THE RETIREMENT HOME - MAKE IT TAX DEDUCTIBLE

Retirees often move to another home on retirement. The desire to have a comfortable (and affordable)  home usually determines  the location.  Most people overlook the fact that the retirement  home can generate  tax savings.  The savings available can help pay for the property. Retirement can be a little more comfortable with a better financial picture.

A retirement home can be made tax deductible by purchasing it as a rental property. Any costs you incur will be income tax deductible. If you attract tenants, the rent they pay you will be taxable. In most cases, the rental expenses will exceed the rental income resulting in a tax loss.

Rental losses are deductible if you have an intention to earn income from the property. Income usually means the excess of rental income (not  capital gains) over rental expenses. A history of unprofitable operations may make your claims more difficult to

prove. The tax department may ask you to prove your claim - so be prepared.

LEASE VERSUS BUY - WHICH IS BETTER?

Small businesses frequently lease assets rather than buy. Getting a lease is so easy and painless that some people don't even look at buying. For a small business, the financing boost that leasing provides is a real benefit.

Leasing may be attractive but it's not always the best choice. The cost of leasing small dollar equipment (i.e. less than $5,000) is often very high. The implied interest rate used is often 3% to 6% more than a conventional bank loan. The greater the lease value the lower the implied interest rate.

Leasing allows the business to preserve its line of credit at the bank. For the new business, a lease can help avoid the costs of getting a bank loan.

Lease payments can usually be written off as a business expense when paid.  Some leases must be capitalized and depreciated over time. The interest portion of the lease payments is tax deductible - but not the principal portion.  The tax value of the asset is depreciated based on rates in the Income Tax Act.

Determining the real cost of leasing versus buying is a difficult task for most people. In theory, the net present value of the lease (including the tax benefits) should be compared to the cost of buying. If the lease cost is greater than the purchase price, the asset should be bought.  Without a net present value analysis you should compare interest rates.  As a rule of thumb, the alternative with the least interest rate is usually the best choice.

Leasing is a good choice but consider the downside.  You now have a fixed monthly payment for the term of the lease. Timing of the payment can also be a problem. If you pay by cheque you have control over when the cheque is released. You have little control with a pre-authorized cheque.  You will have to continue payments regardless of your business situation.  A leasing company will let some of your payments lapse.

After two or three failed payments you can expect collection action. Expect to have the asset seized if you miss four or more payments. Your business may not survive if you lose a key piece of equipment.

QUICKBOOKS TIP OF THE MONTH

CREATING AN ACCOUNTANT'S COPY 

An Accountant's Copy is a version of your company file we can use to make changes while you continue to work. Once the changes have been made by us, you can then import those changes into your company file. Create an Accountant's Copy file and deliver it to us (e-mail, CD, or other method). Before you begin, coordinate with us on a dividing date. This date defines the fiscal period we will work on.

You can also create and send an Accountant's Copy in one step using the Accountant's Copy File Transfer, an Intuit Web service.

1.     Go to the "File" menu, click "Accountant's Copy",  and  then click "Save" file.

2.     Go to the "File" menu, click "Accountant's Copy", click "Client Activities", and then click "Save" file.

3.     Confirm you want to create an "Accountant's Copy" and click "Next".

4.     Choose a dividing date.

5.     Click "Next".

6.     (Optional) Change the suggested location for the file and the filename that QuickBooks suggests for the accountant's copy. The file must have a (.qbx) extension.

7.     Click "Save".

8.     Give the Accountant's Copy transfer file (.qbx) to us and continue working.

After saving the Accountant's copy, QuickBooks displays "Accountant's Changes Pending" in the title bar.

IMPORTANT UPCOMING DATES