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Cash is the most important factor when operating a small business. Although spending cash to acquire a tax deduction (buying a car) reduces your taxable income, it does not reduce your tax directly. Consequently, consider cash position and cash flow before making any decision. Let’s see both the options from income tax perspective here: 

Buying a Car
If you buy a car for business purpose, Canada Revenue Agency allows you to deduct capital cost allowance (CCA) which is computed as 30% of the cost of the car, on a declining balance method every year. In the year of acquisition, only half of the CCA can be claimed. CCA deduction is commonly known as depreciation.

The cost of the car on which CCA is claimed is limited to $30,000 before GST/PST/HST. Therefore, if you purchase a luxury Car, for example for $50,000, only $30,000 can be depreciated for tax purposes. However, if you have a Automobile loan on the car purchased, you will be eligible to deduct the interest paid on the loan to a maximum of $300 per month of interest charges. In the first few years, the CCA tax deductions are greater for buying a car as compared to leasing a car.

Leasing a Car
If you lease the car to earn income, Canada Revenue Agency allows deducting the maximum monthly car lease payment of $800 plus applicable taxes. The maximum monthly $800 limit is reduced (through a complex formula) if the value of the vehicle exceeds the capital cost ceiling of $40,000 approximately. The initial down payment you make is not deductible in one lump but rather spread out over the life of the lease and ,therefore becomes part of the monthly lease payment.

Lease payment tax deduction is consistent during the lease contract therefore in the later years the tax deductions are greater for leasing a car as compared to buying a car. Keep in mind, if the car is used for business and personal both, only the proportionate Motor vehicle expenses incurred to earn income are deductible. For example if you use your car 75% of the time for business to earn income, then only 75% of your monthly lease payments or your annual depreciation plus interest is deductible for tax purposes.

Leasing a car through the business or personally, depends on your personal circumstances and business situation; and each option has its own benefits and disadvantages.
Leasing a Car through a business has real advantages for the company , A business can deduct up to 100% lease rental payments, Furthermore, all expenses associated with the business lease such as motor insurance, servicing and repairs, are fully tax deductible against the company’s income, when vehicle is used for commercial activities only .
Keep in mind if the car is for business and personal use, the tax deduction only apply to the business use proportion of the expenses in the company. The personal use of the car will have to be calculated and included in your personal taxable income as a taxable benefit. It means you are paying the tax on the personal use of the car, this tax benefit as additional income might take you the higher tax bracket, and trigger more personal income tax liability for you. If the business required the vehicle for its commercial activity, then leasing a car through a business can be a better option.
Leasing a car personally, You will be making the payment out of your pocket and taxed income, but the Incorporated business are allowed to reimburse you (employee-owners) business use proportion of reasonable actual expenses or Auto allowance per km for business mileage as allowed by Canada Revenue Agency (CRA).
CRA allowed reasonable allowances is not included in your personal taxable income. And reimbursed expenses are tax deductible in the company. Maintenance of log book is highly recommended to keep accurate records of your business and personal mileage.

Dividends and salary are two forms of income which the shareholder can take from the corporation.
A Salary is the remuneration you receive from your employer (corporation). Salary is your earned income.
And Dividend is a distribution of a portion of a corporation’s earnings after income tax, decided by the board of directors, to a class of its shareholders. Dividends typically refer to income from investment, which is not earned by you. Taxation of these two forms of income can vary. Here are the Advantages and Disadvantages for Salary and Dividend income.

If the corporation pays you a salary:
Advantages
• Salary is your personal earned Income
• Based on Salary earned, you can contribute and make room for RRSP (depending on the age)
• You and the Corporation is contributing to CPP (Canada pension plan) for your retirement
• Salary, and CPP employer’s portion CPP paid out will be expenses for the corporation
• Child care expenses can be claimed based on earned income

Disadvantages
• Salary income is one hundred percent taxable with the regular income tax rate, depends on your tax bracket
• Corporation is required to remit regular payroll withholding taxes to Canada Revenue Agency. And at the end of the each Calendar year Corporation is required to prepare and the Statement of Remuneration Paid (T4 slip) for the employee, and file with Canada Revenue Agency. Late and irregular payroll remittance can cause interest & penalty. More paper work.

