobile remains at $300. This limit supposedly reflects the reasonable cost of financing a vehicle for business purposes although with the interest rate increases we have seen in the past year this is surprising.

The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers will increase to 33¢ per kilometer. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase to 30¢ per kilometer. The amount of the benefit reflects the costs of operating an automobile. Do not forget that there is an additional benefit simply from having an employer-provided vehicle available for personal use which is called the automobile “standby charge”. There is a special formula to calculate the benefit, which is reported on the T4 slip and included in the employee’s income. In order to compute this standby charge and operating cost benefit, it is important that total and business kilometers are tracked throughout the year. 

As an employer, you are responsible for remitting GST/HST on employee taxable benefits unless the benefit is tax exempt or zero-rated. A common example of a tax benefit that is not exempt includes the automobile standby charge and operating expense benefit. 

The rate that needs to be remitted depends on the location your employee ordinarily worked in, or the location to which he or she ordinarily reported to.

You are considered to have collected an amount equal to a percentage of the value of the benefit for GST/HST purposes, based on one of the following rates:

Automobile operating expense benefit: 

  • 11% for Nova Scotia; Prince Edward Island (PEI), New Brunswick, Newfoundland and Labrador;
  • 9% for Ontario;
  • 3% for the rest of Canada.

Other Than Automobile Operating Expense Benefits: 
Automobile operating expense benefit: 

  • 14/114 for Nova Scotia, PEI, New Brunswick, Newfoundland and Labrador;
  • 12/112 for Ontario;
  • 4/104 for the rest of Canada.
  • The above rates may be reduced for large businesses.



The Tax-free Home Savings Account

In Budget 2022, the federal government proposed the Tax-Free First Home Savings Account (FHSA). The most recent draft legislation has proposed April 1, 2023 as an effective date. Here is a summary of this new registered plan which is based upon the draft legislation to date: 

  • The FHSA gives prospective first-time home buyers the ability to save $40,000 on a tax-free basis. It’s a bit of a hybrid between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA).  Contributions would be tax-deductible like an RRSP, and withdrawals to purchase a first home – including the investment income earned in the plan – would be non-taxable, like a TFSA.
  • To open a FHSA, you must be a Canadian resident who is 18 years of age or older. In addition, you must be a first-time home buyer. This means neither you nor your spouse has owned a home in which you lived in the year the account is opened or in the preceding four calendar years.
  • The lifetime limit on contributions would be $40,000, with an annual contribution limit of $8,000. You can claim an income tax deduction for contributions made in a given year. Unlike RRSPs, contributions made within the first 60 days of a given year could not be attributed to the previous tax year. However, like RRSPs, you aren’t required to claim the deduction right away. Instead, you can carryforward non-deducted contributions and claim them in a later year if you are expecting to be in a higher tax bracket in the future. 
  • You are allowed to carry forward unused portions of your annual contribution limit but only up to a maximum of $8,000.  For example, if you contributed $5,000 to a FHSA in 2023 you would be allowed to contribute $11,000 in 2024 (i.e., $8,000 plus the remaining $3,000 from 2023). So, unlike a RRSP and a TFSA, unused contribution room of prior years doesn’t carryforward except for a maximum amount of $8 000. 
  • The FHSA can remain open for up to 15 years. So there needs to be some consideration as to when the FHSA should be opened to start saving. Starting too young may mean the account has to be closed before a home is purchased. However, any savings in the FHSA not used to buy a qualifying home can be transferred on a tax-free basis into an RRSP. It can also be withdrawn on a taxable basis. If transferred to a RRSP, it would not reduce the RRSP contribution room.
  • One of the more recent changes made to the draft legislation is that you can now use both the FHSA and the Home Buyer’s Plan (HBP). The HBP provides for a tax-free withdrawal from your RRSP, up to $35 000, but the amount must be repaid into the RRSP in equal annual instalments over 15 years. Otherwise, the unpaid instalment amount is included in your taxable income for that year. The goal is to provide some cashflow for first time home buyers and eventually replenish the RRSP to continue the non-taxed investment growth to save for retirement.  With the FHSA, you can preserve your RRSP contribution room and contribute to the FHSA instead. Plus, unlike the HBP, the FHSA withdrawals don’t need to be repaid to avoid taxation, so that’s more tax advantageous. 
  • Using both the HBP and the FHSA will provide a total of $75 000 of capital, plus the growth on the funds contributed to the FHSA.
  • It’s also possible to transfer money from the RRSP on a tax-free basis to the FHSA subject to the annual contribution limits. Since those RRSP contributions were deducted for tax savings when contributed, you won’t get a deduction on the transfer to the FHSA. The advantage is that the withdrawal will be tax free, but without the requirement to repay it as with the HBP. That’s good on cashflow, but not great for saving for retirement as the RRSP doesn’t get replenished and the RRSP contribution room isn’t reinstated for the amount transferred to the FHSA. 

