If you make instalment payments on your income tax, your payments are due four times throughout the year on the 15th of March, June, September, and December. As November is about to end, we would like to know if you are ready for year-end tax filing or not.
A Canadian tax return consists of reporting the sum of the previous year's (January to December) taxable income, tax credits, and other information relating to those two items. The result of filing a return with the federal government can result in either a refund (money owed to the person or corporation filing the returns) or an amount due to be paid. There is a penalty for not filing a tax return. You have to report your business income on an annual basis. Before focusing on how to get prepared, let us first look at a few other year-end tax filings related information.
Fiscal Year-related Information
In Canada, you have the liberty to choose your deadlines for tax filing and also your year structure. But this provision isn't meant for all. Take a look here:
- For sole proprietorships, professional corporations that are members of a partnership, and partnerships in which at least one member is an individual, professional corporation, or another affected partnership, your business income is generally reported on a calendar-year basis.
- If you are a sole proprietor or if you are in a partnership in which all the members are individuals, you can elect to have a non-calendar-year fiscal period. To make this change, complete form T1139, Reconciliation of Business Income for Tax Purposes.
Approval isn't guaranteed. The Canadian Revenue Agency (CRA) might reject your application if it believes that your request isn't based on "sound business reasons." All partners must choose the same fiscal year-end if you're in a partnership. You can't change the fiscal year-end if one of the partners is a corporation or is in another partnership.
- A corporation's tax year is its fiscal period. A fiscal period cannot be longer than 53 weeks (371 days). A new corporation can choose any tax year-end as long as its first tax year is not more than 53 weeks from the date the corporation was incorporated or formed as a result of an amalgamation. The corporation has to file its income tax return within six months of the end of its fiscal period.
When the fiscal year ends on the last day of the month, the return is due on or before the last day of the sixth month after the end of the tax year. When the fiscal year ends on a day other than the last day of the month, the return is due on or before the same day of the sixth month after the end of the tax year.
If your business fiscal year-end is not December 31st, you must combine parts of the two fiscal years. This might require estimating your income from your fiscal year's end to December 31st. Most sole proprietors and partnerships choose a December 31st fiscal year-end for this reason.
The Rule for Filing Returns
The basic rule for filing your Canadian corporate tax return is that you must file your return no later than six months after the end of each tax year. So when your T2 tax return is due depends on your corporation's fiscal year-end. If, for instance, your corporation has a fiscal year-end of June 30th, your Canadian corporate tax return would be due on December 31st (the last day of the sixth month).
If your corporation's fiscal year-end falls on a date during the month rather than at the end of the month, then your T2 tax return Canada be filed by the same day of the sixth month after the end of the tax year. If, for instance, in the example above, your corporation's fiscal year-end was June 16th rather than June 30th, your Canadian corporate tax return would be due on December 16th of that year.
Checklist for Year-end Tax Filing
Now coming back to the question, "Are you ready for year-end tax filing?" The easiest way to get ready is by following this checklist thoroughly.
- Check the amount that has to be paid. Make sure that you don't have any unpaid installments from the previous three deadlines.
- Check you have all the necessary documentation. The types of records you will need to complete a tax return may vary depending on whether your business operates as a company, a sole proprietor, or as a partnership.
- Make a list of all the business deductions and keep the list ready. Deductions help reduce your taxable income, which generally means a lower tax bill.
- Select your method of filing. Do you want to file your taxes online, or will you do so physically to the CRA? This will help you plan everything in time.
- Ensure that you have enough money in hand or in your bank account to avoid getting rejected.
- File tax at least ten days in advance to avoid any confusion or mistakes.
The CRA sets strict due dates for tax returns and payments, and failure to meet these deadlines can result in owing interest, fees, or penalties. As a taxpayer, it’s important to keep apprised of what the CRA expects and when. If you aren't good with dates and can't manage year-end tax filing, leave it to us. Our experienced tax accountants will not only ensure that all your tax installments are paid on time, and you get the right returns but also ensure that your paperwork is on point.
Financial year has come to an end, and there is tax filing to tend. This is the time where business owners need to scramble down the receipts, bank statements, account books, and other important documents to meet the tax deadline. While you are already in a tearing rush to meet the tax obligations, you are likely to make mistakes that can cost you back. So if you successfully procrastinated the tax planning process during the whole year, we have got you covered. Here are a few mistakes that you can avoid to have an error-free tax filing and returns.
1) Messing up the Calculation
If you are using an old fashioned way (pen and paper) of filing your returns, you are exposed to the risk of calculation errors or even simple mistakes especially when you are pressed for time. You may forget to sign on certain forms or date them on time. On the other hand, using an accounting software can eliminate this risk. When you use a tax software, your chances of having a mistake is lowered. Several e-filers get their returns quickly and easily by using a tax preparation software. If you still prefer to file your taxes on the paper, take your time and at least run your figures through the tax software to make sure that your numbers are tallying.
2) Failing to Double-Check Your Work
You may have made errors while entering numbers which might have gone unnoticed. These errors can be detected while double checking your work. Even if you are in a rush and desperately need to file the taxes, you need to double-check. Any errors in the figures can lead to tax calculation blunders. Software systems are great to catch any errors related to your bank account numbers or Social Insurance Numbers (SIN). These systems are already based on the rules and guidelines for tax planning. Therefore, the moment you enter the details, it is checked by your software giving you the ease to double check during tax planning with a simplified and understandable format.
3) Slipping a Copy of the Returns
It is important to secure the copies of your returns of all the years for audit purposes. If you have lost your copies, you can request a new set of copies from the Canada Revenue Agency (CRA). The copies need to be produced to a money lender if you want a loan or to your financial auditor during an audit. Additionally, when you have a copy of your last year’s returns, tax planning for the following year becomes easier. When you go through the previous copies of your returns, you get an idea of your past transactions or processes - for instance, an account that you have closed or any deductions that you might be missing.
4) Misusing the Money Intended for Taxes
During the tight cash flow, you might use the tax money and the payroll tax money for various business purposes. By using up this money that's meant for paying taxes, you may create mismanagement of funds and end up with the delay in payment of taxes. All of a sudden you find yourself not paying your taxes on time during the deadline. The best way to avoid this situation is to create a business budget that separates the tax amount in a separate bank account well in advance.
5) Failing to Pay Your Estimated Quarterly Tax Payments
Small business owners need to pay tax payments quarterly, but they may fail to do so. When you miss out on paying the quarterly tax payment, you incur a penalty as a huge surprise at the end of the year filling. Moreover, CRA may even seize your assets if you miss out on several tax payments.
6) Mixing Your Business and Personal
According to CRA, personal expenses charged in the business cannot be considered as business expenses. You cannot deduct your personal expenses as business expenses. For instance, if you use a car for personal purposes, you cannot take the expenses for maintaining that car from your business account. When you don’t separate your business and personal account, you tend to get confused while filing taxes. To get tax returns for your business, you then need to dig into files and folders to find various receipts which lengthen the whole tax filing process. Mixing your business and personal taxes can create a huge confusion and wastage of time in identifying the account for each expense. Therefore, keep your personal and business expenses away.