If the corporation pays you dividends:
Advantages
• Dividend is your personal Investment income
• Dividend income is taxed at lower rate in comparison to salary income because Canada Agency allows dividend tax credit
• You and Corporation is NOT contributing to CPP (Canada pension plan), Not having to pay into the Canada Pension Plan can save you money.
• Withholding taxes and regular remittance to Canada Revenue Agency not required but at the end of Calendar year corporation is required to prepare Statement of Investment Income (T5 slip) for the shareholder, and file with Canada Revenue Agency. Less paper work

Disadvantages
• Based on Dividend investment income you cannot contribute and make room for RRSP
• Not contributing in CPP, can reduce the pension when you retire
• Child care expenses deduction is not allowed based on investment income
The choice of salary verses dividend depends on the type and level of corporate income, and also the business owner’s personal financial situation. Usually Corporation pays salary or bonus to ensure the corporation doesn’t earn over the small business limit of $500,000, and then dividends are paid out if more income is required. Canadian controlled private corporation (CCPC) pays tax at a lower rate if CCPC income is not exceeding the small business limit.

As per income tax act Donation is treated differently under personal name and under a private corporation.

Charity Donations under a Personal Name
Charitable donation to a registered charity made under a personal name is a non-refundable tax credit for individual. The first $200 will receive a tax credit equivalent to the lowest marginal rate (federal and provincial combined) and the remaining will receive a tax credit at the highest marginal rate (federal and provincial combined).
Basically Donation is nonrefundable tax credit help you to reduce your tax owning. It is not a deduction to reduce your taxable income to determine tax payable.
Donations need not be claimed in the year they are paid. They can be carried forward for up to 5 years.

Charity Donations under a Private Corporation
Charitable donation to a registered charity made under a private corporation is an expense (deduction) for corporation, and reduces corporation income dollar for dollar.
Small business tax exemption allows Canadian controlled private corporation (CCPC) to be taxed on their active business income at a preferred rate, which is usually lower than the personal marginal tax rate.
Private Corporation who derives most of its income from investments is not allowed for small business tax exemption, and to be taxed on their investment income at a high marginal rate, which is usually higher than the personal marginal tax rate.

Personal or Corporate?
A charitable donation you make under a personal name or the private corporation depends on individual’s income level, and corporation status as explained above.

If it’s a Canadian controlled private corporation (CCPC) with active business income up to small business limit ($500K), then it’s probably best to donate under personal as it will give you a higher tax deduction. Because Small business tax exemption allows Canadian controlled private corporation (CCPC) to be taxed on their active business income at a preferred rate, which is usually lower than the personal marginal income tax rate.
But if the private corporation active income generates from investments then it’s probably best to donate under a private corporation. It will give the corporation higher tax deduction Because Canadian controlled private corporation (CCPC) with investment income are not eligible for small business tax exemption, and to be taxed on their investment income at a very high rate, which is usually higher than the personal marginal income tax rate.

You do not have to register for the GST/HST if you provide only GST/HST exempt goods and services. Examples of GST/HST exempt goods and services include most health care and dental services, certain child care services, music lessons and used residential housing, and many educational services.
You do not have to register for the GST/HST if you are a sole proprietor, partnership, or corporation whose total taxable revenues (sales) before expenses are $30,000 or less in a single calendar quarter or over the past four consecutive calendar quarters.
However, some businesses like Taxi and limousine operators, and Non-resident performer are required to register for the GST/HST even if their total taxable revenues (sales) before expenses are $30,000 or less in a single calendar quarter or over the past four consecutive calendar quarters.
Even if you do qualify as a small supplier, you may want to register voluntarily for the GST/HST. No matter what kind of business you’re in, you will be paying GST/HST on the taxable goods and services you use in the course of your commercial activities.
If you are a GST/HST registrant, you will be able to recover some of the GST/HST you paid out on business purchases and expenses through Input Tax Credits (ITCs).

