Category: Personal Tax Case Studies

🧾 Introduction to the Caplans — Marcus & Doreen (Employee + Self-Employed)

This is a practical, beginner-friendly knowledgebase for tax preparers handling a household where one spouse is self-employed (Doreen) and the other is an employee with employment expenses (Marcus). You’ll learn what to collect, how to enter key items into Intuit ProFile, and which client conversations to have — all explained step-by-step for someone who’s never used tax software before. ✨

🔎 Quick snapshot of the case

• Doreen: self-employed consultant / graphic designer (Bespoke Marketing). Prepares own bookkeeping; has business statement and prior UCC closing balances (Classes 8, 10, 50). Opted into self-employed EI in prior year. Wants to repay Home Buyers’ Plan (HBP) and made a $10,000 RRSP contribution. Made four quarterly instalments.
• Marcus: employee (sales associate at engineering firm). Hybrid work (2 days home, 3 days office). Has a signed T2200 and a list of employment expenses to claim on form T777.
• Family: one child (Christopher, age 15) with orthodontic payments split across tax years. Donations to claim. No major medical coverage for braces.

📦 What you must collect before preparing the returns

• Doreen’s business statement / bookkeeping spreadsheet (expense list + invoices)
• Prior year tax return (to pick up closing UCC balances for Classes 8, 10, 50)
• Doreen’s RRSP receipt(s) and HBP balance/NOA showing required minimum repayment
• Marcus’s signed T2200 and his employment-expense supporting details (mileage, home-office %, supplies, parking, etc.)
• Receipts for orthodontics (dates & amounts), donations, and installments paid (Doreen’s $11,000 ×4)
• Any EI self-employed election confirmation (if available)

🚀 Step-by-step: Entering the Caplans’ data in Intuit ProFile (for absolute beginners)

1) Start with client setup

1. Open ProFile → create new client or open existing client file.
2. Enter personal info (names, SIN, DOB, address). Double-check DOB for dependants (affects credits).

2) Doreen — Self-Employed (T2125)

Goal: Enter business revenue & expenses, plus CCA/UCC and HBP/RRSP items.

A. Business income & expenses (T2125)

• Open the client → choose T2125 (Statement of Business or Professional Activities).
• Copy Doreen’s bookkeeping totals into the relevant T2125 fields:
  • Gross revenue (sales) → “Gross business income”
  • COGS if any → “Cost of goods sold”
  • List expenses under the correct categories (advertising, supplies, subcontractors, travel, meals & entertainment (half deductible rules), motor vehicle, rent, utilities, etc.).
• Use the Business Statement spreadsheet as your mapping guide — match each row to the T2125 category.

B. Enter UCC / CCA (depreciation)

• In ProFile, on the T2125 page find “CCA / UCC” link (often a button or blue field). Click to open the CCA worksheet.
• Enter the opening UCC balances for the asset classes from last year (Classes 8, 10, 50). These are the closing balances on last year’s return.
• Add any capital purchases during the year in the correct class (cost, date). Enter proceeds on sale if any.
• Let ProFile calculate allowable CCA and resulting UCC and any recapture on sale.

C. EI self-employed premium election

• In ProFile, look for the self-employment registration options or checkboxes (often under “Other Info” or CPP/EI area on the T2125 or T1).
• Enter that Doreen has elected to pay EI premiums — and enter the amount actually paid (if a slip or confirmation exists). ProFile will flow the proper calculation.

D. RRSP contribution + HBP repayment handling

• Enter the $10,000 RRSP contribution in the RRSP contributions area (T1 > RRSP section). The RRSP receipt amount should be entered exactly from the slip.
• Designate part of that contribution as an HBP repayment:
  • In ProFile, after entering the RRSP contribution, open the Home Buyers’ Plan (HBP) / HBP repayment worksheet.
  • Enter the outstanding HBP balance (e.g., $6,600). You may designate up to the required HBP repayment from RRSP contributions.
  • Example: From the $10,000 contribution, designate $6,600 as HBP repayment — this reduces the outstanding HBP balance and the remaining $3,400 is treated as an ordinary RRSP contribution (eligible for deduction subject to contribution room).
  • ProFile will show: HBP repaid amount vs. RRSP deduction available. Confirm with client which portion they want as HBP repayment vs. deductible RRSP.

🔔 Important note: You must explicitly designate RRSP contributions as HBP repayments in the software (and via CRA form/process). Otherwise contributions will be treated as regular RRSP contributions.

E. Enter Doreen’s instalments

• On the summary/last page of the T1 there’s a field for tax installments paid — enter the four $11,000 instalments (15 Mar, 15 Jun, 15 Sep, 15 Dec). ProFile will net these against tax owing to compute refund/balance.

3) Marcus — Employee with employment expenses (T777)

Goal: Claim allowable employment expenses using T777, relying on a signed T2200.

A. Enter T2200 info

• In ProFile, open the T2200 or employment section and attach the T2200 details (employer name, period, and check the boxes for what he was required to pay/perform).
• Ensure the T2200 is “signed” (assume signed per case).

