4 end of fiscal year tips for mobile massage and beauty professionals

For sole proprietors, the end of the fiscal year can be a stressful and confusing time. There are deadlines to keep track of, expenses and receipts to collate, and one long form that covers a lot of really obscure stuff.

But don’t worry – we’ve got you covered. In this guide, we’ll talk you through:

• Claiming business expenses as a mobile massage or beauty therapist
• How to make tax-effective retirement savings contributions
• Key tax dates to be aware of
• How our accounting service partner Hnry simplifies all of this

Claiming business expenses

No matter what your income or level of business expenditure, there’s a real benefit to raising as many business expenses as you can before the end of the fiscal year.

How business deductions work

There’s a common misconception among sole proprietors that claiming a business deduction entitles you to reimbursement from the CRA for the value of the deduction.

Unfortunately, it doesn’t work that way.

But raising business expenses is crucial for reducing your overall tax bill at the end of the year. There’s a double benefit whenever you raise a business expense:

• First, your taxable income is lowered by the value of the expense.
• Second, your overall tax rate is reduced (ever so slightly)

For example:

Let’s say you earned $50,000 over the course of a fiscal year. If you had absolutely no business expenses, your income tax rate would be roughly 13%.

But if you had spent around $10,000 on business expenses throughout the year, then your business’s profit (after expenses) would be $40,000 – this is your “taxable income.”

The income tax rate on $40,000 annual income is around 10%, which is 3% lower than your original 13% tax rate.

In this example, the business deductions had two effects: the first was to reduce your taxable income by $10,000; the second was to lower your tax rate by about 3%. And the impact to your bottom line is significant: before claiming the expenses your total tax owing was about $6,700; after claiming the expenses it dropped to $4,100!

You can play around with our accounting service partner, Hnry’s tax rate calculator to see how much of an impact claiming expenses can have on your tax rate.

Knowing what you can and can’t claim

A lot of confusion from sole proprietors comes from knowing what they can and can’t claim as a business deduction.

Here’s a helpful list of some of the more commons things you can claim as a sole proprietor:

1. Clothing: some types of clothing are deductible – but only when they are solely used for work purposes. This includes:
   1. Protective clothing – things like gloves, scrubs, masks, etc.
   2. Compulsory uniforms – these must either be distinctive to your particular organisation or identify the products or services provided by your employer.
   3. Occupation-specific clothing – these are clothes that distinctly identify you as a person associated with a particular occupation.Any other items of clothing that are not specific to these categories or don’t include a company logo cannot be claimed as an expenses.
2. Equipment purchases: equipment used for work purposes, such as massage tables, beauty products and equipment, laptop and mobile phones can often be claimed as a tax deduction. More expensive items may be eligible for accelerated depreciation (also called temporary full expensing) due to Government pandemic stimulus initiatives, but it’s worth speaking to your tax agent before jumping into that big purchase.
3. Motor Vehicle Expenses: you can claim a tax deduction for motor vehicle expenses if you use your car travelling between clients. The CRA allows for two different ways to calculate your expense, either maintaining a logbook to work out your business use of your car, or using the cents per kilometre method, up to 5,000kms.
4. Laundry expenses: paying for laundering of towels used for your clients can also be deductible. You will need to hold on to the receipts for these, as well as your other expenses, to meet the CRA’s documentation requirements.
5. Mobile phone bills: if you use your mobile phone exclusively for business purposes, then the deductions you can claim include the cost of the phone and the monthly service fees (prepaid or monthly plans). If the phone is mixed use (business and personal), then you can only claim the percentage that is used for business.
6. Professional fees and subscriptions: there are several types of professional fees and subscriptions you can claim:
   1. an annual subscription to an association for practicing certificates, memberships, or accreditation,
   2. union fees,
   3. business-related software, magazines, or licensing fees.
7. Professional insurance: if you have professional indemnity insurance for the protection of your clients, public liability insurance which covers your business in the event that an incident occurred, or if you have insurance for all of your business assets, then you can claim the insurance as an expense.
8. Advertising: if you advertise your business in any way (including website, signs, digital advertising, printed brochures, or newspaper advertisements), then these costs can be claimed as a business deduction.
9. Professional development: if you pay for any courses or training and development that maintains or increases the knowledge, capabilities or skills you need to earn your income in your current occupation, then — you guessed it — you can claim it as a business expense.

