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Tax Deductions for Small Businesses in Canada

Tax season is upon us! It’s time to gather your receipts and organize your documents in preparation for filing your business tax return. Canada Revenue Agency offers a number of tax deductions to small business owners. Are you aware of all of them? Following are some deductions you will want to keep in mind as you file your taxes this year.

Operating Expenses are expenses incurred during your company’s day-to-day activities or normal business operations. Some are deductible at 100% while you may only claim a portion of others.

 

  • Capital cost allowance: When your business purchases items such as buildings, computers, computer equipment, vehicles and/or a franchise, you can depreciate these articles over time providing a tax benefit for several years.

 

  • Bad debts are debts that remain unpaid after you have exhausted all means to collect. The CRA allows you to claim bad debts except those which are for a mortgage or resulting from a conditional sales agreement.

 

  • Start-up costs are costs incurred preceding the start of business operation and can be claimed as an expense.
  • Fees, licenses and dues: You can claim fees for professional licenses, professional service fees and professional association fees (membership in a trade or commercial association).

 

 

 

 

  • Use of home expenses: If you operate your business from home, you can claim a portion of the following: interest on your mortgage, electricity costs, home insurance and heating costs.

 

  • Delivery, freight and express: You can claim fees for services such as mail and delivery.

 

  • Fuel costs: You can deduct the cost of fuel (gasoline, diesel, propane) motor oil and lubricants used in your business. This does not include fuel used in your motor vehicle.
  • Insurance: You can deduct all business insurance policies such as general business liability, business property insurance, business interruption insurance and fire insurance. You cannot deduct the insurance for your motor vehicle or your life insurance premiums.
  • Interest and bank charges: You can write off any interest you have incurred on money borrowed for business purposes or to acquire property for business purposes and bank charges which are given when processing your payments.
  • Maintenance and repairs: You can deduct the cost of labour and materials for any minor repairs or maintenance done to property you use to earn business income.
  • Management and administration fees:  You can deduct any fees you paid to have your assets and investments managed.
  • Meals and entertainment:  When you attend a convention, conference, or similar event you can claim up to 50% of the cost for food, beverages, plane tickets, hotel rooms and gratuities. When you take a client to an entertainment or sporting event, you can claim 50% of the cost of tickets, entrance fees, cover charges, food, beverages, gratuities and room rental for a hospitality suite.
  • Motor vehicle expenses: If you incur expenses through the use of your personal vehicle for business purposes, you can claim those expenses by keeping an accurate log of use. If your business owns a vehicle or a fleet of vehicles, you can claim fuel, insurance, parking, repairs and maintenance.
  • Legal, accounting and other professional fees: You can deduct the fees you incurred for external professional advice and/or services such as accounting and legal fees.
  • Prepaid expenses are expenses you pay ahead of time such as yearly rent and can be claimed.
  • Office expenses can be deducted such as the cost of pens, pencils, paper clips, stationery and stamps.
  • Other business expenses are expenses you incur to earn income that are not included on a previous line of your claim such as disability-related modifications, computer and other equipment leasing costs, property leasing costs, convention expenses, allowable reserves private health services plan (PHSP) premiums and undeducted premiums.

 

 

 

 

  • Property taxes: You can deduct property taxes you incurred for property used in your business such as taxes for the land and bulding where your business is located.

 

  • Rent: You can deduct rent incurred for property used in your business such as rent for the land and building where your business is located.

 

  • Salaries, wages and benefits: You can deduct gross salaries and other benefits you pay to employees but not a salary paid to yourself or your business partner.
  • Supplies: You can deduct the cost of items your business used indirectly to provide goods or services such as drugs and medication used in a veterinary operation, cleaning supplies used by a plumber, supplies used to manufacture a product or software used to supply a service.
  • Telephone and utilities: You can deduct costs for telephone and utilities (gas, oil, electricity, water, and cable) if you incurred the expenses to earn income.

 

 

 

  • Travel: You can deduct up to 50% of travel expenses incurred to earn business and professional income such as public transportation fares, hotel accommodations and meals.

Donations: Don’t forget that you can claim donations made to registered charities, registered Canadian amateur athletic associations, registered national arts service organizations, registered Canadian low-cost housing corporations, government bodies, registered municipal or public bodies, registered universities, certain registered foreign charitable organizations and the United Nations.

Advertising: You can deduct expenses for advertising and promotion, including amounts you paid for business cards and promotional gifts. You can also deduct expenses for advertising in Canadian newspapers, on Canadian television, Canadian radio stations and online or digital advertising.

These are just some of the many deductions available to small businesses in Canada! Allowable tax deductions are constantly changing. If you aren’t aware of or don’t understand all of the deductions possible, don’t despair! Get in touch with your CPA. No matter what type of business you operate, what size your business is or where you operate from, your CPA will ensure that you receive all the deductions you’re entitled to. Let your CPA help you determine how much you can save this year.