Before you register for a GST/HST account, you need to know if you have a Business Number (BN). You have a BN if you have or had at least one of our business accounts such as a payroll account. If you do not have a BN, you will receive one when you register for a GST/HST account.

The quick method is a simplified accounting option available to help small businesses calculate their net tax for GST/HST purposes. This method reduces paperwork and makes it easier to calculate GST/HST remittances and file GST/HST returns because it eliminates the need to report the actual GST/HST paid or payable on most purchases.
When you use the quick method, you still charge the GST at the rate of 5% or the HST at the applicable rate on your taxable supplies of goods and services. However, to calculate the amount of GST/HST to remit, you multiply the amount of your GST/HST included supplies for the reporting period by the quick method remittance rate (depends on province). The remittance rates of the quick method are less than the applicable rates of GST/HST that you charge.
This means that you remit only a part of the tax that you collect, or that is collectible. Since you cannot claim input tax credits (ITCs) on most of your business purchases when you use this method, the part of the tax that you keep accounts for the approximate value of the ITCs you would otherwise have claimed.
As a rule of thumb, this method is good for business with small amount of taxable business expenses since there would be very few ITCs (Input Tax Credits) to forgo. Businesses using quick method collect GST/HST as usual but remit a reduced amount of the tax collected.
Reduced tax remittance can help small business owner to balance their cash flow but you should note that the part that is not remitted under Quick method is reported as income on your income tax return.
Whether the quick method will be more beneficial for you to use than the regular method depends on your specific situation.
By filing an election with Canada Revenue Agency, you can use quick method.

Who can make this election?
You can use the quick method if you meet all of the following conditions:
- you have been in business continuously throughout the year (365 days) ending immediately before your current reporting period OR you are a new registrant and you can reasonably expect your worldwide taxable supplies to be $400,000 or less in your first full year of business;
- you did not revoke an election for the quick method claiming ITCs
- during that 365 -day period;
- you are not a person listed under “Exceptions” below; and
- your revenues from annual worldwide taxable supplies (including GST/HST and zero-rated supplies) including those of any associated company are not more than $400,000. When you calculate your annual worldwide taxable supplies, exclude supplies of financial services and sales of real property, capital property, and eligible capital property (including goodwill).

Exceptions
The following persons cannot use the quick method:
- persons that provide legal, accounting or actuarial services in the
- course of the person’s professional practice;
- persons that provide book-keeping, financial consulting, tax consulting or tax return preparation services in the course of the person’s commercial activity;
- listed financial institutions;
- Municipalities or local authorities designated as a municipality;
- Public colleges, school authorities, or universities;
- Hospital authorities;
- Charities; or
- Non-profit organizations with at least 40% government funding in the year (qualifying non–profit organizations

For the complete rules, please refer to Canada revenue agency guide RC4058 Quick Method of Accounting for GST/HST.

Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.

You have to file a U.S. income tax return while working and living abroad unless you abandon your green card holder status by filing Form I-407, with the U.S. Citizen & Immigration Service, or you renounce your U.S. citizenship under certain circumstances described in the expatriation tax provisions.

The due date for filing a federal individual income tax return generally is April 15 of each year if your tax year ends December 31st. Your return is considered filed timely if the envelope is properly addressed and postmarked no later than April 15.
If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. If you cannot file by the due date of your return, you can request an extension of time to file. To receive an automatic 6- month extension of time to file your return, you should file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the due date of your return. For more information, refer to the Form 4868 instructions.
However, if you are a U.S. citizen or resident alien, who is either: (1) living outside of the United States and Puerto Rico and your main place of business or post of duty is outside of the United States and Puerto Rico; or (2) in military or naval services on duty outside of the United States and Puerto Rico on the due date of your return, you are allowed an automatic 2-month extension until June 15 to file your return and pay any tax due. if you use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations qualify you for the extension.