Bottom line, the FHSA provides some additional tax advantages and flexibility, but some tax planning relative to your specific case may be needed. 

Padgett joins forces with Intuit QuickBooks Canada

PADGETT BUSINESS SERVICES®, a leading source for small business tax, accounting, payroll and business advice, and Intuit Canada, makers of QuickBooks, Canada’s leading financial management software, have joined forces to create greater efficiencies in Padgett’s cloud-accounting services for small business owners.

Under this agreement, Padgett has selected QuickBooks’ all-in-one accounting software as their cloud accounting technology of choice, which will allow Padgett’s accountants and clients to leverage QuickBooks’ suite of financial tools designed to save time and money, by connecting essential business tools that make it easy to bring financials into focus.

This will allow small business owners to focus on making important business decisions, while enabling their growth and prosperity. For Padgett, this agreement allows their focus to remain on providing vital business analysis, interpretation and advice to their clients.

“We are excited to be working with the market leaders in cloud accounting to bring their technology and expertise to our clients for their bookkeeping needs. Working with an organization that offers key financial solutions and technological expertise to empower small businesses will allow us to shift our focus from extensive number crunching to analysis and advice, which is where we believe the true value lies for many of our clients,” said Hal Canaan, Executive Vice President of PADGETT BUSINESS SERVICES® Canada.

Padgett’s principal focus is to provide a unique combination of business services to help small business owners succeed, by leveraging personal relationships and efficient service. They offer small business advice and consultation, tax preparation, government compliance, financial reporting and complete payroll services.

“We’re excited to work with PADGETT BUSINESS SERVICES®, who share the same passion in investing in the future and growth of small businesses as Intuit QuickBooks. We believe that increased collaboration with organizations that are supporting small businesses is imperative to providing powerful and essential resources to ensure that small businesses have the tools that they need to succeed and prosper,” said Patrick Harrison, Canadian National Accounts & Quebec Region Leader at Intuit Canada.

“This agreement is going to help us to ensure that the small business economy continues to advance; a lot of accountants take a look in the rear-view mirror, we’re more interested in looking through the windshield. We believe QuickBooks Online can help us get there,” concluded Brian Austin, President of PADGETT BUSINESS SERVICES® Canada

For media enquiries or interviews, please contact:


Sarah Triantafillou, QuickBooks Canada


About Padgett Business Services

PADGETT BUSINESS SERVICES® is dedicated towards helping owners of small businesses stay focused on running their operations more successfully and not allowing issues with tax, compliance or payroll stand in their way.  Backed by more than 50 years of experience and with over 300 locations across North America, Padgett provides small business owners with quality, reliable business solutions geared to their needs and budget.  We are dedicated to helping your business become more successful – today and long into the future.  Please visit us at for more information.

About Intuit Canada

Intuit’s mission is to Power Prosperity Around the World. Our global products and platforms, including TurboTax, QuickBooks, Mint and Turbo, are designed to empower consumers, self-employed and small businesses to improve their financial lives, finding them more money with the least amount of work, while giving them complete confidence in their actions and decisions. Our innovative ecosystem of financial management solutions serves approximately 50 million customers worldwide, unleashing the power of many for the prosperity of one. Please visit us for the latest news and in-depth information about Intuit and its brands and find us on social.