7) Selecting the Wrong Tax Planner
There is no shame in seeking help from a professional tax planner for tax planning. CRA penalties can be strict, and you may end up paying taxes that you may legitimately do not owe. Tax laws change annually, and it is difficult to stay updated when you as business owners should focus on the growth and expansion of your business. When it comes to paying the fees to the expert, it is much less than paying the penalty for your tax mistake. You may get many tax planning professionals who might pretend to know the tax laws and provide the services at a lower price. Instead of falling in that kind of trap, look for a person who is certified and licensed. This will ensure that you file your tax on time, avoid penalties thorough tax mistakes, prevent delays in getting your refund, etc.
It is always the best solution to book a free consult from a reputed accounting firm to help file tax with utmost care and avoiding any kind of chances of an error during the end of the financial year.
If you are a newbie in the city or just entering the workforce, you may be overwhelmed by the feeling of filing a tax return and whether it is necessary. When it’s that time of the year again when Albertans roll up their sleeves, dig out old receipts, and financial documents from the past year and fill out their tax income forms.
For those who end up with a rebate, the process could be rewarding. Whether you end up owing the government or the government owes you, tax time can be tricky for many.
Most income tax and benefit returns are due on or before 30 April 2018.
We can help you with your tax file and accounting hues. Let us explore the different facets of accounting and tax returns before filing your taxes in Alberta, Edmonton.
You must file a personal tax if:- You owe tax.
- You are self-employed and have pension plan premiums due. Also, you are required to file if you are paying employment insurance premiums on your self-employment earnings.
- You and your partner wish to split your pension income.
- You are participating in the Home Buyer’s Plan or Lifelong Learning Plan with repayments due.
- You disposed of the capital property. If you sold your home, you must file a tax return even if you don't wish to pay capital gains tax on the sale (principal residence exemption).
- Whether you are 9 or 90, age does not influence your requirement to file a personal tax.
- Students are not exempted from filing either. If your 21-year-old child is an entrepreneur who makes over $3,500 (after expenses) running a small business, they must submit a personal tax even if they're still in school.
While filing your taxes is a yearly tradition, the government makes few amendments to tweak its tax policy. Here are a few things the Alberta government has altered for 2016:
- Increased Alberta non-refundable tax credits to counterbalance inflation
- Lower-income families with children under 18 years of age qualify to receive the Alberta child benefit as of July 2016.
- Individual income tax rates have changed for taxable income over $125,000, $150,000, $200,000, and $300,000.
- The Alberta overseas employment tax credit has been obliterated.
- The rate used to calculate dividend tax credit for non-eligible dividends has reformed.
How to File Your Taxes?
You can fill your tax form online, on paper, or by phone.
Stages of Filing a Personal Tax and Benefit Return
Stage 1- Collect all your information and relevant documents that display your income, and that support any deductions and accounting credits you plan to claim. To fill out your return, you need all your tax information slips that show your income. You should have all your slips and receipts by the end of February. Gather all the receipts or records you will need to support any deductions, credits, amounts, or expenses you will be claiming.
Stage 2- Select the software you wish to use to fill out your details or get the general income tax and benefit package.. For ex- NETFILE is a certified tax preparation software that offers you convenient and secure way to do your taxes online.
Stage 3- Make sure all your details are up to date. Changes to your personal information such as your marital status, the number of children you have, your banking information, and your address directly affect your benefits and accounting payments. If there have been any alterations in any of the aforementioned, let the Canada Revenue Agency (CRA) know as soon as possible to ensure you get the entitled paybacks and returns.
Stage 4- Report the income you have received in the year from all sources, both inside and outside Canada. Find instructions on where to report in Edmonton an amount on the back of your information records.
Stage 5- Calculate the deductions, tax credits, and benefits you can claim. This information is required so that you can claim on your return to reduce the amount of tax you have to pay. This information can also be found on your tax return or a related tax form in Edmonton. If the information is too overwhelming at this step, it is always wise to seek professional help and let our team of experts resolve your queries.
Stage 6- Send your file to the Canada Revenue Agency. With several ways to send your tax file to the CRA, you can file it online using NETFILE-certified software or through an EFILE service provider, such as a tax preparer. ATS accounting helps in preparing and e-filing your individual, corporate, and estate tax returns at the local, state, and national levels.
Stage 7- If you filed your taxes late, your records must be secured for six years from the date the tax was filed. If there are any claimed expenses, deductions or accounting credits, make sure you store all your receipts and related documents in case the CRA asks to see them.
How can I avail maximum tax returns? When do I get the refund?
You can avail maximum reimbursements in the following ways:
- Keep your transit passes
- Use your tuition credits
- Claim your student loan interest
- Claim medical expenses
- Use the dividend tax credit
- Claim utilities such as cell phone and internet expenses
- Claim your work expenses such as conveyance, uniform, costs incurred on purchasing work related items
If you file your return online and choose direct deposit, you get your refund in as little as eight business days. If you send a paper return, it generally takes eight weeks to issue your notice of assessment and any refund.
Do You Need Help with Your Taxes?
With so many steps and procedures involved, filing taxes can be quite daunting. It is one activity; a person must experience to get their hands-on with managing their finances and accounting.
Managing all your tax deadlines, including payroll, corporate, sales tax, and more, can be a big job that diverts you from other things you have to do to run your business. We take pride in staying on top of these deadlines for our clients, so you don’t have to stress about them. We prepare and file the tax returns that are required for your business. We’ll look hard for every deduction possible, discuss with you your options, and perform your tax compliance work accurately and on time.
Are you still indecisive? We have made it risk-free for you. Now you can book a consultation for counselling, controller, taxes, and accounting related queries.
At the beginning of every financial year, business owners don’t seem to mind the amount of tax that they pay. While most would be looking for ways to spend not more than what they owe, there are others who work on increasing the possible tax refund that they will get. Tax refund helps you secure your future as well as that of your family for it means nothing less than savings. While paying taxes is part of your duty as a business owner, there are ways you can do to help reduce your tax liability. How do you do it?
· Tip 1: Be Charitable
Allot a part of the company’s income to donation. Various charitable institutions are exempted from tax collection. Donating to these institution allows you to have a substantial amount of on-refundable tax credit. Community groups, religious organizations, non-profit hospitals, and colleges are just a few of the institutions you can donate to. When you put money into any of these institutions, you can collect part of the amount, up to at least 75% of your income.
· Tip 2: List Down all your Work Expenses
If you are required to make payouts as part of your employment but are not refunded by your employer, you may be able to use it as part of a tax claim. Cell phone and laptop use for work are usually not reimbursed by the company; thus, making them eligible for tax deductions. All you need to do is make sure that you put on record all of these to be able to make a claim.
· Tip 3: Keep a Record of All your Medical Expenses
Your health plan does not cover several medical expenses. These expenses may be claimable as a non-refundable tax credit. Whether it is the payment, you made to the doctor, attendant care fees and even the ambulance service. All of these can be filed as part of your tax return. Hence, make sure to keep on record all your medical expenses as they could bring about huge savings on your part.
· Tip 4: Work from Home Services are also Included
If you are an owner of a start-up business operating from your home, you can also avail of tax deductions. Most of the expenses that you incur to be able to make income are almost always tax exempted. A portion of the rent, internet expenses, office supplies as well as part of the other maintenance costs are tax refundable.
Keeping a record of all these data and its supporting documents before the filing of tax returns should be a priority. Not only will it help you keep track of your earnings, but it could help you save a lot in the long run too. Don’t wait until the end of the financial year to do it.