You must file a federal income tax return for any tax year in which your gross income is equal to or greater than the personal exemption amount and standard deduction combined (per the Form 1040 Instructions for the corresponding tax year). Generally, you need to file returns going back six years. This will depend on the facts and circumstances of your particular situation.

The taxation of payments received from Canadian retirement programs that are similar to the U.S. Social Security system receive special tax treatment due to an income tax treaty between the United States and Canadian governments. The way this income is taxed depends on the recipient’s residence.
The special tax treatment applies to payments receive from the following Canadian retirement programs: Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS)

If the recipient is a resident of the United States, the benefits:
• are taxable only in the United States,
• are treated as U.S. social security benefits for U.S. tax purposes, and
• are reported on Form 1040, U.S. Individual Income Tax Return (or Form 1040A) on the line on which U.S. social security benefits would be reported.

If the recipient is a U.S. citizen or lawful permanent resident (green card holder) who is a resident of Canada, the benefits are taxable only in Canada.

An employer may be required to withhold federal income taxes from the paycheck. Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U.S. citizens, unless specifically excluded from the term &quotwages&quot by law, or exempt from tax by treaty. Nonresident aliens claiming a tax treaty withholding exemption for compensation should file Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.

If you live in a foreign country, use one of these addresses to file your paper Form 1040, Form 1040A, Form 1040-EZ, Form 1040NR or Form 1040NR-EZ:
• If you are NOT enclosing a check or money order:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215 U.S.A.
• If you ARE enclosing a check or money order:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303 U.S.A.

Private Delivery Services-You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following:
• DHL Express (DHL): DHL Same Day Service
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First
• United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

In general, if you are a U.S. citizen or resident alien married to a nonresident alien, you are considered “Married Filing Separately” unless you qualify for a different filing status. If you pay more than half the cost of keeping up a home for yourself and a qualifying child or other relative, you may qualify for the head of household filing status.

If you are a U.S. citizen or resident alien married to a nonresident alien, you and your spouse can choose to have your spouse treated as a U.S. resident for all U.S. federal income tax purposes. This allows you and your spouse to file a joint return, but also subjects your nonresident alien spouse’s worldwide income to U.S. income tax.

If you file a joint return, you can claim an exemption for your nonresident alien spouse. If you do not file a joint return, you can claim an exemption for your nonresident alien spouse only if your spouse has no income from sources within the United States and is not the dependent of another U.S. taxpayer.

U.S. citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a foreign tax credit on foreign income taxes or an itemized deduction for eligible foreign taxes. However, if you take the foreign earned income exclusion your foreign tax credit or deduction will be reduced.
If eligible, you can claim a foreign tax credit on foreign income taxes owed and paid by filing Form 1116 with your U.S. income tax return.
You may also be eligible for the foreign earned income exclusion and foreign housing exclusion. Please note that for purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees.

Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Foreign earned income is income you receive for services you perform in a foreign country or countries.

To qualify for the foreign earned income exclusion:
• Your tax home must be in a foreign country; and
• You must meet either the bona fide residence test or the physical presence test.
• It does not matter whether earned income is paid by a U.S. employer or a foreign employer.

Foreign earned income does not include the following amounts:
• The previously excluded value of meals and lodging furnished for the convenience of your employer.
• Pension or annuity payments including social security benefits.
• Payments by the U.S. Government, or any U.S. government agency or instrumentality, to its employees.
• Amounts included in your income because of your employer’s contributions to a nonexempt employee trust or to a non-qualifying annuity contract.
• Recaptured unallowable moving expenses.
• Payments received after the end of the tax year following the tax year in which you performed the services that earned the income.