B. Enter expenses into T777

• Open T777 (Statement of Employment Expenses) in ProFile.
• Key categories to enter: motor vehicle (kilometers, business km), supplies, home office (if eligible), parking, travel, meals (50% rules), cell phone (proportion used for employment), uniforms, etc.
• For home office: since Marcus works two days a week from home, determine home-office eligibility:
  • Confirm T2200 indicates required home workspace AND expenses. If the home office was used regularly and continuously over a signifcant period (or is the principal place of work), you can claim a portion of home expenses (utilities, rent, internet, portion of mortgage interest not eligible) — ProFile has fields to compute percentage based on square footage or hours.
  • Enter total household expenses and the percentage used for business.

C. Why childcare didn’t go to Marcus

• Important teaching point: Dividends are not earned income for child care deduction purposes. If Marcus only received dividends (no salary/self-employment income), childcare deduction cannot be claimed by him — explain to client and recommend future compensation restructuring if they want childcare deduction eligibility (see Discussion section below).

4) Orthodontics & medical expenses timing (Christopher)

Issue: Three payments for braces: Sept (2022), Dec (2022), Mar 10 (2023). Total $6,750.

A. Medical expense rules to use strategically

• CRA allows medical expenses claimed in a tax return for any 12-month period ending in the tax year. This gives flexibility to include payments across year-end to maximize the total claim in one year.
• In ProFile:
  • Go to Medical Expenses area → add each payment with the date paid and amount.
  • For the claim, pick the 12-month period that captures the largest total (for example, if March 10, 2023 payment helps reach a higher aggregate within a 12-month window ending in 2023, you might claim the 12-month period Mar 11, 2022–Mar 10, 2023 on the 2023 return, or Sept 1, 2022–Aug 31, 2023 depending on amounts). Choose the period that yields the largest deductible amount.
  • ProFile will compute the eligible medical expense amount and apply the lower of the threshold (3% of net income or the fixed amount) for the non-refundable credit.

B. Practical beginner tip

• Always ask for dates of service and dates of payment. If clinic gives installment schedule, attribute payments to the exact payment dates when entering into ProFile.

5) Donations & other credits

• Enter charitable donation receipts in the donation section. ProFile computes federal+provincial donation credit rates and carries forward any unused donation amounts.

✅ Common issues & client discussion points (what to explain to Marcus & Doreen)

1. HBP repayment & RRSP designation
   • Explain that Doreen can designate part of her $10,000 RRSP contribution to repay HBP ($6,600 required). The remainder becomes a regular RRSP contribution and may be deductible (subject to contribution room).
2. EI self-employed election
   • She elected EI coverage in the past; confirm she still wants it. Paying EI premiums gives access to special benefits but increases current contributions.
3. Installments
   • Doreen made $44,000 in instalments. Explain how ProFile nets instalments and may produce refund/amount owing. Keep instalment history for next year planning.
4. Childcare deduction eligibility
   • Explain to Scott & Doreen that only the lower-income spouse with earned income can normally claim childcare expenses. Dividends don’t count as earned income. If they want to claim childcare in future years, discuss paying part salary to Scott from the corporation (or a mix of salary + dividends) so he has earned income to claim childcare against.
5. Marcus’s home-office
   • Confirm eligibility and documentation for home-office (T2200 supports it). If approved, Marcus can claim a portion of utilities, internet, office supplies. Keep receipts and a simple log of days/hours worked from home.
6. Orthodontics & medical timing
   • Explain the 12-month window rule and show how you picked the period that maximizes the medical credit.

🧩 Special Boxes & Pro Tips (copyable checklist)

📌 Quick Checklist before filing

• Prior year UCC closing balances entered for Classes 8, 10, 50
• Business revenue/expense mapping verified against Doreen’s spreadsheet
• RRSP slip entered and HBP repayment designated in the HBP worksheet
• EI self-employed election status entered (and premiums)
• Marcus’s T2200 entered and T777 fully documented (km log, receipts)
• Medical payments entered with exact dates — chosen 12-month period optimized
• Donations & instalments entered correctly

💡 Pro Prep Tip: Save a PDF of the T2125 and T777 worksheets before finalizing — those are the pages clients most often want to keep for bookkeeping.

🚨 Common Pitfall: Don’t treat dividends as salary. If client expects benefits tied to “earned income” (childcare deduction, RRSP contribution room for some plans), dividends won’t help. Discuss salary vs dividend split with corporate accountant.

Closing: What to document & next steps with clients

• Provide Doreen with a short memo showing:
  • HBP repayment designated amount and remaining balance
  • How much of the RRSP contribution is deductible vs. designated HBP repayment
  • Summary of instalments & expected refund/amount owing
• Advise Marcus to keep a daily log of work-from-home days and business km — critical evidence for T2200/T777 claims.
• Recommend a simple compensation plan meeting with the corporate accountant if they want to restructure salary/dividend mix (to access childcare deduction/CPP credits).

🧾 Marcus Caplan — Preparing His Tax Return & Reviewing Employment Expenses (Beginner’s Guide)

This section explains, step-by-step, how to prepare Marcus’s T1 return and enter his employment-expense information in Intuit ProFile — written for someone with zero tax software experience. It covers the right/allowed claims, common CRA red flags, practical documentation checks, and the exact ProFile places to enter each item. ✅

🧭 Quick case snapshot (what matters for Marcus)

• Marcus = employee (sales associate), hybrid work (3 office days / 2 home days).
• Has a signed T2200 (employer form authorizing certain expenses).
• Claimed items: vehicle expenses (new 2023 Toyota Camry), parking, stationery, cell phone bills, lunches, small equipment (MacBook/printer/furniture), payment to son for admin.
• Important tax issues: home office rules, what employees can/cannot deduct, reimbursements, vehicle CCA rules for class 10.1, and GST/HST rebate eligibility for employment expenses.

