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T2125 - having trouble coming to the right tax


#1

Hi Everyone, I am totally lost with this reporting. My client has a straight forward (Self employed) business income of $36,671 and has no home office or any expense to offset the income. So I decided to use quick method to reduce his HST payable. Applicable rate is 8.8% for 13% HST rate so I have the following
(fees 36,671, HST payable 2,863 and Adjusted business income 33,908).
I don’t understand how he can still come up with tax due of $8,000

Can anyone help


#2

Here is the breakdown how can he have to pay so much CPP


#3

The CPP calculation is absolutely correct. He gets to pay the employee’s and the employers portion since he is self employed.


#4

I found what was wrong, I had to deduct the employer contributions as an expense. It’s not much but it reduces taxes a little bit.


#5

Assuming that this taxpayer is allowed to make such a HST election (http://www.cra-arc.gc.ca/E/pub/gp/rc4058/rc4058-e.html#P107_6535
(And assuming that such eligible election had been made by due date)

It seems that the tax payable is about $8,079.53

However, from the description, it sounds like this taxpayer is not actually self-employed? I would inquire further.


#6

Yes, I read the CRA requirements. he can use the quick method. But what makes you think he’s not self employee? He works for an agency that pays him as a contractor. Although he could work from home and claim home office he leaves in shared apartment wih roommates so there is no basis for claiming home expenses. and because it’s a service, he has no other expenses to claim maybe phone or transportation but even so, CRA could easily deny those claims.


#7

“He works for an agency”

  • ok,so you say that he is an employee of the agency then?..

#8

@joe.justjoe1 It is frequent that employment agencies provide T4 slips to their contractors.

See http://www.cra-arc.gc.ca/E/pub/tg/rc4120/rc4120-e.html#P749_70858

But, the software will automatically calculate the deduction for CPP, so I am a little confused here. I think that we have half of the story.


#9

I am not really sure what you want for an answer; however, CPP x two for the business income plus the taxes owing on the 33,000 would be my guess. Have you looked at the t1summary?

Edit, the answers from everyone else did not show up until I posted this. Wierd


#10

Yes the calculation is right I was shocked at first but realized later that the calculation was right, I just has to claim the employer contribution as expenses and go for a quick method.


#11

What is that?
There is no such thing… :confused:

In any case, I would first inquire further into the matter of the T slip that the Agency was almost certainly required to file…


#12

Yeah you may want to reconsider this if you are trying to write this off twice.


#13

yeah there shouldn’t be any entry needed. It should be automatic done by software.


#14

[quote=“kytax2015, post:13, topic:1248, full:true”]
yeah there shouldn’t be any entry needed. It should be automatic done by software.
[/quote]Not sure about that


#15

there a deduction for CPP on line 222 for self-employment.


#16

Misunderstood what you were saying. When I read your post, some reason I thought you were saying that the program did not automatically do that.


#17

You don’t deduct the employer portion of CPP when the guy is self-employed. The tax credit shows up on Schedule 1 for 1/2 the CPP owing.
Line 9060 on the T2125 is for employees this fellow may employ NOT his own contributions.

The original amount due you were surprised about is correct.