Making effective retirement savings contributions

Unlike a salaried employee, sole proprietors are (usually) on their own when it comes to saving for retirement—which leads many self-employed contractors and freelancers to kick their retirement planning down the road.

But by making voluntary contributions to your retirement savings plan, you can maximise available government benefits and gain more in the long run. Here are two ways to make the most of your contributions:

RRSP Contributions

There is a tax benefit in contributing to an RRSP under the tax-deductible contribution scheme. Your RRSP contributions are deducted from your taxable income, which means the tax-deductible contribution is a great way to lower your overall tax payable.

For example, if you earn $80k per year, your marginal tax rate might be around 30%. If you make a $10k contribution to your RRSP, that $10k is deducted from your income before tax. This reduces your taxable income, potentially saving you $3,000 in taxes (30% of $10k).

It’s worth noting that there are other ways to save for retirement, such as through a Tax-Free Savings Account (TFSA), where contributions are made with after-tax income and grow tax-free.

Contributing to your retirement savings is an important way of saving for your long-term future, and the tax benefits are a nice incentive.

Government Incentives for Retirement Savings

The Canadian government also has an initiative to encourage retirement savings scheme to help low- and middle-income earners increase their retirement savings. While Canada does not have a direct federal matching program for RRSP contributions like Australia's co-contribution scheme, other benefits exist. If you meet the eligibility criteria and meet certain conditions, you can benefit from government support for your retirement savings.

These government incentives are typically applied through the tax system. It's important to understand the specific rules, as claiming certain deductions might affect eligibility for other benefits.

The amount of government support for retirement savings often depends on factors such as:

1. Your income, and
2. How much you personally contribute to retirement savings

The table below provides a general guide to how government support for retirement savings might be influenced by these factors.

Key Dates to Remember

Perhaps the most important thing to remember is that your tax obligations aren’t over at the end of December. There are a handful of dates throughout the year, all of which are crucial to ensure you’re up-to-date and compliant with your taxes and obligations.

So what are some of the big tax dates you need to remember?

1st of January. This is the biggie: the start of the new tax year. From this date, you can begin applying for your tax refunds for the prior tax year.

30th of April. If you don’t have an extension or a tax agent, you’ll have until the end of April to file your tax return and pay the amount owing if needed.

June 15th (of the following year). If you do have a tax agent or accountant, you may be eligible for an extension to June 15th the following financial year to file your completed tax return. Note: once your tax return is filed you might have money owing. Don’t delay paying this off! Conversely, if you are owed a refund, any delay in filing your return is money you are missing out on. This date is also different if you have had years where you have failed to file a tax return.

March 15, June 15, September 15, and December 15. As a sole proprietor you may need to complete a quarterly GST/HST return or tax instalment reminder as well. If you do, these are the filing and payment dates for your quarterly BAS.

How Using Hnry Simplifies Filing Taxes

If this is all sounding confusing, our accounting service partner, Hnry can help you out.

Hnry automatically calculates, deducts, and pays all of your taxes whenever you get paid. Income tax, GST/HST, and Student Loan repayments⁠ — it’s all sorted as you go so you don’t have to worry about owing tax at the end of the year. They act as your accountant and will review your expenses and file your tax returns whenever they’re due.

As a member of the Blys community, you can sign up to Hnry and use the promo code BLYS to get your first $2,500 in payments processed for free. Find out more by visiting the Hnry website!

If you have more questions about tax time as a mobile massage, beauty or wellness provider, watch the tax information session Blys hosted with Hnry:

Take a look at our partner Hnry for easy finance

While Blys strives to present information as timely and accurately as possible, we are not providing official legal advice and encourage readers to seek professional legal advice from a qualified tax accountant. The information outlined in this blog has been supplied by Hnry <http://www.hnry.com.au>