✅ High-level rules you MUST remember (short checklist)

• Home-office deduction for an employee is allowed only if home is the primary place of work (≥50%) OR the employee has no fixed workplace and must work from home to earn employment income.
• Dividends ≠ earned income (relevant for childcare, not Marcus here).
• If an employer reimbursed an expense (directly or via allowance that matches receipts), the employee cannot claim it again (unless reimbursed less than actual out-of-pocket).
• Employees cannot claim CCA (capital cost) for items unless the T2200 specifically requires them to purchase and use that equipment and no reimbursement exists — even then CRA is strict. Immediate expensing rules for businesses do not apply to employees.
• Payments to family members (minors) are highly scrutinized — must be reasonable, documented, and arms-length comparable.

🔎 Read the T2200 with a “fine tooth comb”

Before entering anything into ProFile: open the client’s T2200 and check every question that controls eligibility:

1. Q10 – Home workspace required?
   • If box says “Yes” but Marcus only worked at home 40%, home office is NOT allowed (must be ≥50% to be primary place).
2. Q6 – Will employee be reimbursed?
   • If “Yes”, the reimbursed categories cannot be claimed (or only the unreimbursed portion).
3. Q9 – Is an assistant required?
   • If “No”, then paying an assistant (e.g., son) is difficult to justify as an employment expense.

Write short notes on T2200 fields — these drive what ProFile will allow/should allow.

🖥️ Where to enter items in Intuit ProFile (step-by-step)

A. Personal & Slip data

1. Open Marcus’s client file.
2. Enter T4 slip(s): employer, boxes 14, 40, 42, etc. (Box 40 often shows allowances which hint at vehicle/auto allowances.)

B. T2200 / Employment expenses (T777)

1. In client workspace, add Form T777 (Statement of Employment Expenses).
2. Click the T2200 link area and attach/enter T2200 answers (this lets ProFile know which categories are allowed).
3. Fill out T777 sections:
   • Motor vehicle expenses → opens Auto Worksheet. Enter total km and business km (or best estimate), purchase/lease, insurance, interest paid on car loan, fuel, repairs, parking.
   • Parking → enter parking fees (allowed if required by employer).
   • Office supplies / stationery → enter totals with supporting receipts.
   • Meals / lunches → only allowable when directly related to earning employment income and supported by T2200 — CRA is strict; generally 50% rule applies for business meals.
   • Cell phone / telecoms → only enter the unreimbursed business portion. If T2200 shows reimbursement happened, leave it out or enter only the shortfall and explain in case notes.

C. Vehicle specifics (Auto worksheet)

• Enter: purchase date, total cost ($54,990), business km, total km, interest on loan ($418.30), lease payments (if applicable).
• Select vehicle class in worksheet (Class 10.1). ProFile will apply CCA rules and half-year rule where applicable.
• Note: For employees, immediate expensing (full write-off) is not available — only allowed for businesses. Marcus as employee gets AIIP (accelerated deduction where applicable) but subject to employee limits. ProFile will show allowable CCA; do not manually override without documenting reason.

D. Home office

• If T2200 supports home office AND Marcus meets the “primary place” test, open Business-use-of-home section in T777 and enter area used, total house area, utilities, rent portion, etc. If not primary (e.g., 40% of time), do not enter home office items — ProFile will still let you, but that’s risky. Add a case note why you excluded it.

E. Equipment (MacBook/printer/furniture)

• For employees, these are generally NOT deductible (CCA not allowed). Do not put as CCA on his personal return unless T2200 explicitly requires purchase and there is no reimbursement. If in doubt, add detailed explanation in file and confirm with client.

F. Payments to family (son Christopher)

• If you enter amounts paid to Christopher, be prepared to:
  • Create a T4A or include on Christopher’s return as self-employment (if he received a T4A or had to file).
  • Document the work, hours, rates, and reasonableness (compare to market rates). CRA often disallows payments to minors if not credible.

G. GST/HST rebate (line 457 & form GST370)

• If T2200 and job facts make Marcus eligible for the GST/HST rebate for employees, in ProFile set the GST/HST rebate flag to Yes on T777; ProFile fills line 457 and auto-populates Form GST370 fields.
• If prior years didn’t claim it, mention possible adjustments/refiles.

📌 Common red flags CRA will review (and how to document to survive audit)

• Large payments to minors or family → get signed timesheets, job descriptions, bank transfers, invoices.
• Home office < 50% but still claimed → keep daily/weekly logs and employer confirmation if claiming exceptional circumstances.
• Cell phone full bills claimed while employer reimbursed → keep itemized call logs and reimbursement receipts showing amounts reimbursed.
• MacBook/printer claimed by employee → keep T2200 text requiring purchase and proof employer requires employee to provide own equipment.
• Meals/lunches with colleagues — get meeting agendas, attendees, client names, business purpose.