How to Select a Good Accountant

The quick and easy answer to how to select a good accountant is to say, “Select me!” That, however, is not the purpose of this article, so we will provide you with some additional criteria for the selection of an accountant for your business. Before we discuss the attributes of a good accountant and accounting firm, let us review why you need the help of any accountant, good or bad.

At the very least, you will require an accountant to assist you in the preparation of your tax return. The tax department views your business as a series of taxable income and deductible expense transactions. The income tax return summarizes these transactions and calculates your contribution to the national revenue system. Unless taxation is a major hobby of yours, you will need an accountant to sort this out for you. Therefore, it is in the area of taxation that you need a good accountant.

The next reason to use an accountant is to prepare your monthly, quarterly and annual reporting to the government. Each report to the government, be it sales tax, payroll taxes or whatever, requires the completion of forms that are governed by strict regulations… regulations that, if not followed, will result in the taxing agency levying heavy fines. Again, unless you have an outside interest in this, it’s best left to people who work with it every day.

You may be thinking that the above reasons for using an accountant imply that you will be financially punished by the government if you do not do so. Partially, this is true. Inadvertently, the powers that have devised a tax collection and reporting system that places a large burden on the independent business owner. With few exceptions, the reporting required by a five-person operation is similar to the reporting required by an organization employing thousands of people. The difference is the resources available to accomplish the task.

Now let us turn to some positive reasons for using an accountant in your business. After handling your compliance issues with the various levels of government, a good accountant should go further and help you with the financial circumstances of your business. This leads us to the first major criteria of a good accountant. Will you and your accountant be able to fully understand each other? It is extremely important that the lines of communication are clear, and the accountant takes the time to review the financial information provided. A good accountant will drop the jargon and speak to you in a way that helps you better run your business. When selecting an accountant, select someone who appears interested in your business and someone with whom you feel you can develop a rapport. The second step is to ensure that this person is the one with whom you will talk. Is the person selling the service the one who will work with you? How will this contact be made? On what schedule and under what circumstances will your calls be returned? You cannot expect this accountant to be available 24 hours per day, but it is reasonable to expect a return call within 24 hours.

For your accounting information to be useful, it must be on time. Find an accountant who can set a delivery schedule that gets you the information within a few days of the end of your month. It still amazes me to find people who are accepting accounting information way past its useful life. If it is a monthly P&L, you need the information within ten days. If you are getting quarterly information, it can still be useful within 20 days of the quarter end. If it is annual work, we suggest that the information be available within 45-60 days. To truly run your business properly, get accounting information every 30 days. A good accountant will train you in what to have ready and when to have it, then will stick to the schedule.

In order for an accountant to meet the above deadlines, you will have to be important to him. A simple fact of the accounting business is that you serve your largest clients first, because they generate the largest fees. Find out where your organization will fit into this scale. If you are the smallest account your accountant will handle, can you really expect timely service? Look for an accounting company that has selected your size of company as their target client.

This leads to the next step in the selection. This has to do with the expertise your accountant will bring to your work. Certainly, there are a number of degrees for accounting and tax, and you should inquire into the education and the experience of your accountant. Formal education will not tell all, however. Look to experience outside of schools. If the person has a number of years experience either in your field directly, in your industry or in businesses of your size, this might be better than a string of college credits.

Experience and years in the industry cannot make up for the ability to answer technical questions. A good tax practice is based upon a good second opinion, and your selected accountant should have the ability to ask others for a second opinion. No one practicing taxation can ever claim to know it all, but a good accountant will have a formal procedure in place to refer your problems on to other “experts” in the field.

In selecting an accountant, be sure that you fully understand the services to be provided for the fee. You should ask exactly what will be provided and how often. Be skeptical of the following types of packages: 1) A person who says he will do everything. No one can do “everything” for you. Worse, “everything” can be defined as what an accountant thinks you will need, as opposed to what you really do need. 2) The accountant who wants to build your tax return into the price. This may mean that your return will be competing with cash returns when it is due. 3) An accountant who says he will do the tax return for free. In your own business, how much importance do you place on “free” work?

