ODSP: Know Your Benefits Self-Employment. ODSP Action Coalition January 2015

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1 ODSP: Know Your Benefits Self-Employment ODSP Action Coalition January

2 Who We Are ODSP Action Coalition has been around for more than 10 years We advocate for changes to ODSP We have a shared leadership model: Made up of people on ODSP, and those who work in this field (at legal clinics, agencies and patient advocacy groups) We do workshops on ODSP rules and benefits, and on how to advocate for yourself and others 2

3 Self-Employment Issues People on ODSP who run their own business or are self-employed need to know: 1. How their earnings are treated by the ODSP rules 2. What benefits are available 3. Changes to benefits coming this year 4. What we recommend to improve the rules for self-employed people 3

4 1. How Self-employment Income is Treated Earnings Exemptions An ODSP recipient with earnings from a job or net earnings from self-employment can keep the 1 st $200 in net earnings Then, 50% of the remaining net earnings is deducted from the ODSP entitlement Currently $100 (Work Related Benefit) is added to the ODSP entitlement for anyone who has net earnings 4

5 ODSP Income Support Directives Rules for how business assets, income and expenses are treated are found here: 5.4 Treatment of Self-Employment Income /social/directives/odsp/income_support/5_4.pdf 5

6 Intent of Policy To support self-employment as a means of increasing financial independence. 6

7 Key Points from Directive Gross business income minus expenses which are approved by ODSP = net earnings ODSP deems that any self-employed person has at least $100 in expenses per month, even if actual expenses are less, or no expenses Thus any earnings of less than $100 are not considered net positive earnings, and so the $100 WRB is not added to ODSP entitlement 7

8 To qualify as self-employed: Submit some proof of self-employment, such as: Revenue Canada forms and Assessments Independent contractor agreement or sales agreement Proof of business registration (if registered but need not have registered business to be self-employed Sales receipts, invoices or other proof of business income Generally ODSP will require income tax assessments every year to verify income reported to Revenue Canada is same as that reported to ODSP (although allowable deductions are different) 8

9 Gross Business Income Gross business income or revenue means the cash coming into the business and includes: sale of goods or services commissions and/or fees goods or services received in-kind, as a result of barter or exchange (cash value must be given and this is considered income) income from renting out the assets of the business sale of business assets interest earned on business assets (e.g., earned on bank account balances and prepaid expenses); cash owed to the business that is assigned to a third party any other business income. 9

10 Approved Business Expenses A reasonableness test must be applied to business expenses to ensure they meet the following criteria: necessary to the operation of the business; will maintain or increase the likelihood of earning income from the business; and, the item or service is purchased on a "best buy" basis (i.e., the cost is not unusually high or inflated) No receipts need to be provided for expenses totalling less than $100 per month the deemed expense amount 10

11 List of Approved Business Expenses Business/Office Supplies/Office Equipment/Tools of the Trade Repair and Maintenance of Required Office Equipment Bookkeeping and Legal Fees Advertising, business cards, flyers, etc Licences, required professional fees Delivery or shipping costs Bank charges on business accounts 11

12 List of Approved Business Expenses: Vehicles Mileage for Personal Vehicles Used in the Business: $.18 /km allowed A record of business travel must be maintained (i.e. a travel log). The travel expense amount is intended to cover the business portion of gas, vehicle maintenance (including payments for car wash), and insurance. Vehicles used exclusively in the business the vehicle must be owned or leased, and operated by the person who is self-employed. The kilometre rate is not applied; rather the following actual costs are applied: licence and registration fees; fuel costs including gasoline, diesel and oil; insurance; leasing or loan repayments; and, maintenance and repairs (including payments for car wash). 12

13 List of Approved Business Expenses Rent, Mortgage (principal and interest), and Municipal Property Taxes on Property Used Only for the Business: Telephone/Internet Expenses for the Business (only the difference between home phone cost and commercial phone cost) Utility Costs for the Business: again, just the extra utility costs for the business, not home utility costs Business Insurance (not regular home insurance) 13