For all your tax needs contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, we can use our experience and expertise to make tax time a breeze. Contact us to request a meeting.

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How to Separate Business and Personal Finances

Establishing a clear division between your business and personal finances reduces your personal liability, enhances your professionalism, simplifies accounting and tax preparation, and protects you and your business. Following are tips for creating a clear boundary between your company’s fiscal matters and your personal income and expenses.

Establish a legal structure for your business: The legal structure you chose for your company dictates your personal risk and liability and how the company pays taxes. Discuss your options with your CPA.

Create a business bank account: All transactions, cash receipts and disbursements for your company should be handled through a separate business account.

Acquire a business credit card: A business credit card keeps your personal and business finances distinct and helps build a strong business credit score boosting your borrowing power and helping you qualify for business loans.

Track shared expenses carefully: If you use personal items (car, cell phone, etc.) for business purposes, use an app on your phone to keep an accurate log of your business use.

Set a business budget: Preparing and sticking to a budget reduces the possibility of needing personal finances to rescue your company.

Consider a loan to your business: If it becomes necessary to inject personal money into your business, make a loan to your company so that the corporation pays the expenses.

Pay yourself a salary: To make the exchange of money from your business to your personal account clear, write yourself a monthly check as a salary for services provided.

Educate your employees/partners regarding the difference between a personal and a business expense.

Rent your location: If you are using a portion of your home for your business, create paperwork for a rental agreement and rent the space to your company.

Keep your accountant informed and involved: Involve your CPA in decisions regarding the bookkeeping system you choose, personal loans to the business, preparing tax information and tax payments. A CPA will assure accuracy of tax claims, save you time and money and assist you in keeping business and personal finances separate.

Need help maintaining separation between personal and business finances? The accounting team at Cook and Company Accountants is eager to help you and your business. We provide the knowledge and resources your company needs. Contact us for a complimentary consultation.

 

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Why It’s Important to Keep Personal and Business Finances Separate

It’s tempting to mix personal and business finances, but it’s not always a good idea. There are many benefits to creating a clear boundary between your company’s fiscal matters and your personal income and expenses.

Reduce Liability: Without a clear distinction between personal and business finances, creditors can claim your personal assets to satisfy a business debt. If you utilize personal credit cards and personal loans for your business and your company has financial trouble, there will be consequences to your personal credit score.

Establish a Professional Image: Even if your business is part time and you work from your home, having a separate business account helps establish your business identity, shows your commitment to your company and enables clients to take you seriously.

Simplify Accounting: Keeping personal and business finances distinct will simplify the accounting process, saving time and money. You can access information on your company income and expenses quickly and easily without the need to untangle it from personal expenditures. The tax filing process is streamlined and you get better visibility regarding your business cash flow. Financial statements can be quickly produced for an outside party such as a bank or potential business partner.

Help with Taxes: Keeping personal and business finances separate helps when claiming tax deductions for business-related expenses (i.e. travel, supplies, office expenditures, etc.). A well-documented division protects you from potential penalties in the event of an audit.

Establish Business Credit: A business needs a credit profile to secure business loans and/or establish vendor lines of credit. Mixing personal and business assets makes it challenging to establish a business credit profile.

Protect Your Business and Yourself: Treating your business as a separate entity reduces the possibility of using it for personal expenses, protecting the solvency of your company. If you encounter personal financial difficulties, your business has the potential to sustain you. It also safeguards your personal finances ensuring you have something to fall back on in the event of a business collapse.

Reduce your personal liability, enhance your professionalism, simplify accounting and tax preparation, and protect yourself and your business by establishing a clear financial division between your business and personal finances. Get assistance from a CPA or other professional to help you with this process.

Need help and/or advice on keeping personal and business finances separate? Want to be prepared for the possibility of an audit? The entrepreneurial accounting team at Cook and Company Accountants is eager to help you and your business. We provide the knowledge and resources your company needs. Contact us for a complimentary consultation.

 

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Is your Company GST and HST Compliant?

The most common type of audit undertaken by the CRA (Canadian Revenue Agency) for small and medium sized businesses is the GST/HST audit. Failure to file, late filing and failure to accurately report GST/HST information can result in a penalty. Interest of 6% (compounded daily and levied quarterly) is charged for late payment, insufficient payment and any outstanding balance of GST/HST. It’s important that you, as a business owner, know your responsibilities regarding remittance of these taxes.

The Goods and Services Tax (GST) is a federal tax added to commercial sales. It’s levied on supplies of goods and services purchased in Canada. The Harmonized Sales Tax (HST) is a combination of Provincial Sales Tax and GST. All businesses engaged in commercial activity in Canada are required to collect GST or HST on their taxable sales and remit this to the CRA. The only exemption is for small businesses that have taxable sales of less than $30,000 in the last four quarters (https://www.futurpreneur.ca/en/2019/how-to-ensure-your-business-compliance-with-the-canadian-revenue-agency/).