What if you don’t have the money to pay your taxes? Or, what if you were handling a business crisis and are unable to file your taxes? For one thing, it is not the end of the world. But, on the other hand, the Canadian Revenue Agency (CRA) will start proceedings against your business.
Put every other business management issue aside and make this a priority because if you don’t tackle this tax issue, CRA will create a lot of difficulties for your business.
CRA Contacts You
CRA will take the initiative and contact you. They usually do this by sending you letters asking for the taxes. Further on, CRA won’t stop even if you fail to answer. They will increase their aggression and from mail, they will move to calling you and later on, even set agents on you.
You Contact CRA
The next step for you is to get in touch with CRA before they become more aggressive. Inform them when you will be able to pay the taxes. If you don’t have sufficient funds to pay the required taxes, then submit a repayment plan. CRA will probably negotiate the time period and payment amount, so expect it. CRA will prefer you pay the taxes within 6 to 12 months. You can choose a payment option from cheques to payments directly from the bank.
Refusing CRA is not an Option
If you didn’t pay your business taxes because you are hoping to get out of it, then you are in deep trouble. Not paying taxes to the CRA is not an option for you.
Tax investigations are a big part of what the CRA does. When they investigate a business, they do it with a fine-comb and ensure that your business is not violating any rules. From income tax to excise tax to assessing for any fudging to checking if your business is paying GST or HST (if your business qualifies for them), CRA is very thorough.
- Take you to Court
CRA can take legal action and take you to court. CRA is known to have a high conviction rate. In an annual report to the Parliament, the CRA states, "The rate of conviction is very high due to case selection. Cases are selected for prosecution based on their expected outcome as there is a high cost to this type of compliance intervention ... In this way, Canadians and Canadian businesses are reassured that the most egregious cases are pursued to the fullest extent."
Your risk not only fines, but jail time too.
The good news is that CRA also settles cases outside court.
- Taking Control of your Asset
CRA has the power to freeze your bank account, take your wages as garnishment and put a lien on your house.
Consultant with an Accountant
Not paying the CRA is not an option, which makes your best option – to pay the CRA. To figure out your options, how to deal with CRA and completely know your business’s tax and financial situation, you should talk to a tax accountant.
CRA even has a public conviction page that lists down all wrongdoers.
At times, the reason may be as simple as filing your taxes incorrectly or worse, like not knowing how much tax you owe. At ATS Accounting, we provide effective tax solutions to organizations that need assistance.
As you near the close of the financial year, you start anticipating taxes. When filing taxes most of us are looking to pay no more than we owe or rather boost our tax refunds. Tax refund is a boon, which helps you secure yours as well as your family’s future by saving more. While you are obliged to pay taxes, there are ways that will help you reduce your tax liability. Here are 6 tips through which you can get more tax refund.
Making charitable contributions to tax-exempt organization allows you to claim a substantial amount of non-refundable tax credit. Such tax-exempt organizations include religious organizations, charitable organizations, community groups, colleges, non-profit hospitals and more. When you make donations to the listed organizations, you are generally able to claim all or part of the amount, up to the limit of 75% of your net income.
If you get a T4 slip and are required to pay out of pocket expenses as a part of your employment, you may be able to claim a deduction. Expenses paid out of your personal finances, which are not reimbursed by your employer are eligible for deductions. Examples include cell phone and laptop used for work. If you have to incur phone expenses related to work, which is not reimbursed you can claim such a deduction. However, make sure you have proper records to prove this.
Certain medical expenses, which are not covered by your health benefit plan, may be eligible for claiming non-refundable tax credit. These include fees paid to medical practitioners, ambulance services, attendant care fees, certain chronic disease treatments, and more. All of these can be claimed while filing tax returns. Hence, make sure you keep a record of receipts and prescriptions for any medical expenses you incur.
Retirement benefit contributions like Registered Retirement Savings Plan (RRSP) may help you boost your tax refunds. As you start investing in RRSP, you will be able to get a tax refund equal to your marginal rate. You can contribute this later to your Tax-free Savings Account (TFSA). Moreover, you can even elect to transfer a percentage of your pension benefit to your spouse to take advantage of income splitting to boost your tax refund.
If you are a small business operating from home, you can avail of several deductions. Most of the expenses you incur to obtain the income are eligible for deductions. This includes internet expenses, stationery, portion of rent, and other maintenance costs you pay for your work space. As per CRA work space in home expenses you can deduct cost of electricity, heating, and more.
You can deduct a number of expenses related to your immediate extended family. Child care and elderly care expenses can be claimed via deductions. If your child goes to a day care or you take care of your child and elderly family member, you can claim a deduction and boost tax refund. Moreover, filing as a family will also help you claim certain non-refundable tax credits.
Implementing these tips before the filing date can help you get more tax refund. While it is not difficult to file your returns, taxation is a complex subject which requires guidance. It is preferable to consult a taxation expert to help you manage income and get more tax refund.
How you would pay yourself as a small business owner is a question that requires contemplation. You can pay yourself a salary, or can receive dividends, or a combination of both. However, the decision on salary vs dividend is influenced by a variety of factors such as personal and corporate tax structure. Considering this, each way of paying yourself comes with pros and cons. Moreover, in almost all cases there is a discrepancy of a percentage or two that can work in your favor or against you, and this potentially influences your decision on how to compensate yourself. To provide you with clarity on the subject here is a comparison of paying yourself in salary vs dividend.
Compensating yourself in Salary
As mentioned above you can compensate yourself with a salary as well as with a dividend. If you choose to pay yourself salary, you can reap certain benefits but will also have to bear the disadvantages that come with it.
By compensating yourself in salary, you ensure a personal income. With a personal income, you will be able to contribute toward the Registered Retirement Savings Plan (RRSP) and Canada Pension Plan (CPP). As your CPP is based on how much and how long you contribute, paying yourself in salary will help you consider this important retirement plan. Regarding tax benefits, the salary or bonus you pay yourself will be a tax deduction for your small corporation. Additionally, you can implement income splitting by paying salary to related employees such as a spouse or children and avail of income tax benefits.
Having a personal income may also turn out to be a drawback. Unlike dividends, which are taxed at a lower rate, salary is a hundred percent taxable. This might increase your tax load. If your business profits vary every year, paying yourself with a salary can result in taxation issues, as you will not be able to carry forward business loss. With regards to CPP you will have to contribute toward it as an employer as well as an employee. Furthermore, it will also require you to set up a payroll account with the Canada Revenue Agency.
Compensating yourself in Dividends
Many business owners choose to compensate themselves via dividends. Paying yourself in dividend comes with the following advantages and disadvantages.
Dividends are taxed at a lower rate than salary hence you save yourself from the load of personal tax. Additionally, when paying yourself in dividend, you will not have to pay toward CPP, which will save you money. Unlike salary, paying yourself in dividend is much simpler. You write a check to yourself from the company, update your minutes books, and prepare a director’s resolution for dividends paid.
Apart from the benefits you reap, there are certain disadvantages. Compensating yourself in dividend does not allow you to contribute toward retirement benefits like RRSP and CPP. Dividends can also disallow you from enjoying the benefits of personal income tax deductions.
Whether you pay yourself in salary or dividend is completely dependent on the type of business, and your personal financial circumstances. A detailed understanding of types of corporations and related tax structure, as well as your personal financial management, will help you make the best decision. Guidance of a financial and tax consultant is recommended to help you choose the best from salary vs dividend.