When speaking of fees, find out the basis for the fee. Part of the fee will be based upon the time necessary to complete the work. Look for someone who is willing to say that if you give him your information in this format, at this time, we will do the work for “this” much. Fees should be based on a combination of the volume and the condition of the accounting information. Many accountants will simply state their per-hour rate for doing the work. This makes sense when the person proposing to do the work has no idea of what to expect. It can mean, however, that any inefficiency on his part results in extra fees to you. While you may be satisfied with an hourly quote in the beginning of the relationship, you should establish the most likely fee, along with the conditions for meeting that fee. To leave this too open-ended results in too many surprises. Make sure that your accountant understands that you will not pay for extras that have not been discussed beforehand. While the extra work may be warranted, i.e., a unique tax situation or especially confusing information from you, you have the right to approve any increase in fee prior to the work being done and the bill presented.

Understand the pricing structure so that when a change in fee occurs, you won’t be surprised. Two factors will affect this increase. The first is simply rising prices. Like you, your accountant must absorb price increases and pass them along. The second reason is an increase in the volume of work. By understanding the basis of the pricing, you will be in a better position to evaluate the fee. Like any other expense, fees should be affordable to your business. For smaller companies there is not a set ratio for what you should pay. It will depend upon your part of the country and the volume of work that you have. Our company uses a formula based upon the number of entries and the number of employees. Shop for value, which translates into service for a fee. When comparing two different fees, make sure that you also compare the level of service you will receive.

In conclusion, to select a good accountant look for the following: 1) someone who you will be able to communicate with fully on a regular basis; 2) someone who can solve your problems either himself or through a backup system of support; 3) someone who will treat the servicing of your account as a priority; and, 4) someone who will give good value for the fee. Good luck!

Tax Planning 101


Undoubtedly you have been reading about tax ideas to reduce your tax burden. Some of these ideas are time sensitive such that you need to act before December 31. Just a few ideas and this is not a comprehensive list. The first item is “tax loss selling” such that the settlement of the investment transaction occurs before December 31. With holidays around Christmas this date should be noted. You need to talk to your investment advisor regarding the advisability of making these investment decisions. Once you have disposed of an investment you cannot buy it back for 30 days or the strategy of claiming a loss is defeated. The “stop loss” rules can become quite complicated in a series of transactions and contacting us would be a good idea. The second item is charitable donations. Make these before December 31 and you should get a receipt that indicates that it was a donation in the given year even though the receipt may be dated in the current year. Finally, contributions to a Registered Education Savings Plan need to be made before year end to qualify for the rebates for this year. All in all, tax planning should be a year-round exercise but don’t miss the deadlines or you will have to wait another year to realize the tax savings. Call us if you have any questions.

Choosing an Accountant Part 5: The Understanding Accountant


My final and most important comment on choosing the right accountant relates to the empathy or understanding of your accountant regarding your business and the challenges that you face on a day-to-day basis as a small business owner. At Padgett we specialize in helping all kinds of small businesses and this helps us to understand your business operations from the perspective of the thousands of other businesses we help. But more important to your decision is our ability to empathize with you as we are small business owners too. We can look beyond the administrative needs of your business and advise you
on other business challenges you have in operations and marketing as we have direct experience either in our own business or in the many businesses we serve. When you develop this trusted relationship with your accountant you will know you have made the right decision – Padgett Business Services.

Choosing an Accountant Part 4: The Reliable Accountant


The reliability is probably the key factor in establishing a trusted relationship with your accountant. If you want your questions answered, then you need someone who gets back to you or visits your business on a regular basis. Someone who is reliable will also promote that peace of mind feeling that is essential in developing trust in a relationship. There are several
factors that you can use to decide whether you will receive reliable service. The first is how often you are going to interact to make sure that your system is running smoothly. Your business needs a financial checkup on a monthly basis to make sure it is working well and to allow your accountant to advise you from a position of current knowledge. A second factor is the actual system that you are going to use and whether it delivers consistent, accurate and complete results. There are more factors, but these would be better understood if you met with one of our Padgett offices. Give us a call for a no charge presentation of what we can do for you.

We encourage you to contact us with any questions.

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