🧾 Practical examples & explanation (so it clicks)

• Home office rule applied: Marcus works 3 days in office, 2 days at home ⇒ 40% at home. Tax law requires ≥50% for primary place of work. So home office = not allowable on his T777 (unless exceptional).
• Vehicle purchase and class 10.1: Car cost $54,990 ⇒ CCA class limit rules cap deductible portion (e.g., only $34,000 might be eligible for UCC). Employees cannot use new-business immediate expensing; they use AIIP where eligible. ProFile computes allowed CCA automatically when you enter cost and class.
• Cell phone: Total $1,866; company reimbursed $788 for business portion ⇒ Marcus can only claim legitimate unreimbursed business portion (if any). If reimbursed in full for the business portion, claim nothing.

✍️ What to put in your client file (must-have documentation)

• Signed T2200 (scan and save).
• Vehicle km log (or signed declaration of estimate plus supporting trip lists).
• Receipts for parking, supplies, small-value purchases.
• Proof of equipment purchase, and any written employer requirement for equipment.
• Records of any reimbursements (payroll reimbursements, expense reports).
• Written job description/reference from employer supporting the need for the expenses (helps in disputes).

🧰 Client conversation points (what to tell Marcus)

• Home-office expenses aren’t allowed unless he works >50% at home — consider asking employer to change duties if he wants to qualify.
• The MacBook/printer/furniture are unlikely to be deductible as an employee — consider asking employer to reimburse or equip him directly.
• Payments to children must be reasonable and documented — otherwise CRA will disallow.
• He may be eligible for the GST/HST rebate; ask if prior years should be reviewed for missed claims.

🛡️ Audit-ready final checklist (before filing Marcus’s return)

• T4 and T2200 entries match employer documents.
• Auto worksheet: total km and business km documented.
• Reimbursements recorded and netted from claimed amounts.
• No CCA entered for employee equipment unless backed by T2200 and no reimbursement.
• Notes in file explaining professional judgements (home office exclusion, family payments).
• GST370 / line 457 entries filled if eligible.

✨ Quick pro tips for new preparers

• Always capture T2200 answers in ProFile first — they gate what’s allowable.
• When in doubt, leave it out and add a client note asking for clarification.
• Use ProFile’s worksheet PDFs (Auto, T777) as checklists to ask clients for missing receipts.
• Keep a short memo saved in the file explaining any aggressive but defensible position (e.g., reasonableness of a family subcontractor).

💼 Preparing Doreen Caplan’s Tax Return & Bespoke Marketing Business Statement

Welcome to one of the most practical real-world tax preparation cases — Doreen Caplan, a sole proprietor running Bespoke Marketing. In this case, we’ll explore how to prepare her tax return, accurately complete the T2125 Statement of Business or Professional Activities, and handle common problem areas every tax preparer must learn to identify.

Whether you’re a beginner tax preparer or a small business owner, this guide walks you through the entire process — step-by-step — including how to complete everything in Intuit ProFile Tax Software.

🧾 Step 1: Understanding the Business Income Source

Doreen’s only source of income is from her business, Bespoke Marketing, which means her income and expenses are reported on Form T2125.

In Intuit ProFile, here’s how you start:

1. Open the taxpayer’s file (Doreen’s return).
2. Go to the Form Explorer (F4) and search for T2125 – Statement of Business or Professional Activities.
3. Enter the business name (Bespoke Marketing) and the industry code (for marketing or advertising services).
4. Input the gross income (total sales or revenue).

💡 Tip: Make sure all income includes any taxable HST/GST if Doreen is registered.

💰 Step 2: Entering Business Expenses (T2125)

Each expense category on the T2125 represents a deductible cost related to operating the business. Here’s a breakdown of how Doreen’s expenses should be entered and reviewed.

📦 Cost of Goods Sold (COGS)

• Includes purchases, subcontracts, and materials.
• Enter these in the Cost of Sales section in ProFile.
• Doreen’s marketing business includes subcontractors and promotional material costs.

🧠 Quick Tip: CRA expects expenses to be reasonable. For example, subcontracting expenses that seem unusually high or paid to family members may be reviewed.

🖇️ Step 3: Office & Administrative Expenses

There are two often-confused categories:

• Office Expenses (line 8810) → items like paper, pens, small supplies.
• Office Stationery & Supplies (line 8811) → similar items, but CRA allows combining both.

✅ In ProFile: You can merge them into one entry under “Office Expenses” — it’s perfectly acceptable.

💡 Note: “Office expenses” can include small equipment such as computer peripherals, not just stationery.

✈️ Step 4: Reviewing Travel Expenses

Doreen claimed $14,000 in travel, which may sound high. However, since she attends trade shows and marketing events, this is justifiable.

In ProFile, enter this under Travel (line 9200).

⚠️ Red Flag for CRA Review: If travel seems excessive, document the purpose of each trip (e.g., trade show locations, booth rentals, client meetings).

📋 Tax Preparer Tip: Always keep receipts for flights, hotels, meals, and taxis. CRA may ask for proof of business purpose.

🚗 Step 5: Vehicle Expenses & Business Use

Doreen leases a 2021 Kia Forte, paying $585/month. To claim business-use vehicle expenses:

In ProFile:

1. Go to T2125 → Motor Vehicle Expenses Worksheet.
2. Enter all actual annual expenses: lease payments, gas, insurance, maintenance, parking, etc.
3. Enter total km driven and business-use km.
4. ProFile automatically calculates the business-use percentage.