Input Tax Credits (ITCs) can be claimed by a business to recover the GST/HST paid for property or services acquired in the course of their commercial activities. You can claim ITC credits for rent, advertising expenses, equipment rentals, office expenses, accounting fees, motor vehicle expenses, travel, and some capital expenses such as property, machinery, vehicles, furniture and appliances (https://www.thebalancesmb.com/what-are-input-tax-credits-2948163). Goods and services purchased for personal use or enjoyment do not qualify as Input Tax Credits.

The GST/HST requirements are complex. The rules governing what is taxable, what is not, what is exempt and for which benefits you can claim an ITC are involved and intricate. It is easy to make a mistake in calculation and filing of your GST/HST. Use the services of a CPA to ensure that you meet your GST/HST obligations and remain in good standing with the CRA. Chartered Professional Accountants have the knowledge, skill and expertise to help you file your claim correctly and in a timely manner.

For all your tax needs contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to make tax filing a breeze. Contact us for a complimentary consultation.

References:

https://www.thebalancesmb.com/what-are-input-tax-credits-2948163

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Create and Use an Employee Expense Account

An expense account is a financial allowance offered to employees to cover business expenses. Employees pay for business related goods and services with the understanding that they will be reimbursed. This makes it easier for personnel who travel and/or entertain clients to conduct business that helps your company grow. It is in your company’s best interest to establish a clear expense policy, share it with your employees and then regulate it often and fairly.

Write an Expense Account Policy

Take the time to write a complete and comprehensive expense account policy.

 

  • Use clear and precise language to avoid misinterpretation or confusion.
  • Divide the policy into sections for easy and quick reference.
  • Itemize carefully what is allowed and what is not allowed.
  • Include details regarding expected rates, limits, what requires preauthorization, when receipts are needed.
  • Use examples to increase clarity.
  • Take into account all possibilities; accommodation, travel, mileage, food, alcohol, entertainment, business purchases, subscriptions, donations, computer hardware, software, equipment, etc.

 

Once the policy is complete, make it available to employees and management. Consider a hard copy and a copy online. Make time for questions and feedback. Continually review and refine the policy.

Develop an expense report and reimbursement process

A strong expense report procedure will speed the process of reimbursement and reduce expense leakage.

  • Create an expense report template which requires all pertinent information; date of purchase, category (i.e. accommodation, food), amount, point of purchase and preauthorization (if required).
  • Consider separate templates for each department customized to their needs.
  • Generate a separate mileage template for travel.
  • Reimburse purchases and expenses quickly checking them against the policy.
  • Set expense deadlines and compensate staff on their payday.
  • Manage employee expense accounts online to save time and paperwork.

Document your expense report process and include it with the expense account policy. Field questions and assist employees in learning to navigate the process with ease.

If your company’s personnel spend money for work purposes, establish a comprehensive expense policy, create templates, monitor the claims process and adjust as needed. A clear expense process creates trust and respect.

Cook and Company Accountants offer specialized skills in business accounting and asset management, provide expertise in tax planning strategies and can assist you in retaining the value of your company’s estate. Our team of chartered professional accountants are dedicated, knowledgeable and experienced and will provide a personal touch. Contact us for a complimentary consultation.

References:

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How to Minimize the Tax Burden on Your Business Estate

Estate planning for a business owner is complicated as it needs to address intricate personal and business relationships, complex tax issues and business succession. Planning can help you reduce your tax liability, minimize the difficulties faced by your executors and maximize the wealth passed to your heirs. Follow these guidelines to help you minimize the tax burden on your business estate.

  • Start early: Don’t wait for a crisis (illness/death) before consulting with your CPA regarding estate planning.
  • Incorporate your company in order to take advantage of a lower tax rate.
  • Minimize capital gains tax by taking advantage of exemptions.
  • Consider an estate freeze: a strategy in which a business owner transfers assets to their beneficiaries, without triggering tax consequences.
  • Contemplate an early inheritance/gift for your children/grandchildren, providing them with tax-free monies.
  • Consider establishing a trust: a legal arrangement that will help you take advantage of certain tax-planning opportunities/asset protection by transferring shares to family members without losing control.
  • Give loans to family members; interest-free funds to help pay down a mortgage, cover tuition, buy a car or fund a vacation with arrangements for the loan to be forgiven at the time of your death.
  • Set up bequests/donations:  Gifting monies to a charity in your will can shave thousands of dollars off the tax bill for your estate.
  • Purchase life insurance to provide your heirs with a tax-free income for paying taxes on capital gains and other liabilities.
  • Pay dividends to your spouse: As long as your spouse’s income is less than yours, dividends will reduce your family’s overall tax burden.
  • Invest in RRSPs and /or RRIFs to provide immediate access to cash upon your death, helping fund any tax liabilities.

