The accounting industry is unregulated, meaning anyone can file a tax return. Many small business owners lose money, while attempting to save money, by using non-designated, non-certified accounting people who are at risk of filling out tax returns incorrectly, thus costing business owners thousands of dollars annually. Are you overpaying on taxes? The following are questions commonly asked:
Yes. There are many advantages to using an accountant to file your tax returns. The greatest advantage is having your taxes prepared properly, so you don’t end up overpaying. Other advantages include:
■ Audit services, which only accountants can provide.
■ Business valuation and restructuring advisory services.
Yes. We understand saving money is appealing, but if you don’t use a designated or certified accountant, you may be losing more money if you have to overpay on your taxes. Most small business owners try to save money by using so-called accountant firms where none of the staff are designated or certified accountants. These companies usually mean well, but haven’t been properly trained. It takes years of study in this industry to be properly trained and the smallest mistakes could result in you either overpaying taxes or underpaying. This could lead to eventual issues with the CRA and attract some of the highest interest rates and penalties in Canada.
Sometimes it can be difficult to tell. Rather than telling you the proper way to account for expenses they ask you what you've been doing and account for that way of doing it, which is not always in your best interest. Your accountant should always advise you on the most tax effective way of doing things so that you... STOP OVERPAYING YOUR TAXES!
No. Anyone can fill out your tax returns, however, not everyone can fill out tax returns properly. Thus, we often find an average of $3,000 per client when we go back and look at their three previous year's filings.
No. There are varied designations one can obtain in university. CA is Chartered Accountant, CGA is Certified General Account, CMA is Certified Management Account and CPA is Chartered Professional Accountant. Each accountant, after receiving their designation, will gain experience in a specific discipline – which may not be specific to business tax preparation and filing.
Management fees are an acceptable way for business owners to take compensation when an accountant completes their tax year. It used to be common practice for this to happen on the tax form with no further paperwork. Recently, CRA has went back up to 2 years and fined business owners a “Failure to File” penalty for NOT creating a T4 Slip for this income received. Although the tax payable is no greater or less, the full compliance to submit a Slip for this management fee event draws the fine.
The “Friends Network” is when your friends offer their opinions of the best tax filing practices. Often, their advice originates from a story that usually gets re-interpreted multiple times and becomes distorted to the point where the original tax advantage has become distorted and ineligible. This could result in a CRA review, disallowance of the deductionsor other additional penalties and interest dating back to the submission date of the errors found. When using a tax preparer or accountant make sure they’re they are up to date on changes in the Tax Act.
You should request the following 3 documents:
■ A complete hard-copy (or complete .pdf in electronic form) which contains GIFI Schedule 100 (Balance sheet).
■ Schedule 125 (Income statement)
■ Schedule 8 (Capital Cost Allowance).
■ Financial Statements (at minimum, Notice to Reader statements), which provide the necessary financial information required by lenders and banks. (Ensure that this IS NOT merely the bookkeeping income/expense and balance sheets prepared within Quickbooks or Simply Accounting as they are not acceptable to banks and lenders.)
As a Sole-Proprietorship (or Partnership), request a complete copy of your tax return filed, including the pages titled T2125 Business Activity, which show income, expenses, vehicle depreciation and Business-use-of-Home expenses. This may also include CRA form T776 Statement of Real Estate Rentals. Any other schedules or worksheets with calculations are also an asset to have.
If your sales exceed $30,000 in the fiscal year you must obtain a GST number. If you fail to obtain a GST number, CRA will create and backdate your GST owed to the date 60 days after your $30,000 was exceeded.
No, it’s just more paperwork. The exception is if you will be purchasing many items in advance of your first sale - where this will allow you to recover the GST on items purchased (called ITC's) as Input Tax Credits.
You need a NEW GST number for each new business or incorporated company. Chances are that you received a GST number operating personally (as Sole-Proprietor or Partnership). Each business (exceeding $30,000 in sales/revenue) must have a GST number. This is due to the income of your new company being distinct in its recording of ssIf you will have sales of $30,000 in fiscal year. As part of our services, we review your businesses for correctness and will contact CRA for you so you stay in compliance.