📊 Example:

• Total expenses: $15,465
• Business-use: 65%
• Deductible portion: $10,052.61

💡 Tip: Always maintain a mileage logbook to justify business-use percentage.

👩‍👦 Step 6: Payments to Family Members (Subcontracting Issue)

Doreen paid:

• $12,000 to her 15-year-old son, Chris.
• $9,600 to her husband, Marcus.

⚠️ CRA Caution Zone:

• Payments to minors are heavily scrutinized. CRA asks: “Would you pay a non-family 15-year-old the same rate for this work?”
  Usually, the answer is no — therefore, this expense could be disallowed.
• Payments to spouses (like Marcus) may be valid if reasonable and properly documented.
  • Marcus would need to report the income on his own T2125.
  • However, since both are in similar tax brackets, there’s no real tax savings.

💬 Pro Advice: Avoid claiming subcontracting payments to family members unless you can justify the amount and show proof of work (e.g., invoices, e-transfers).

💵 Step 7: Owner’s Salary or “Drawings”

Doreen listed a “salary” of $91,000 — but here’s the key fact:

Sole proprietors cannot pay themselves a salary.

Withdrawals from a sole proprietorship are called owner’s draws, not deductible salaries.

In ProFile:

• Do not enter this $91,000 as an expense.
• You may enter it under Owner’s Drawings (Statement of Capital) — informational only.
• Doreen pays tax on the entire business profit, not just what she withdrew.

🧮 Example:

• Business profit: $132,806
• Amount withdrawn: $91,000
• Doreen still pays tax on the full $132,806.

💡 Strategic Note:
If she incorporated, she could pay herself a real salary and leave profits inside the corporation taxed at a lower small business rate (about 10–12% in Nova Scotia).

🏠 Step 8: Home Office Expenses

Since Doreen works primarily from home, she qualifies for business-use-of-home expenses.

In ProFile:

1. Open T2125 → Business Use of Home Worksheet.
2. Enter the total home area and area used for business.
3. Enter annual household costs (rent, mortgage interest, utilities, property tax, internet, etc.).
4. ProFile automatically calculates the deductible percentage.

✅ Allowable Expenses: Utilities, internet (business share), rent/mortgage interest, insurance, maintenance.

🚫 Disallowed or Risky Expenses:

• Kids’ bathroom renovation – Personal in nature.
• Streaming services (Netflix, Crave, Disney+) – Not business-related.
• Home phone – Generally considered personal unless exclusively used for business.

📦 CRA Audit Tip: Only claim what you can clearly link to earning business income.

🔍 Step 9: Reconciling Profit & Final Review

After entering all allowable expenses, ProFile will automatically calculate net business income (Line 13500).

🧮 Example Summary:

• Gross Income: $300,000 (example)
• Allowable Expenses: $167,194
• Taxable Income: $132,806

This is the amount that transfers directly to Line 13500 of the T1 Return.

📚 Step 10: Final Checks in Intuit ProFile

Before filing:
✅ Verify all entries on T2125.
✅ Review the Business Use of Home Worksheet and Motor Vehicle Worksheet.
✅ Ensure no personal or unsubstantiated expenses are included.
✅ Double-check income transfers correctly to Line 13500.

💡 Pro Tip: Use ProFile’s Review tab to identify CRA red flags, unlinked forms, or missing entries.

💬 Expert Insights for Tax Preparers

📦 Quick Reference: CRA’s Reasonableness Rule

“Would you pay the same amount to a non-family person for the same work?”

If the answer is no, it’s usually not deductible.

🧠 Key Takeaways

• Always question reasonability of each expense.
• Proprietor’s withdrawals are not deductible salaries.
• Document everything — CRA focuses on proof and purpose.
• Use Intuit ProFile worksheets to calculate business-use portions automatically.
• For large profits, consider incorporation for tax deferral and planning flexibility.

🌟 Final Thought

Preparing Doreen’s return teaches one of the most valuable lessons for any tax preparer:

Understanding what’s deductible isn’t just data entry — it’s professional judgment.

Using Intuit ProFile efficiently means not just entering numbers, but knowing why and how they’re reported.

Mastering these steps will help you confidently prepare any self-employed tax return with accuracy, professionalism, and CRA compliance.

💻 Mastering Capital Cost Allowance (CCA) for Small Business Owners | Complete Guide for Beginners

If you’re preparing taxes for a small business owner or self-employed client like Doreen, understanding Capital Cost Allowance (CCA) is non-negotiable! This is one of the most misunderstood — yet powerful — deductions available to reduce taxable business income in Canada.

Let’s break it down in the simplest possible way — and then see how to enter everything step-by-step in Intuit ProFile, Canada’s most common tax software.

🧩 What is Capital Cost Allowance (CCA)?

When a business buys a long-term asset (like a computer, printer, or office furniture), it can’t deduct the full cost in one year. Instead, the CRA allows businesses to claim a portion each year — that’s called CCA.

👉 Think of CCA as tax depreciation — spreading the cost of an asset over several years.

💡 The Concept of “CCA Classes”

Every asset belongs to a class, and each class has its own rate of depreciation.

Each class is a pool — you don’t track each asset separately. You just keep one total (called UCC, or Undepreciated Capital Cost) per class.