14 List of Approved Business Expenses In-Kind or Bartered Items: the cash value equivalent of a new bartered or in-kind item is allowed as a business expense Subcontracting: If a recipient requires the services of a skilled person to complete work (i.e. home renovations business needs a bricklayer) or a temporary unskilled worker, the recipient may contract with the individual for a specific job. There must be a written contract indicating the job to be completed, start and end date, amount the contractor will be paid and how the payments will be made. Disability Accommodation Expenses: In addition to the earnings deduction of $300 for disability-related expenses, a recipient may be allowed to deduct payments made to an employee who is required due to disability-related needs and in order to operate the business. For example, a piano tuner with a visual impairment requires a driver to take him/her to various locations where they could tune a piano. In this instance, the salary paid to the driver would be deducted as a necessary business expense. 14

15 Approved Business Expenses Loan Repayments Business Loans: loan repayments, including principal and interest are allowed. However, goods and services that are purchased with money received from business loans cannot be deducted as approved expenses as the loan repayments have already been approved as an expense. For example, if a client gets a loan to buy business equipment, and pays $350 per month to repay the loan, the $350 per month is an approved expense, but the cost of the equipment bought is not 15

16 List of Approved Business Expenses Credit Card Charges and Interest: Recipients may use a credit card to pay for approved business expenses. The credit card charges and interest may be allowed as an approved expense. Recipients should not use their personal credit card for business purchases as these may be difficult to verify and will not be allowed as a business expense. Other Services Necessary for the Operation of the Business, Purchased on an Occasional or Intermittent Basis: such as consulting services, clerical, accounting, courier services; communications/computer set-up, training and user support required for business operations. Income Tax Instalments: can only be allowed as an expense when the business is required by CRA to make instalments on its yearly income tax contribution. This should be an exceptional case because the business revenue must be quite substantial for CRA to request instalment payments based on the previous year s earnings. 16

17 Non-Approved Business Expenses Personal Draws or Owner s Withdrawals: taken from the business are not allowed business expenses and are considered earned income. Wages Paid to Members of the Benefit Unit or Other Employees: including payroll expenses (e.g. income tax, EI, CPP, Workplace Safety and Insurance Benefits) are not approved as business expenses even if the recipient deems these expenses as necessary. Note: This does not include payment made to an individual who is hired due to the disability related needs of the recipient. Note: some people have successfully appealed this rule of not being allowed to hire another employee to help in the business 17

18 Non-Approved Business Expenses Business Losses: Under ODSP, a business loss is equivalent to a net income of $0.00. Losses reported after the first year may not be carried forward (i.e. to offset business income in future periods). Depreciation (also known as a capital cost allowance): on business assets and vehicles is not an approved expense. Entertainment and Gifts Hotels and Meals Conventions, Conferences or similar events including travel, hotels and meals related to these events 18

19 Non-Approved Business Expenses Long Distance Travel expenses (bus, airline ticket etc.) are not generally an approved business expense. However, where the recipient can demonstrate that he/she has earned income as a result of the travel, the recipient may deduct all or part of the travel expenses up to the amount of income earned from the trip. 19

20 Business Assets Tools of the Trade are allowed as long as the tool is considered essential to the person's selfemployment and is to be used at some time during a twelve-month period to generate income Any other items necessary to the operation of the business, including inventory, stocks, raw materials and cash in a business account, are allowed up to a value of $20,000 of business assets per business 20

21 Yearly Income/Expense Calculation Self-employed people are required to submit their gross income and expenses yearly. ODSP staff decide which expenses are approved and calculate the net business income for each month. Then after applying the $200 income exemption, 50% of the remainder is deducted from the monthly ODSP entitlement. This process will either result in arrears of ODSP owed to the recipient, or an overpayment of benefits which will be recovered from the future ODSP entitlement 21

22 Estimation of Net Income When the yearly review is done, the net monthly income as determined by ODSP will be used as an estimate of the business income for the next year. The amount of ODSP income support will be calculated using this estimate. If the recipient expects to earn substantially more or less in the next year they can report income monthly and ask to have their ODSP benefit amount adjusted as required. This would help to avoid large overpayments or underpayments. 22

23 Required Forms Recipients must be provided with the following forms and information to ensure policy guidelines are implemented effectively: Instructions for Client Record Keeping (Self-Employed Clients) Record Keeping Requirements (Forms 3039(E), 3040(F)) Business Assets Review (Form 2794) Business Income and Expenses Report (Forms 3083 (E), 3084 (F)) Instructions - Business Income and Expenses Report (Forms 3085 (E), 3086 (F) Request for Approval - Business Loan Expense (Form 2789) Request for Approval - Reinvestment Expense (Form 2790) Exclusive Use of Vehicle Declaration (Form 3021) The Consent to Disclose and Verify Information form provides for disclosure when required to make a reasonable assessment of the business or obtain information. 23

