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If you are a small business, you are going to be dealing with cash. It could be in the form of customer payments or payments for office supplies. It is easy to mix petty cash with your personal finance, or to get it mixed with other funds. It can even get misplaced or stolen by employees.
Keeping track of your petty cash is just a good accounting practice, which will benefit your business. What may be just $10 every week is $40 every month, which means you have a petty cash amount of almost $500 that you need to account for.
Have A Petty Cash Policy
Sit down and draft a petty cash policy for your business. What should your petty cash policy include?
Appropriate Usage of Petty Cash
Lay down situations where accepting or giving petty cash payments are allowed. This will largely depend on your organization and the financial system you have set in place.
Designate a Petty Cash Custodian
Include the various responsibilities for the petty cash custodian. A custodian must handle the petty cash as opposed to multiple people doing so.
System of Accounting
Have a petty cash account to ensure that there is a hard paper trail for the allotted petty cash amount and its usage.
Petty cash should not be kept in the open. It should only be available to the petty cash custodian. Petty cash that is out in the open is available to employees with sticky fingers. In fact, the reason petty cash is hard to keep a track of is because it is openly available for employees to access.
Having a small safe box for cash is more than sufficient. You can also store it in a locked draw.
Allocate an Amount
Do you have a practice of frequently refilling your petty cash account? Don’t let your petty cash account become a money sinkhole. Put in a large amount according to your business requirements for a month. For a small business, between $500 and $1000 may be sufficient.
Do not refill it until the next month.
The best way to keep a lid on your petty cash is to have a record. It is vital that you have a system that is workable. Since it is petty cash, these are small payments that may be forgotten.
You have the options of using an excel sheet, phone apps or accounting applications. The records should include which employee made the payment, date of purchase, amount of money utilized and the reason for withdrawal.
For every transaction that you have with petty cash, ensure that you have a receipt to show for it. This way, you can ensure that the petty cash account tallies with the receipts and there isn’t any missing amount. Furthermore, add this to your account and claim food, transport, and other such tax relief for your business.
Petty cash should not be money that is thrown around. In the long run, it does impact the financial health of your business, hence it is vital to take care.
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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.
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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.