🧾 Example: Doreen’s Business Assets

Doreen has three classes of assets in her business:

• 💺 Class 8 – Office furniture
• 💻 Class 50 – Computer equipment
• 🖨️ Class 10 – Printers and electronic devices

She also bought new assets during the year and sold or replaced a few older ones. Let’s see how a tax preparer handles this in Intuit ProFile.

⚙️ Step-by-Step: Entering CCA in Intuit ProFile

🧮 Step 1: Go to the T2125 Form

In ProFile:

• Open the taxpayer’s return.
• Navigate to Form T2125 (Statement of Business or Professional Activities).
• This is where you’ll record all business income, expenses, and capital assets.

Scroll down until you find the CCA section near the bottom.
You’ll see a total CCA amount automatically calculated once the asset info is entered.

💼 Step 2: Open the CCA Worksheet

There are two key worksheets in ProFile for CCA:

1. T2125 CCA Worksheet – for entering opening balances (the UCC at the start of the year).
2. T2125 Asset Worksheet – for recording additions (new purchases) and disposals (sales or scrapped assets).

📝 Tip: Opening balances are essential when you take over a new client. You’ll find them on last year’s return in the “Closing UCC” column — that number becomes this year’s Opening UCC.

🪑 Step 3: Enter Opening Balances

For Doreen’s case:

• Class 8 (Office Furniture) – Enter the UCC balance carried from last year.
• Class 50 (Computers) – Enter the UCC from last year.
• Class 10 (Electronic Equipment) – Enter the UCC balance here too.

Once you input these, ProFile automatically populates the corresponding CCA schedule for each class.

🛒 Step 4: Record New Asset Purchases

Example: Doreen purchased new office furniture on June 1 for $6,285.25.

In the T2125 Asset Worksheet, add:

• Date of Acquisition: June 1
• Class: 8
• Description: Office furniture (chairs, desks, etc.)
• Cost: $6,285.25

✅ This purchase qualifies as Designated Immediate Expensing Property (DIEP) and Accelerated Investment Incentive Property (AIIP).

That means — Doreen can claim the entire $6,285.25 as CCA this year!

💡 Quick Reminder: DIEP allows immediate write-off for eligible business assets up to a limit ($1.5M shared among associated businesses).

💰 Step 5: Record Disposals (If Any)

Doreen also sold her old desk and chair for $150.

In ProFile:

• Go to the T2125 Asset Worksheet under Class 8.
• In the “Proceeds of Disposition” column, enter $150.

The CRA rule says:

Report the lower of original cost, proceeds, or fair market value.

Since $150 is clearly lower than the original cost, that’s what we use.

📘 Note: Because Doreen still owns other furniture in Class 8 (like a bookshelf), we don’t calculate recapture or terminal loss. The pool continues.

🖨️ Step 6: Enter Other Asset Classes

Doreen also bought new printers (Class 10) for $1,013.38.
Same process:

• Add the total purchase in Class 10 as an addition.
• No disposals here.
• Since this also qualifies for immediate expensing, the full $1,013.38 can be claimed this year.

Then her computer equipment (Class 50) cost $4,298.25.

• Record as an addition.
• The old laptop was given away (proceeds = $0).
• Since there are still other computers in the class, the pool continues normally.

🧾 Step 7: Review the CCA Summary

Now, go to the T2125 CCA Summary screen.

Here you’ll see:

• Opening balances
• Additions (new purchases)
• Disposals
• CCA rates
• CCA claimed for the year

ProFile automatically applies:

• Full write-off for immediate expensing property
• Regular depreciation rate for existing balances

Doreen’s total CCA claimed = $13,539, combining all three classes. 🎉

📦 Understanding Pool System & Recapture

📚 Pool System Rule:
As long as there’s at least one asset remaining in the class, you don’t calculate recapture or terminal loss when something is sold or scrapped.

📦 Recapture:
If the sale proceeds > remaining UCC → you have to add the excess back to income.

💔 Terminal Loss:
If all assets in the class are sold → you can claim any remaining UCC as a deduction.

🧠 Key Takeaways for Tax Preparers

✅ Always carry forward last year’s closing UCC as this year’s opening balance
✅ Enter new additions and disposals accurately
✅ Identify whether purchases qualify for Immediate Expensing
✅ Don’t worry about tracking each asset — focus on the class pool
✅ Let ProFile handle the math — just ensure correct data entry!

⚠️ Common Mistakes to Avoid

🚫 Forgetting to enter opening UCC balances when importing new clients
🚫 Claiming immediate expensing on assets that don’t qualify
🚫 Mixing up asset classes (Class 8 vs Class 50)
🚫 Entering proceeds higher than cost

💬 Final Thoughts

Capital Cost Allowance can seem intimidating at first, but once you understand the pool system and how Intuit ProFile handles entries, it becomes second nature.

When preparing a business return like Doreen’s:

• Always start with the prior year’s UCC.
• Use the Asset Worksheet for new purchases/disposals.
• Confirm the total CCA on the T2125 summary before filing.

Done right, CCA can significantly lower taxable business income — giving your client the best tax advantage possible! 💼✨

⭐ Overview of Other Tax Credits & Finalizing the Returns for Doreen & Marcus (Beginner-Friendly Case Study)

Welcome to this comprehensive guide on completing the final steps of Doreen and Marcus’s tax returns!
This section covers RRSP & Home Buyers’ Plan (HBP) repayments, donations, medical expenses, CPP/EI for self-employed individuals, and key ProFile software steps — all explained in a simple, practical way for beginners.