You never know what’s in store for your business in the new year. 2017 can present you with really good opportunities or threats for your business. Therefore, you should be prepared for what comes your way and thus, create a suitable plan to take advantage of opportunities and overcome any risks. One way to be prepared is to create a financial plan. Financial planning is important because any unforeseen events that affect your business can have a direct impact on your finances. So if you have not planned your finances for this year, here’s what you need to do.
Update the information
Before you begin planning your finances, keep yourself updated with the latest happenings in the business environment and also within your company. This includes analyzing your competitors’ strategies, evaluating of your marketing costs, settling transactions and others. Once you are aware of this information, it serves as a guide to planning for your finances.
Estimate your expenditure
You need to decide the amount of funds you will spend in 2017. A periodic estimation on a monthly or a quarterly basis is suggested. This is because in case you happen to overspend in a month, then you can control the spending for the upcoming months. As a result, you are able to keep control on the amount of money that you spend. Moreover, you need to decide how much funds need to be allocated for different departments within your company. For this purpose, you need to consult the heads of all the departments in your company.
Estimate your revenue
Once you estimate your expenditure, you need to decide how much profits you expect in the year. For this purpose, you should figure out the sources of revenue. Accordingly, you may consider your investment options, increase the prices of your products, reduce the discounts offered, and others.
Update on tax policies
Ensure that you are aware of the 2017 changes in tax policies. There may be some tax benefits that you can avail by investing in specified portfolios. Accordingly, you can decide in advance where to spend or invest your finances to get the benefits. If you are not well-versed with tax matters, then take the help of a professional tax consultant.
Check the latest salary guide
Check the latest industry salary guides to determine increment for your employees. Moreover, you can compare your pay structure with industry standards and alter your salary structure while recruiting new employees or providing incentives to the existing employees. Thus, you need to make sure that you have sufficient funds available if you need to increase their salaries.
Keep contingency funds
Risks are a part of every business, therefore; you need to keep aside a specific amount of funds in case of an emergency. Contingency funds should be able to keep your business running for a few months. If you do not have sufficient funds to handle a crisis, then loans or borrowing are your best options. Therefore, when you plan for your finances, do not forget to create a reserve account for your business.
When you carry out your financial planning, follow these points to ensure you do not miss out on anything. Good financial planning ensures that your operations run smoothly and you do not face any cash flow problems. If you need more tips on managing your finances, then get in touch with an expert accounting firm in Edmonton.
Taxes can indeed take a large chunk of your profits. Your profits minus the tax may leave you with very little money for yourself. This is, even more, a worrying sign for self-employed people who operate from their home. However, with the help of home office tax deduction, you can get home business tax saving. Thus, you are able to reduce your tax amount. But, how do you reduce it? An accounting assistance in Edmonton will be able to help you to get the home office tax deduction. Some of the ways to get home business tax saving are mentioned as follows.
When you operate from your home, you are allowed to deduct some of the expenses such as a part of the electricity cost, heating, and maintenance. Some of the expenses that would not be deductible include mortgage interest, home insurance, capital cost allowance and property taxes. So if you have missed out on the deductible expenses before, make sure you add them to the deductible taxable amount to get the exemptions.
Area of the Work Space
You can deduct work space expenses by calculating the percentage of the work space and the entire area of your house. For this purpose, the area of the work space should be divided by the total area of your home. This will give you the percentage of the work-space-in-the-home expenses that can be used as a deduction and thus, save you from paying additional tax. When it comes to maintenance cost, the expenses incurred in maintaining only the office space can be used to deduct. Any expenses incurred which are not part of your work space are not allowed to be deductible.
Is your apartment or house rented? If you have a rented apartment or house where you work from, then you are able to save some tax as well. In this case, again you can deduct taxes by calculating the percentage of rent and other maintenance expenses that are paid by you. The expenses used in deduction should form the part of your work space expenses alone, and not the expenses of the entire apartment or house.
Apart from these tax savings option for those having offices at home, you can also carry forward the expenses that were not deducted in the previous year to the current year. Moreover, there are quite a few conditions for getting home office tax deduction. Your office space should be utilized to carry out more than 50% of your work time. If you do not fulfill this condition, then you should use the workspace to earn your employment income itself. Additionally, it must be used on a regular basis for meeting clients, customers, and other people for work related purposes. To know more about home business tax savings, get in touch with an accounting assistance in Edmonton. The accounting assistance in Edmonton will help you to deal with all your tax related matters and ensure you get home office tax deduction accordingly and save you some dollars.
Are you concerned about what will happen to your family owned business after your death? You want to ensure your family’s future is secured even after your death. For this purpose, estate planning for family owned business is crucial. An estate plan describes how your company assets are passed on to your family members in the most cost effective way as possible. The estate plan you create now can affect the accounts and finance your business substantially.
Here’s some estate planning strategies that you can use to plan for your estate accordingly.
Immediately after your death, you are deemed to dispose the entire capital property at fair market value. As a result, the liability of income tax is huge. It is also known as death tax. In such a scenario you can limit the death tax by using the estate freeze method. In this method, you transfer the assets to a younger generation. As a result, the value of these assets is frozen to the transferor as on the date of transfer. Furthermore, the amount of potential capital gain on death also gets frozen. Thus, you are able to estimate the potential tax liability on death and there is a better planning for payment of income tax.
Life insurance is one of the basic tools used for estate planning strategies. You can fund the potential income tax by purchasing the life insurance policy. If your insurance policy is properly structured, then any income tax occurring on the deemed dispositions of assets on your death can be paid without any sale of the assets. Therefore, you should get in touch with an accountancy firm providing you with tax related services to help you out.
Updating Your Will and Power of Attorney
While you start estate planning for family owned business, it is necessary that you keep an update of your Will or power of attorney. A Will is prepared so that in the event of owner’s death, the executors are provided with the power and authority to act as mentioned in the Will. Also, a properly developed Will can be used by executors to hold and operate the business after the death of the owner in a convenient manner. Thus, the business is passed on to the right person and it also minimizes the taxes through the use of capital gain exemptions, trusts and rollovers.
In the same way, small business owners should consider having valid powers of attorney for financial assets and personal care, during their lifetime in case they are unable to make decisions for themselves.
Drawing Up Partnership Agreements
Drawing up partnership agreements is useful when there are multiple people involved in the business. Such agreements helps to pre-determine what should happen to the business in case of death or retirement of one of the partners. For example, in the case of a buy-sell provision, it directs the surviving partners how to buy out the deceased partner’s share of business, the price to be determined and when the proceeds has to be paid.
These were some of the estate planning strategies that you can use for the benefit of your family members. Estate planning for family owned business or other small businesses would ensure that the ownership rights goes to the right person. However, the estate planning is a complex process and therefore, it is recommended that you take help of professional tax service providers in this regard. Want to secure the future of your business and family? Then start with your estate planning as soon as possible.
Are you able to manage your accounts effectively? Are you aware of all the latest tax policies and accounting standards? If the answer to both those questions is no, then no need to panic. You would rather want to focus on your core business activity than keep up with the latest updates on manage your business accounts. Rather, it would benefit you if you outsourced your bookkeeping to a bookkeeping service in Alberta. Apart from this, here are a few more benefits of outsourcing bookkeeping services.