24 3. Additional benefits related to selfemployment: 2 Types Mandatory Available across Ontario If ODSP says no to your request, you can appeal all the way to the Social Benefits Tribunal Funding for mandatory benefits is based on needs Discretionary Available through municipalities Different benefits are available in different places You can ask for a review if you are denied, but there is no higher level appeal Funding is limited/capped 24

25 Current Employment Benefits Employment & Training Start Up benefit Up to $500 once every 12 months Must be starting full time or part time employment or training, but can be still on ODSP Employment Transition Benefit $500 when going off ODSP for employment Salary is greater than ODSP entitlement Work Related Benefit : $100 in any month in which you have net earnings after approved expenses These are all mandatory: can be appealed if refused 25 25

26 Employment Benefits Starting April 2015 A new benefit is coming into effect in April Non-disabled family members of people with disabilities on ODSP who have been getting the $100 Work-Related Benefit will immediately lose that money. People with disabilities on ODSP who have been getting the Work-Related Benefit will continue to get the $100 between April and September To keep getting that money, however, they must continue to have employment-related earnings each month. 26

27 The New Employment Benefit: Starting April 2015 People on ODSP who have a disability will be eligible for up to $1,800 per year. Their non-disabled adult family members will be eligible for up to $1,200 per year. The new benefit will be focused on providing supports to people who are preparing to get into work, not people who are already working. People who are already working may be able to apply for the new benefit, but will only be entitled to it if they have a plan to increase their hours of work or level of earnings. The new benefit is discretionary instead of mandatory 27

28 Challenging discretionary and mandatory benefit decisions The process for appealing is the same first step: Submit an Internal Review request (in writing) Send it within 30 days of a decision (if miss deadline, request an extension of time with reasons you are late) If denied or cut off ODSP If denied any benefits, mandatory or discretionary Suspensions, changes or reductions in benefits Can be very simple letter, stating you disagree with their decision; helpful to say why you disagree but not necessary to be lengthy or complicated ODSP office has 30 days to answer 28 28

29 Appeals The second step for appealing mandadotry benefits: When the Internal Review answer still no, you can appeal that negative decision to Social Benefits Tribunal (SBT) Within 30 days of receiving the Internal Review answer; for appeal form and more info: ( Denied ODSP or cancelled ODSP Mandatory Benefits-eg: Medical transportation, surgical supplies Suspensions, changes or reductions in benefits Discretionary Benefits = no further appeal beyond the Internal Review 29

30 4.ODSP Action Coalition Recommendations for changes to Self-Employment Rules 1. Better training for ODSP workers: all ODSP staff should have additional training in dealing with selfemployment. They should be directed to support people in maintaining their business and increasing their income as much as possible. Therefore staff should always give the recipient a chance to explain all their expenses and why they are necessary to the earning of income, before denying any expense. 30

31 ODSP Action Coalition Recommendations 2. Change rule against hiring of employees: A business should be able to hire or retain casual, part-time and even full-time employees, as the needs of the business and resources dictate. 3. ODSP rules are different than Canada Revenue Rules: The rules for ODSP income and expense should be consistent with those of the Canada Revenue Agency. However, additional expenses should be approved if required because of a person s disability. 31

32 ODSP Action Coalition Recommendations 4. Access to supports and programs other business are entitled to: the full range of business training and supports that are provided for people on EI or other programs should be provided for ODSP recipients. ODSP recipients should be able to apply for and accept grants like wage subsidies, in order to be able to hire employees who are necessary to the efficient operation of their business. 5. Rules limiting business assets: Allowable business assets should follow Canada Revenue rules and be exempt from the personal asset levels that apply To ODSP recipients. Business assets should not count against the income or eligibility of the ODSP recipient as long as the business is operation. 32

33 ODSP Action Coalition Recommendations 6. MCSS should establish a working group: consisting of self-employed ODSP recipients, representatives of the ODSP Action Coalition and other relevant stakeholders, to review the legislation and directives on self-employment and propose reforms. 33

34 For more information This presentation is very general and may not have answered your questions. To find out more information about the work of the ODSP Action Coalition, please see our website: or our facebook page: facebook.com/odspaction To find your local community legal clinic for free legal advice on ODSP, as well as more information about applying for and receiving ODSP, see 34