Yes, since the foreign earned income exclusion is voluntary, you must file a tax return to claim the foreign earned income exclusion. It does not matter if your foreign earnings are below the foreign earned income exclusion threshold. There are specific requirements that you must satisfy to be eligible to claim the foreign earned income exclusion.

To be eligible for the foreign earned income exclusion, you must have a tax home in a foreign country and be a U.S. citizen or resident alien. You must also be either a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year (Bona Fide Residence Test), or you must be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months (Physical Presence Test).

U.S. citizens may qualify under either test. But, there are specific definitions for U.S. resident aliens under each test.
Physical Presence Test-To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country or countries, for at least 330 full days during any period of 12 consecutive months. A full day means the 24- hour period that starts at midnight.
Bona Fide Residence Test-To meet this test, you must be one of the following:
• A U.S. citizen who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1-December 31, if you file a calendar year return), or
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1-December 31, if you file a calendar year return).

Whether you are a bona fide resident of a foreign country depends on your intention about the length and nature of your stay. Evidence of your intention may be your words and acts. If these conflict, your acts carry more weight than your words. Generally, if you go to a foreign country for a definite temporary purpose and return to the United States after you accomplish it, you are not a bona fide resident of the foreign country. The two tests differ in that one is based exclusively on physical presence while the other is based on a taxpayer’s intentions.

Foreign pensions cannot be excluded on Form 2555. Foreign earned income for purposes of the foreign earned income exclusion does not include pensions and annuity income (including social security benefits and railroad retirement benefits treated as social security).

You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return. Examples include the following:
• A nonresident alien individual eligible to get the benefit of reduced withholding under an income tax treaty
• A nonresident alien individual not eligible for an SSN who is required to file a U.S. tax return or who is filing a U.S. tax return only to claim a refund.
• A nonresident alien individual not eligible for an SSN who elects to file a joint U.S. tax return with a spouse who is a U.S. citizen or resident alien.
• A U.S. resident alien (based on the substantial presence test) who files a U.S. tax return but who is not eligible for an SSN.
• An alien spouse who is claimed as an exemption on a U.S. tax return but who is not eligible to get an SSN.
• An alien individual who is eligible to be claimed as a dependent on a U.S. tax return but who is not eligible to get an SSN.
• A nonresident alien student, professor, or researcher who is required to file a U.S. tax return but who is not eligible for an SSN, or who is claiming an exception to the tax return filing requirement.
• A dependent/spouse of a nonresident alien U.S. visa holder, who is not eligible for an SSN.

ITINs are for federal tax reporting only and are not intended to serve any other purpose. The IRS issues ITINs to help individuals comply with the U.S. tax laws and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).
An ITIN does not provide authorization to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

U.S. source royalty income paid to a nonresident alien generally is subject to a 30% U.S. federal income tax. If you are claiming a reduced rate of U.S. federal income tax on U.S. source royalty income under a tax treaty, you should obtain an ITIN and provide it to the withholding agent on a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (PDF). The Form W-8BEN is not filed with the IRS.

Foreign persons are generally subject to U.S. withholding tax at a 30% rate on the gross amount of certain income they receive from U.S. sources. By providing a completed Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding , to the U.S. payer (also known as the U.S. withholding agent) before or at the time income is paid or credited, you are:
• Establishing that you are not a U.S. person,
• Claiming that you are the beneficial owner of the income for which Form W-8BEN is being provided, and
• If applicable, claiming a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty. In order to claim a reduced rate or exemption from tax under an income tax treaty, the Form W-8BEN must include a valid U.S. taxpayer identification number.

The completed Form W-8BEN is provided to the U.S. payer (also known as the U.S. withholding agent) before or at the time income is paid or credited. This form is not filed with the U.S. Internal Revenue Service. For additional information, please refer to the Instructions for Form W-8BEN.