1. Focus on Your Work
As mentioned above, one of the benefits of outsourcing bookkeeping services is that you can concentrate on your work. Sometimes, it’s not possible to be aware of latest changes in tax policies or accounting standards. Moreover, you may shift your focus from accounting work and concentrate on your main business activity. Thus, your productivity decreases. Hence, it is better to outsource your bookkeeping to a firm that deals in bookkeeping services in Alberta. Such bookkeeping experts have a clear understanding of the latest changes that are taking place in tax and accounts related matters.
2. Expert Advice
A firm dealing in bookkeeping services in Alberta will give you expert advice regarding your financial status. These firms are experts in professional accounting and therefore will guide you relating to different subjects in bookkeeping. Some of them include:
3. Reduces Scams
When you have your own accounts department, there is a possibility of manipulation in the financial transactions which can lead to scams. This is one of the common problems in small companies when they do not have a separate accounts department to manage bookkeeping. Outsourcing your bookkeeping will help you keep effective control of your various transactions. Thus, it prevents scams and fraudulent incidences and there is a proper management and accountability of funds.
4. Saves Money and Time
Want more reasons to outsource your bookkeeping? Saving time and money are other benefits of outsourcing bookkeeping services that you will get. It helps you to reduce cost. You do not need to hire a permanent accountant to take care of your bookkeeping. You can outsource your bookkeeping as and when required. Moreover, your bookkeeping requirements are taken care of by the professional, so you save time. This is essential, especially when it comes to filing your tax returns which consume most of your office time.
Apart from these reasons to outsource your bookkeeping, you get access to top accounting systems used by these outsourced bookkeeping firms. If you want to avail of all these benefits, then you may want to outsource your bookkeeping. Get in touch with professional bookkeeping services in Alberta to help you out.
An inaccurate record in bookkeeping can cost your company dearly. A silly mistake, such as entering an income which is not realized as yet, affects the profitability of the company. You may end up paying tax for an amount that you have not received. Apart from this, there are many such incidences which affect the smooth functioning of the company if you have inaccurate financial statements. Some of the dangers of an inaccurate financial reporting are as follows.
Incorrect financial position
One of the dangers of inaccurate financial reporting is that it reflects an incorrect report about your financial position. If an investor finds that the financial position of the company is unstable, he would not invest. This also happens in the case of getting loans from financial institutions. Thus, it affects the future plans of the company. Inaccurate financial statements, therefore, prevents a company from growing further.
Can cost the company
As mentioned earlier, an income which is not received and is recorded in the books shows an increase in profits. Similarly, underestimating profits can lead to penalties when an audit is conducted. Moreover, an error in miscalculating the number of years for depreciation of a fixed assets and expenses can result in payment of more taxes than you need to. Such dangers of inaccurate financial reporting can cost the company profits.
More tax payment
At times, due to inaccurate financial statements, you may not gain certain tax deductions that are applicable. For example, an expense on which tax deduction is applicable is lost in the process or not recorded leads you to payments of more taxes. If you had a professional accountant or an expert accounting firm who maintains your books, then such mistakes are avoided. The deduction may not seem too much, but if you are a small business, then it certainly affects your profitability
Negative brand image
When general public goes through your inaccurate financial statements, then it affects your brand image. Lack of professionalism and poor management are the common perceptions about such companies. Furthermore, people think that your company is manipulating the data and is unethical in its approach.
Affects the cash flows
Another common danger of inaccurate financial reporting is that it affects the cash flow of the business. Without a systematic bookkeeping format, it is difficult to know who owes you what amount. It becomes a time consuming process to organize and send the invoices. As a result, your business may end up receiving the amount at a much later time than the due date of receipt. This eventually affects the cash conversion cycle. So, your business may end up with fewer funds when payment to other parties or payments to your employees are due.
Therefore, now that you know the dangers of inaccurate financial reporting, you should maintain proper records. If you find it difficult or out of time to keep the records by yourself, get in touch with an expert accounting firm. Such firms will take good care of your records and you do not have to many any dangerous consequences.
Do you think revenue and profit are the same? . Well, this is not true. In accounting terms, there is a substantial difference between revenue and profit. When you receive revenue, it does not mean that your business has earned a profit. While your business is doing well, being well-versed in accounting and bookkeeping gives your business an advantage. This is because then you are able to assess and manage your funds in a better way.
This is why businesses need the help of professionals accounting firms who assist them in their day to day book-keeping and accounting systems. Revenue vs profit can be explained in following points.
Top and bottom line
Revenue vs profit compared as the top vs bottom line. In a business, revenue is considered as the top line. Revenue is the total amount of money earned by the company after the sales of its goods or services. Profit is considered as the bottom line. Profit is the sum total of the income after deducting the cost of the materials, operating and non-operating expenses, debts and taxes.
Another difference between revenue and profit is the dependency. Revenue is independent on its own while the profitability depends upon the revenue earned. The greater the difference between the revenue and the expenses, the greater is the profit earned.
Revenue and profits come in two types. Revenue can be received from operating activity which is the core business of the company. This is known as operating revenue. The second type is revenue received from a non-operating activity, which is called as non-operating revenue.
The two types of profit are gross profit and net profit. Profit received after deducting the operating expenses is known as gross profit. Whereas profit earned after deducting the debts, interests and taxes is known as net profit.
One major difference between revenue and profit is the tax applicability. A tax rate is applicable only when you’ve earned a substantial amount of profit. You cannot be asked to charge tax for the revenue earned. The tax rate if applicable or not can only be known when you close the books of accounts at the end of the financial year since profit is calculated at the end.
The above mentioned points will assist you to know revenue vs profit. It is important that firms maintain a proper record of all the transactions and accordingly understand the difference between the two terms. A good book-keeping practice will help you in analyzing the income statement and accordingly work out plans to increase the revenue and profitability of the firm. A professional accounting firm is the best guide to help you.
A payroll system is an integral part of all organizations. This system is responsible for employees’ salary compensation, and also plays a vital role in protecting the company’s reputation by ensuring compliance with various legislations. Payroll affects every aspect of your business, from the goodwill of the company right down to the morale of its employees. If you have a small business, you too can set up a small business payroll system. When you set up a small business payroll system, it becomes easier to maintain as you grow in future. Here are steps to set up a payroll.
Registering with Canada Revenue Agency (CRA)
You must have a Business Number (BN) and a Payroll Program for your company by registering with CRA. A Business Number is a unique 9 digit number, used to identify a company for tax matters in Canada. In a Payroll Program, you need to gather some information and decide your first remittance due date. The following information is required for a payroll account.
The steps to set up a payroll account can be done online as well.
The next step is to collect the Social Insurance Number of your employee and file Personal Tax Credit Return. Once you’re done, you can go forward with calculating the deductions. CRA has an online calculator to estimate tax deductions. Ensure that you have the information regarding employee province in order to calculate proper deductions. Use the payroll deductions online calculator to determine your share to deduct from each pay period. For this, you must know the provincial and territorial location of the your employee.
Remitting Payroll Deductions on Time
You need to remit Canadian Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and Income Tax Deducted from your employee. In order to decide your remittance date and frequency do the following:
In case you need any help in the above points take services of a professional firm. You will have to pay high penalties if you are late in remitting your employees payroll deductions. The penalty is as follows.
Follow the above steps to set up a payroll system. Setting a payroll is a complex and time consuming task but it is beneficial to both the organization and the employees. So, if you need assistance to set up a small business payroll system, consult a specialized bookkeeping firm.