🏡 RRSP & Home Buyers’ Plan (HBP) Repayment

The Home Buyers’ Plan allows individuals to borrow from their RRSP to buy their first home. Each year, a minimum repayment is required — but taxpayers can choose to repay more.

✔ Scenario

Doreen contributed $10,000 to her RRSP and wants to apply $6,600 of that toward repaying her outstanding HBP balance.

🔧 How to Enter This in Intuit ProFile

Follow these steps carefully:

1. Go to “RRSP / PRPP” worksheet
   • Enter her RRSP contribution: $10,000
   • Enter her RRSP deduction limit shown on her Notice of Assessment.
2. Go to “Schedule 7 – RRSP/HBP/LPP”
   • Enter the minimum HBP repayment (e.g., $1,100).
   • In the line called “Designated HBP Repayment”, enter $6,600 (the amount she wants applied to her HBP).
3. ProFile will automatically:
   • Apply the repayment to the HBP balance.
   • Deduct the remaining RRSP amount ($10,000 – $6,600 = $3,400) as an RRSP deduction.

📌 Important Note Box

💡 You don’t contact the bank to “repay” the HBP. Repayment is done entirely through Schedule 7 when filing the return.

🎁 Charitable Donations: Who Should Claim Them?

Both spouses can decide who claims family donations — the key is to maximize tax savings.

✔ What to Know

• Only donations to Canadian registered charities qualify.
• US or foreign donations do not generate tax credits unless specific tax treaty rules apply.
• Donations on an employee’s T4 (Box 46) also count.

🔧 ProFile Steps

1. Open Donations Worksheet under Tax & Credits.
2. Enter all eligible donation receipts.
3. Add donation amounts from Marcus’s T4 Box 46 (e.g., $520).
4. Allocate all donations to Doreen (the spouse with a balance owing) for maximum impact.

❗ Donation Optimization Tip

🟦 Combine all donations under one spouse to benefit from:

• Higher credit rate above the first $200
• Avoid losing small credits split between spouses

🚫 Not Eligible

• GoFundMe contributions
• Foreign donations not made to a registered Canadian charity
• The US charity amount (ProFile helps by showing a separate box for foreign donations)

🏥 Medical Expenses: Timing Is Everything

Medical expenses are one of the most misunderstood credits.

✔ Key Rule

You can claim medical expenses for any 12-month period ending in the tax year, NOT just January 1 to December 31.

Doreen & Marcus’s Situation

Their child Chris has orthodontic payments:

🔧 ProFile Steps

1. Open Medical Expense Worksheet.
2. Enter expenses for dependants:
   • Because Chris is under 18, use line 33099 (not 33199).
3. Choose the 12-month period in the worksheet.
4. Only enter medical expenses paid within that period.

💡 Strategy Tip

Use this rule to your advantage:

🟩 If next year has more medical expenses, consider NOT claiming them this year
→ Claiming all 3 orthodontic payments next year may produce a much higher credit.

💼 CPP & EI for Self-Employed Individuals

Self-employed individuals pay both the employee + employer portions of CPP.
This is often confusing for beginners — so let’s break it down.

✔ For Doreen (Self-employed)

Total CPP payable: $7,000

• ½ (≈$3,500) = deductible expense → goes to line 22200
• ½ (≈$3,500) = non-refundable tax credit
• Additional CPP enhancement also generates a tax credit

🔧 ProFile Steps

1. ProFile calculates CPP automatically based on the self-employment income worksheet.
2. The deductible portion appears on line 22200.
3. Credits appear automatically on Schedule 8 / CPP worksheet.

🧾 EI for Self-Employment

Most self-employed taxpayers do not have to contribute to EI.
However, if they voluntarily registered for EI benefits in the past, they must continue paying EI premiums.

✔ In Doreen’s case:
She previously used a self-employed EI program → she must continue paying.

🔧 ProFile Steps

Go to Schedule 13 – Employment Insurance for Self-Employed Individuals:

• Check the box confirming she is registered for EI
• EI premiums (e.g., $952.74) will populate automatically

💸 Applying Tax Instalments

Doreen made instalments during the year.

🔧 In ProFile

1. Go to Instalments Worksheet.
2. Enter instalments (e.g., $44,000).
3. These reduce her final taxes owing.

🧮 Final Review Checklist for This Case

✔ For Doreen

• RRSP contribution & HBP repayment correctly allocated
• Donations assigned to maximize credit
• Medical expenses strategically chosen
• CPP & EI properly calculated
• Instalments applied
• Self-employment income deductions finalized

✔ For Marcus

• T4 donations added
• GoFundMe excluded
• No foreign donation credit applied

🟦 Pro Tip Box

📘 Before filing:
Use ProFile’s “Review” button to catch:

• Missing amounts
• Slips entered twice
• Credit optimization suggestions

🎉 Final Thoughts

This case study ties together several important tax skills:

• Allocating deductions between spouses
• Optimizing credits
• Knowing when timing affects eligibility
• Understanding self-employed CPP/EI
• Navigating ProFile confidently

🏡 Should Doreen Pay Off Her Home Buyers’ Plan (HBP)? Is It Worth It — And What If She Files Late?