No. Many people claim that they can prepare and file your taxes - for a fee. However, they often aren’t properly trained and make errors. Our office routinely sees past tax returns, having errors and missed opportunities usually accounting for a few thousand dollars of tax paid unnecessarily; and in one case we were able to recover a $24,000 error for a client. I cannot stress the importance of getting the right accounting support for your business.
What is important to you? Do you want to top up your RRSP, maximizing your CPP, or do you have child daycare expenses? – If yes, then take a monthly salary or end-of-year management fee. You’ll need a T4 to show the business expense and there will be a source deduction remittance required by CRA payable to your Payroll Account (RP Account) within 15 days of payment to yourself. We recommend dividends for “sharing” business profits, after tax, which in a corporate setting (in Alberta) is currently taxed at 14 percent (three percent Provincial and 11 percent Federal) below $500,000. This allows dividend “sprinkling” amongst shareholders, such as a husband and wife (as long as the correct corporate structuring has occurred).
It is imperative to review both the business operations as well as your personal tax situation simultaneously to properly balance the amount of tax you pay in both areas, so you never pay tax unnecessarily. Some of the options we may explore are paying your spouse and paying your kids. Often times they provide infrequent support to your business with no compensation. They should be paid for their “part-time” assistance, and if their tax base is low – they may get all their tax back and if under age 16, they won’t pay CPP.
This doesn’t have to be expensive – in fact, as a corporation – it’s an advantage. This opens the door for you to setup a PHSP (Personal Health Spending Account), which will allow you to deduct 100% of the medical/dental/vision expenses allowed by the Tax Act as a business expense. This means that you are not out-of-pocket (after tax dollars) and can recoup these costs. Although you cannot pay the expense directly to your provider with company funds, it will only cost (your business) 5 or 10 percent in admin fees to process…and that’s a good thing.
There are two main reasons to incorporate; one is liability, if your business puts you at risk (your actions may cause damage to property or injury to a person) then there may be a chance that you could be sued for damages; and as a sole-proprietor your personal assets, cash, home and vehicle would be at risk. The second is tax advantage, if your business is achieving sales/revenues above $50,000 yearly then, you’re no longer operating a “casual” business and need to elevate your business posture.
These packages may be convenient, but your business deserves a higher respect. These packages don’t connect what you do in your business and what happens in your personal life. These two areas NEED to be connected and assessed so that you Never Pay Tax Unnecessarily. When doing your taxes we leverage our tax experts’ knowledge to understand the many variables that can play a factor in reducing your taxes.
Yes. Any income that is NOT deposited into your business bank account could be perceived as your personal income and would then be taxed at your personal tax rate. A business bank account and its fees are an expense to your business and can be deducted within your business taxes.
You are required to submit a T1-Adjustment to CRA and notify them of the missed Slip, they will then re-assess your tax year. If the CRA catches an unreported Slip on your taxes they will assume that you, the taxpayer, have attempted to mislead them. This may result in a penalty of 50 percent of the tax due by this omission. This happened to one client who was fined $4,500, as the T4 issued from BC did not arrive at their home in Alberta.
Many children of small business owners are involved with the business in some capacity, even doing minimal administrative work, and never get compensated. The payment a child receives should equate to the activities performed. A seven-year old may not be able to contribute much – so a payment of under $100 per month could be acceptable. A teenager who can contribute more should receive a more substantive hourly/monthly compensation. It’s important to note that it’s an expense to your business and is a much better means to compensate your children for their efforts. Alternatively you could continue to give them an after tax allowance – and there’s no deduction for that.
In the Construction Industry you need to complete a CRA form T5018 (Statement of Contract Payments) showing the money disbursed to each contractor. If the contractor is a business, the Slip will need to reflect the business name, mailing address and business number. If the contractor is an individual the Slip will need to reflect their full name, mailing address and Social Insurance Number. If you operate outside of the construction industry, then the same information applies and needs to be reported on a T4A Slip.
All income you receive, less expenses are taxable profits. To show the cash paid as expenses all amounts need to be supported by a T4, T4A or T5018 Slip. If you don’t fill out one of these Slips you become responsible for paying the tax. Therefore, if an employee wishes to be paid in cash, you may be inclined to pay them $12/hour rather than $15/hour to cover the tax. NOTE: If you pay an employee under $500 in that year – no Slip is required.
Yes. The amount of depreciation depends on the type of equipment, and their CRA assigned depreciation rate.
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