Every residential corporation in Canada has to file a corporation income tax return irrespective if you earned any profit or not. This can be a tedious matter, especially for small corporates. Corporates may need the help of an accounting firm who can assist them to plan their tax returns. Thus, enabling them to focus more on the daily operations rather than taking time in filing tax returns. Most of the times, the firms do not have a corporate tax planning structure. If you have a corporate tax planning policy, then you can avail tax benefits in a better way. Some of the tax benefits for corporations are as follows.
Pension Plans for Individuals
Individual Pension Plan also known as IPP, are defined benefit pension plan which is managed usually by an investment advisory organization or an insurance company. If you are a business owner, you can make use of IPP to get tax benefits and also earn a pension. Payments made by your corporation to an IPP are tax deductible. The payments are invested in stock markets and bonds for a long period of time. Later on, as these investments grow, you receive a fixed payment once you retire.
Lease of Company Vehicle
One of the tax benefits for corporations is to lease the company vehicle. Even if you use the car for personal use, only two-third of the lease payments made by your corporation is taxable. However, make sure that the company name is provided in the lease contract to avail the benefit. The tax law allows you to write off the lease expense as a business expense.
Medical expense reimbursement for employees is provided by most of the corporates. Therefore, any kind of medical expense for drugs prescribed, treatment, fees to physician and other medical expenses are tax deductible. The Canadian Income Tax Act allows corporations to claim a tax deduction for Health Insurance Premiums paid for its employees. You must, therefore, ensure your corporation has a corporate tax planning structure and accordingly maintain the records for such expenses.
Plan for Income as Dividends
If your business generates net income, then you would withdraw all or part of it as your income. You can decide to do that in the form of salary or dividends. It is advised to take it in the form of a dividend. The reason being, salary is a tax deductible expense for the corporates, whereas dividends are not. Anyways, you will have to pay less tax on dividends.
Corporate tax planning can be prepared well if you take the assistance of accounting or financial firm. To know more about tax benefits for corporation seek the help of Edmonton’s leading accounting and book-keeping firm.
Whenever you decide to incorporate your business, you will have to choose between federal and provincial incorporation. You should always ask yourself a question when you are going to start a business- "Should I incorporate?". Well, that totally depends on the situation and your business requirement .
Business incorporation is not a must for all business, so you need to know when to incorporate your business.
Incorporating your business also has a few benefits. Most of them are related to tax. So we will take a look at some of the tax benefits of incorporating.
Incorporating your business can help you to determine when you receive the income. That is a real tax advantage. The benefit of incorporating your business is that you can get your income at a time when you have to pay less tax. This is one of the tax benefits of incorporating.
When you incorporate your business, you get the potential for tax deferral. This helps you to understand the tax savings just in case you belong to the lower slab in the tax rates. Having a tax deferral is another on the list of tax benefits of incorporating.
If you are looking for some other tax benefits of incorporating, then you should add income splitting to it. Shareholders are paid dividends by the corporations. We all know that the shareholders have no involvement in the activities of business. If you make your family members the shareholders then what you do is you redistribute the income within your own family members.
Small Business Tax Deduction
If you want your business to qualify for Small business tax deduction (SBD). The SBD is calculated at a rate of 17% on the first $500,000 of taxable income. All this can reduce a lot of your net business tax and that is surely the best of the tax benefits of incorporating
The above points are some guidelines which can help you decide on when to incorporate your business ATS Accounting can be of great help when you want to know the tax benefits of incorporating.
When you have your own business, you have the urge to do the things on your own. However, it is critical that you don’t. You need experts to assist you in a wide arrays of jobs.You will have to appoint professional who is good at accounting for your business. At this point, you might ask yourself - Do I need an accountant?
The financial transactions are time consuming when the business increases. Managing finances is a constant process which includes the recording of figures. If you appoint an accountant, he will be an expert at managing your finances and that indicates that you have a lot of free time. So if you think that managing the finances have become time consuming for you, that indicates that you need and expert for accounting for your business. With this free time, you can focus on work that is important to grow your business.
It will take time and effort to learn and understand the facets of accounting. Rather than learn a new skill which only account for a minor part of your business, you can learn more important aspects such as marketing or operations.
You have to be alert and on top of your accounts. Along with that, understanding the accounts and the related regulations are a tricky. The changes in the tax regulations occur from time to time and only a professional accountant can help you decipher the meanings of the legislations which are as we all know, important for your business. The tricky regulations makes you look out for an expert in accounting for your business.
The best time in the year when you are in a desperate need for an accountant is during the tax season. Having an accountant in these times is a greater incentive. It is the time when you are the whole and sole responsible to send the tax forms. An expert will make things easy for you when you are the sole person doing the accounting for your business.
Business are run for profit and the only way to know if your business has a profit is to maintain the books. Your books need to regularly updated and well maintained and if you fail to do so, you won’t be aware of the financial health of your business and neither will you be able to file your taxes. An accountant would be able to help you.
ATS Accounting can be of great help when you ask yourself - Do I need an accountant?
Accounting for your business is required to keep a careful track of your finances and to allow an easy understanding of the cash flows of the business. Keeping up with your small business’s accounting can be quite a complicated task, especially if you do not have help from small business accounting experts or a tax accountant. To make things a little easier for you here is a checklist for you to follow to stay up-to-date with your accounting.
Record all the incoming and outgoing cash flows and maintain separate files for each. Document and save all the receipts from the transactions made by your business. This is an essential task for small business accounting. Save all the records of transactions such as bills, receipts, invoices for tax references and small business bookkeeping purposes.
Pay Vendors and Sign Cheques
Every week, you must settle pending vendor payments and sign cheques. This is important as doing it on a weekly basis ensures that you are not faced with a large heap of pending payments at a later stage.
Prepare and Send Invoices
Just as it is imperative to settle pending payments regularly, it is important to receive payments owed to your business. You need to prepare invoices and send them as and when projects are completed. Doing this once every week ensures that your business has a steady flow of cash influx.
Monthly ChecklistBalance Account
At the end of each month, make it a point to balance your company’s bank account. This is the most important part of your small business bookkeeping and needs to be handled promptly.
You can do this at the end of every month, just before it is time to pay the monthly salary of your employees. Review the payroll structure and inform the employees of changes, if any. Maintain detailed logs about changes in the payroll to allow for easy small business bookkeeping.
Settle Tax Payments
Your business cannot afford to take tax payments lightly. You must have a well-qualified and expert tax accountant at your disposal to handle the tax payments and documentation of your firm. Ensure your tax accountant has been provided with all necessary documents required for tax filing and payments.
Yearly ChecklistReview Past Due Receivables
With the year coming to an end, it is time to review past receivables which have still not been received. Evaluate the possibility of obtaining these receivables and take necessary action by either sending them to an external agency to collect or by reducing the amount owed by the defaulter.
Review your current inventory to determine the value of items not sold. If you have a skilled tax accountant you will know that any write-down of inventory translates to a deduction on your year-end taxes. By not writing down unsellable inventory, you are overstating your inventory balance and paying additional taxes that you don’t owe. Instead, write down all the items of your unsold inventory and let your tax accountant handle the taxes you are liable to pay.
Follow this simple basic checklist for small business accounting and make accounting easier for your business. Hire an adept tax accountant to handle the small business bookkeeping for your business and file your tax returns carefully.