Understanding the Home Buyers’ Plan (HBP) is essential for any tax preparer. This section breaks down a real-world scenario involving Doreen, a taxpayer who used the HBP and is now deciding how much to repay — all while dealing with the possibility of a late tax filing.

This guide will help you master:
✨ How HBP repayments actually work
✨ How to advise clients strategically
✨ How Intuit ProFile handles HBP entries
✨ What happens when a return is filed late
✨ How to avoid penalties through smart allocation

Perfect for beginners and those who want to think like a professional tax preparer!

🧩 Understanding the HBP: Repayment Basics

The Home Buyers’ Plan lets a taxpayer withdraw money from their RRSP to buy a home, and then repay it over 15 years.

✔ Key Rules

• Each year, the taxpayer must repay a minimum amount (1/15th of the borrowed amount).
• If they don’t repay, the required amount is added to taxable income — NOT a penalty or fee.
• You can repay more than the minimum, but it’s optional.
• Repaying HBP is paying yourself, not the CRA.

💡 Case Study Context

Doreen:

• Made a $10,000 RRSP contribution this year
• Minimum HBP repayment required: $1,100
• Her remaining HBP balance: $6,600
• She wanted to repay the full $6,600 this year
• She owes taxes if she does this
• And she might file late, resulting in penalties

This is where tax planning becomes extremely valuable!

🧠 Should She Repay the Full HBP?

Many taxpayers assume HBP is a debt they must aggressively pay down.
But smart tax preparers know:
👉 Sometimes repaying less results in more tax savings and avoids penalties.

Let’s break it down.

⚠️ What Happens If She Repays the Full $6,600?

💥 RRSP Contribution: $10,000

• $6,600 allocated to HBP repayment
• Only $3,400 left as a tax-deductible RRSP contribution

💥 Result

➡️ She owes $1,069 in taxes
➡️ Because she owes tax, if the return is filed late, she may face:

• Late-filing penalties (5% + 1% per month)
• Interest on the balance
• Possible instalment interest

This is NOT ideal.

⭐ Strategic Move: Reduce the HBP Repayment

Instead of repaying $6,600, what if Doreen only repays the minimum $1,100?

✔ RRSP Contribution: $10,000

• $1,100 to HBP
• $8,900 becomes her RRSP deduction

✔ Outcome

➡️ Doreen moves from owing $1,069 → to a refund of $1,323
➡️ Filing late? → NO penalty, because refunds are never penalized
➡️ HBP balance continues to next year (this is fine!)

✨ This is a perfect example of tax planning that saves your client money and avoids stress.

🧮 Pro Tip Box

💙 Rule of Thumb: Always try to put your client in a refund position if they are filing late.
A late-filed refund = no penalty.

🛠️ How to Enter This in Intuit ProFile (Beginner Friendly)

Follow these steps:

🟦 Step 1: Enter RRSP Contributions

1. Open Doreen’s file
2. Go to RRSP / PRPP Worksheet
3. Enter:
   • RRSP contributions: $10,000
   • Deduction limit from her Notice of Assessment

🟩 Step 2: Go to Schedule 7 (HBP Section)

Inside Schedule 7, locate the HBP repayment area:

Fields to fill:

• Minimum required repayment → enter $1,100
• Designated HBP Repayment → enter the amount the client chooses

📌 If Doreen repays:

• Full amount: enter $6,600
• Minimum only: enter $1,100
• Any custom amount: enter the chosen figure

ProFile will:

• Apply the designated repayment toward the HBP
• Automatically adjust the remainder as an RRSP deduction

🟧 Step 3: Watch the Refund/Owing Amount Change in Real Time

ProFile instantly recalculates the tax result.

This lets you:

• Adjust the repayment amount
• Test outcomes
• Find the break-even point
• Avoid late-filing penalties
• Provide strategic tax advice

🎯 Optimizing the HBP Repayment

Once you understand the software and the tax rules, you can guide your client through different repayment scenarios.

✔ Example Adjustments

Try these inside ProFile’s Schedule 7:

• Repay $3,000 → refund drops but still positive
• Repay $4,000 → refund becomes small but safe
• Repay $4,200 → she begins owing again

Your goal:
💡 Find a repayment amount that keeps the client in a refund or near-zero owing position.

This is exactly how professionals add value.

🛑 What If She Files Late?

1️⃣ If Doreen owes money

➡️ She faces late filing penalties
➡️ Interest on the balance
➡️ Possible instalment interest
➡️ Penalties compounded if she filed late before

2️⃣ If Doreen is in a refund position

➡️ NO penalty
➡️ NO interest
➡️ Safe to file late

⭐ Smart Strategy:

Adjust HBP repayment to get her into a refund position.

📘 Advice You Can Give Clients

✔ HBP is not like a loan — repayment is flexible
✔ Only repay the minimum if cash is tight
✔ Never put yourself into a balance owing if filing late
✔ You are “paying yourself,” not the CRA
✔ Repay more only when it makes sense for cashflow or planning

🎉 Final Thoughts

This case study teaches a powerful lesson:
Knowing tax rules + knowing ProFile = better results for your clients.

As a tax preparer, you should always:

• Adjust HBP repayment amounts
• Test various refund/owing outcomes in ProFile
• Discuss options with your client
• Protect them from penalties
• Optimize their RRSP deductions

This is how you transition from “filling forms” to professional tax planning.