There exist certain groups and individuals in Canada who believe they can lawfully refuse to pay taxes or file their tax returns. Then, there are others who lack a clear understanding of the Income Tax Act and other tax laws in Canada. Remember, paying your tax is a statutory obligation and you have to know the law before arriving at a tax decision. Your tax myths might eventually cost you dear. Why expose yourself to serious financial and legal problems owing to your negligence? Be aware. Here, let’s uncover some of the biggest myths about taxin Canada and have your tax myths debunked.
The often-cited 1950 Supreme Court decision concerning the Lord Nelson Hotel in Nova Scotia dealt with the issue of whether the federal government and a provincial government could delegate authority to each other on specific issues of labour and taxation. The Court did not address the issue of imposing direct taxes or their constitutionality.
The Income Tax Act and other laws provide a range of penalties for offences such as tax evasion, failure to pay taxes, failure to disclose income, or refusing to file a tax return. These penalties can include fines, third-party claims, seizures, and criminal prosecution. On the other hand, the Voluntary Disclosures Program (VDP) provides taxpayers with the opportunity to come forward and make a voluntary disclosure before they become aware of any compliance action being initiated against them. Taxpayers availing themselves of the VDP will have to pay the taxes owing, plus interest, but may avoid penalties or prosecution.
In such cases, the CRA may not yet have acted against an individual who did not comply with their obligation to file. Also, in some cases, an individual may not be required to file a tax return because they have no taxes owing due to source deductions or because they have no taxable income. However, failing to file a tax return also means an individual may be forfeiting some benefits such the Canada Child Tax Benefit. Under the law, individuals who fail to file a return as required, or who fail to comply with a court order to file, are liable to a fine of $1,000 to $25,000 and up to 12 months imprisonment, as well as having to pay their unpaid taxes with interest.
The CRA administers and enforces tax laws as passed by the Parliament and provincial legislative assemblies. The CRA has no power to impose new taxes, remove existing taxes, raise or lower taxes, or decide how tax money will be spent once it is collected. These powers belong to the elected representatives of the Canadian people in Parliament and in provincial legislative assemblies.
These tax myths have been rejected by Canada's courts. For example, on August 31, 2000, the Ontario Superior Court of Justice issued aruling rejecting arguments that the Income Tax Act applies only to corporate entities and that all taxes are voluntary. The judge said, "I find that a 'person' as defined in s. 248(l) of the Income Tax Act includes both a natural person and an artificial person. It follows that the applicant is a 'person' and a 'taxpayer.' His obligations include the filing of annual income tax returns and the payment of any income tax owing under his returns."
Tax myths debunked? Or are you still seeking clarity? Take your time and arrive at any tax decision only after prior consultation with a tax advisor. Avail the expert tax consultancy services of ATS, improve your tax decision making and ensure you are within the law.
Tax is seen as a burden and a liability and people delay it till the very last moment. When you’re in a frenzy to fill your business and personal tax, you will make errors in your tax-filing. Don’t you? But, that’s alright. Mistakes happen. You need to take rearguard action by responding calmly to the situation by complying with the CRA guidelines. Here are some of the common tax issues faced by the people of Canada which can be fixed by resorting to these business tax solutions.
If you have filed your tax return and realize it has an error, do not file another tax return. Wait until you receive your notice of assessment before making any change. You are allowed to make changes to tax returns in any of the last 10 calendar years. Make changes online by visiting the Canada Revenue Agency's My Account page. Make changes by mail by completing Form T1-ADJ (T1 Adjustment Request), or prepare a signed letter that includes the years of the tax return to be corrected, your Social Insurance number, your address and your telephone number. Changes online typically take two weeks to be corrected, while changes by mail typically take eight weeks.
After filing your tax return, you can expect to receive a Notice of Assessment within a period of three to five weeks. If you discover that your tax return is not assessed as you filed it, you should take a close look at the change until you understand why the change was made. Speak to CRA to resolve your grievances. If you still disagree with your Notice of Assessment, you have two options at your disposal. Your first step should be to make a phone call to CRA and resolve the issue. If that doesn't work, then you may want to file a Notice of Objection. You can use Form T400A to file your objection, but it's not necessary. You can also file an objection by stating in a letter the facts, your reasons for objecting, and the change you're requesting. Address your letter to the chief of appeals at your local tax services office or taxation center. In filing your notice of assessment, it would be advisable for you to get it drafted from a tax professional who has knowledge of the Canadian tax law, CRA pronouncements and relevant case laws to make out a good case for you.
Even if applying these methods resolve your tax troubles, you must not rest easy. Consult the professional tax consultancy services of ATS Security, an accountant advisory and have business tax solutions at the end of your fingertips.
Every business corporation or enterprise wants to retain its lion share of investors. However, in periods of economic expansion, investors are on the lookout for better opportunities to exit the business. To avoid these stresses and reduce the risks associated with each new opportunity, it is critical for the shareholders to have a clear set of rules that apply to them. The agreement used for these rules is called a Unanimous Shareholder Agreement (USA).
What is a Unanimous Shareholder Agreement?
Under the Canada Business Corporations Act (CBCA), a unanimous shareholder agreement is an agreement that is among all the shareholders of a corporation and that restricts the powers of directors to manage or supervise the management of, the business and affairs of the corporation.
What is the Need for a USA?
A Unanimous Shareholders Agreement in Alberta can help settle disagreements between shareholders. Factors arise in the personal lives of shareholders that can negatively impact a corporation or leave it in a state of limbo that can hinder its success. Such situations being :
Situation 1: In the Event of the Death of a Shareholder
In the event of the death of shareholders, his or her shares may divert to a widow or children. In such an event, it important that you’re USA contains how shareholders may divest of company shares. Shareholders may not want to conduct business or give decision-making authority to family members, and the USA can cover this. It can also prevent family members of the deceased from selling shares to another party without shareholder consent.
Situation 2: When a Shareholder Leaves the Country
This is especially important, as your corporation can lose the tax advantages that comes with having a Canadian Controlled Private Corporation status. This can place a higher tax burden on your corporation, making it crucial that you have some provision for handling these shares if this does happen.
Tax Consequences of death of shareholder
The tax consequences for the estate and the surviving shareholders will vary depending on the scenario chosen. Let’s take a look at the following example.
Martin is deceased. Before his death, he owned 40 percent of Corporation A. These shares had a paid-up capital (PUC) and an adjusted cost base (ACB) of $4,000, and a fair market value of $604,000. Martin and the other shareholder, Denise, whose shares have a PUC and an ACB of $6,000, signed a shareholder agreement in 1998, under which the surviving shareholder would become the sole shareholder following the death of the other party. The purchase of the deceased shareholder’s shares is financed by a life insurance policy held by Corporation A. The capital dividend account (CDA) created when the proceeds of the life insurance policy are received is equal to the price paid for the shares. The personal tax rates are 30% on dividends and 45% on other income. The shares are not eligible for the capital gains deduction.
It is important for every budding entrepreneur to understand the tax provisions relating to the ITA, before getting into the drafting stage. ATS Accounting provides in- depth tax consulting and business start up services required for individuals and businesses to incorporate into their USA, to improve their profitability.
CRA has the right to pursue directors and former directors personally for certain categories of corporate tax debts arising during the time they were directors. The most common are GST/HST and payroll source deductions. This article focusses on certain tax liabilities of a company imposed under the Income Tax Act (the “ITA”) and the Excise Tax Act (the “ETA”) for which directors of the company can be held personally liable. The Canada Revenue Agency (CRA) can make the director liable in the following cases:
1. Directors liability for payroll deductions
Under the Income Tax Act, (“ITA”) a company is required to withhold/deduct and remit amounts to the Canada Revenue Agency for salary, wages, benefits and payments out of various plans (“Payroll Deductions”).If the company fails to withhold or deduct from remuneration (paid to a resident of Canada) an amount that is required to be withheld, the directors can be held personally liable for a penalty of 10 or 20 percent of the amount that ought to have been withheld and deducted plus any related interest.If the company fails to remit an amount to the CRA that was withheld and deducted by the company as Payroll Deductions the directors can be held personally liable for the whole of the unremitted amount, plus any related penalties and interest.
2. Directors liability for tax obligations on payments to non-residents
A company is required to withhold and remit certain amounts from payments made to non-residents of Canada. If a company fails to withhold or remit the required amount from a payment to a non-resident the directors of the company can be held personally liable for the whole of the amount plus any related penalties and interest.
3. Directors Liability for GST/HST Obligations
A company is required to collect and remit GST/HST under the ETA on taxable supplies made by the company. If a company fails to collect and remit the required amount of GST/HST, the directors of the company can be held personally liable for the whole of the amount that ought to have been remitted plus any related penalties and interest.
4. Liability extends to de-facto directors
A person who is not technically a director of a company can be held personally liable as a director in certain circumstances. A person who is, in fact, exercising the responsibilities of a director can be held to be a de facto director. A person who plays a key role in a company or has ultimate decision-making authority for the company will be at risk of being found a de facto director. The determination of whether a person is a de facto director is fact specific and requires analysis on a case by case basis.
It is the responsibility of every director to comply with his tax obligations to avoid being hauled by the CRA. ATS Accounting, with its expertise in tax preparation, bookkeeping and business accounting, provides services to safeguard the interests of individuals and small businesses in Edmonton and other cities in Alberta that aren’t equipped to put a full-time accountant on their payroll.
The big sign that your business is growing and reaping success is when you incorporate it. It is not just a big step, it is a massive step. From a sole proprietor or partnership, you have officially converted your business into a company with a business structure.
One of the many questions you are faced with is – should your company’s shareholder be a family trust or a holding company. Businesses are often plagued by this question not just in the beginning of the incorporation, but also years later too.
A family trust is a discretionary trust set up to control and protect the family assets, which in this case is your incorporated business. It is set up for the benefit of the family group. Your family, you and your business access certain financial benefits by doing so, such as finances are distributed to beneficiaries.
By far, the biggest advantage is the tax relief that comes with a family trust. The dividends paid out to the family trust are allocated to the beneficiaries in the lower income tax brackets. Beneficiaries with no income source can receive $40,000 of dividends and pay little or no income tax. Dividends, which allocated to a corporate beneficiary for non-personal use, flow to the corporate beneficiary on a tax deferred basis. This is good for corporations that generate excess cash. Family member’s Capital Gains Exemption (CGE) can be accessed. Each CGE can shelter up to $813,000 of capital gains at the sale of a small business corporation shares and each CGE shelters $200,000 of income tax.
If you are not opting for a family trust, you are opting for a holding company. A holding company owns the shares of another company and controls that company. A holding company is suited to manage shareholders and the company, and does not produce goods or services itself.
A holding company also offers tax advantages. Shareholders can defer paying income tax until the earnings are withdrawn at a later date. This allows shareholders to withdraw funds at the right time and save tax; for example withdrawing after retirement to access a lower tax bracket. The full amount of the dividends can be reinvested by the holding company.
When you sell shares, the company may qualify for CGE, but only for $750,000.
If the business fails, you can claim an Allowable Business Investment Loss, a loss that is deducted at any source of income.
Which to Choose?
In these three cases, you may prefer to opt for a holding company:
Both holding company and family trust offer a structure to manage your business.
Ultimately, your business has its own unique situation. To be sure that you are selecting the right choice, it is best to take advice from a professional accountant.
A family-run business is built on value and trust. It becomes a strong foundation within a community. Family-run businesses usually pass the ownership to the next kin. If you run a business and you decide that it’s time to hand over the reins to your next of kin, you could be wondering what’s the best way to do that.
One of the options to transfer business ownership to next of kin, current management or even a friend is through an estate freeze. If you want to get estate freeze right, it is best to hire an accountant.
What is an Estate Freeze?
An estate freeze is quite possibly the most tax efficient manner to transfer the ownership. You transfer ownership without making a sale. After transferring ownership, you continue to receive shares worth the current value of your business and defer the income taxes on the capital gain to the time of the actual disposition.
In a usual estate freeze, you exchange your business shares for preferred shares. Preferred shares have a permanent or frozen value, which is equal to common shares’ fair market value at the time of the estate freeze. Basically, preferred shares ensure that you receive a fix dividend with a high priority than common share dividends.
Furthermore, the new owner can subscribe new common shares and sell them to raise capital for the business. Upon your death, the preferred shares will go back to the business.
If you have an incorporated business worth $3,000,000 that undergoes an estate freeze, you will be issued preferred shares worth $3,000,000.
A key facet of an estate freeze is that the reduced tax liability is fixed in respect with your company’s shares.
Preferred shares serve as a source of retirement income
You have the option of creating a family trust to hold common shares. The family trust allocates dividends to family members with lower marginal tax rates.
An estate freeze may turn into a difficult option if children create a dispute to control the business
Divorce and separation can impact your estate freeze
How much control you maintain after an estate freeze depends on how much control you decide to relinquish to your successor. You can remain on and have voting rights or be present on an advisory capacity. It is entirely up to you.
Before you settle down for an estate freeze, it is crucial to discuss it with all the stakeholders. Resolve any succession disputes before you start the estate freeze process. Once your family is in agreement, you should hire an accountant to ensure that the estate freeze is implemented correctly. You will find ATS Accounting is quite adept at fulfilling yours and your business’s needs.
The Canada Revenue Agency (CRA) has set aside relief provisions for those who wish to have their taxes waived or cancelled. The term ‘cancellation’ implies that relief is granted for a penalty that has been calculated. The term ‘waive’ implies that relief is granted for a penalty that has not been calculated. The applicant for relief may be an individual, employer, corporation, partnership, organization, trust, estate, or goods and services tax/harmonized sales tax registrant. The CRA takes the following factors into consideration before granting relief.
This takes into account natural calamities such as earthquakes, tsunamis, landslides, floods, and fires. It also includes civil disturbances or disruptions in services such as a postal strike. Furthermore, it also addresses serious mental disability, illness, emotional duress, such as death in the family or an accident causing physical disability like paralysis.
Errors by the CRA
The CRA is also prone to make errors and penalties resulting in eligibility for relief. These errors include processing delays that fail to inform the taxpayer incorrect information in CRA material, undue delays in resolving an objection or an appeal, or in completing an audit.
The CRA might consider relief if the individual is destitute and unable to pay. Such a case exists due the loss of employment, a separation, or other hardships. The CRA must grant relief in such a case otherwise the individual will be unable make daily expenses (for medical, food, and other such expenses).
Filing for relief is a tricky business and requires a host of supporting documents. Seeing how the CRA take their sweet time to respond to an application, applicants are advised to seek professional help and get it right the first time. Tax planning for business tax returns can go a long way in avoiding penalties from the CRA.