Consult your chartered professional accountant for help in planning your business estate. They will have the credentials, knowledge and experience to help you reduce tax liability and maximize a successful business transfer.

Cook & Company offer specialized skills in business accounting and asset management, provide expertise in tax planning strategies and can assist you in retaining the value of your company’s estate. Our team of chartered professional accountants are dedicated, knowledgeable and experienced and will provide a personal touch. Contact us for a complimentary consultation.

References:

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It’s Never Too Early to Start Preparing for Tax Season

Tax season is a stressful time for most business owners. Preparing to file your business taxes can involve a deep dive for information and a whirlwind of paperwork. A survey by the National Small Business Association discovered that one third of small business owners spend more than 80 hours preparing for federal taxes. Reduce the pressure of tax season by planning ahead, getting organized, developing helpful habits and starting early. Following are tips for reducing the confusion, worry and mayhem of tax season.

 

  • Use accounting software to track income and expenses. Software makes daily data input easy saving time and providing accurate, up-to-date information. Consider using expense categories (i.e. office supplies, restaurant expenses, gasoline, etc.) to improve tracking information.
  • Go paperless by creating electronic copies of all financial documents. Scan receipts or ask for PDF receipts. Download bills from vendors, bank statements and credit card statements. This makes it quick and easy to locate information.
  • Be aware of tax deadlines and mark them on your calendar. Set a reminder of when you need to begin final preparation.
  • Reconcile your bank accounts monthly. Compare each transaction in your bank account to your business records. If errors are detected, deal with them immediately.
  • Take advantage of deductions by carefully recording charitable contributions, staff bonuses, holiday party costs, depreciation of business equipment (vehicles, computers, machinery) capital cost allowance, RRSPs, travel-related expenses and scientific research and experimental development costs. Use the Canadian Business Expense Index to determine what expenses qualify.
  • Seek the help of an experienced CPA and provide them with all necessary information. A CPA will have the knowledge, experience and skill to deal with your tax challenges. They will understand the latest tax reforms, tax preparation and filing procedures and will inform you of what records to keep, how long to keep them and how best to record you business’s transactions. A CPA can answer all your tax questions.

 

Tax time can be simple. Start with good accounting software and use it consistently through the year. Keep clear records of eligible deductions. Reconcile your bank accounts. Employ a CPA and don’t be afraid to ask questions. With good records and professional help, filing your taxes can be an easy and efficient process.

For all your tax needs, contact Cook & Company. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience and expertise to make tax time a breeze. Contact us for a consultation.

References:

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When should you get your Accountant involved in End of Life Planning?

End of life planning for a business owner can be a complex and involved process. You need to address family and company needs, consider business and personal assets, navigate complicated tax issues and ensure business succession. Comprehensive estate planning will ease the strain on your family, provide for their needs, reduce tax liability of the business and heirs, preserve the value of the company, ensure liquidity to cover business related costs, and include a plan for succession.

When should you start estate planning for your business?

Ideally, estate planning should begin when your business venture is launched. The evaluation, planning and implementation process that surrounds the starting of a business is a natural beginning point for planning your estate. However, it is never too late to begin end of life planning. The key is simply to begin. Understand that it’s an on-going process that will likely evolve as your needs and your business change.

When should you get your Chartered Professional Accountant involved in end of life planning?

When it comes to the financial intricacies of your business and its future, your Chartered Professional Accountant offers extensive expertise including skills in business accounting and asset management. Your CPA will review your life insurance adequacy, address shareholder agreements, investigate your will and consider estate freezes. Your accountant will help determine the best course of action for your business and your family and should be involved from the initial steps of estate planning.

If you are ready to create an estate plan that will protect the value of your business and ensure your heirs are cared for, get professional advice and assistance from Cook & Company. They will put their experience and expertise to work for you. Contact us today to find out how we can help your business. Call (403) 768-4383 or contact us at [email protected] for a complimentary consultation.

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The Advantages of Hiring a Chartered Professional Accountant

Chartered Professional Accountants (CPAs) are financial advisors who help individuals, businesses, and other organizations plan and reach their financial goals. There are many benefits to hiring these highly educated and experienced individuals.

  • To relieve your work load: Delegating your company’s financial affairs to a CPA will give you
  • more time to focus on other aspects of your business. A CPA can help file tax returns, generate financial reports, establish a budget, ensure GST and HST compliance, provide auditing services, assess risk management, share expert advice and assist with financial, estate and succession planning.
  • To save you money: By using the services of a CPA you will receive assistance with your financial needs without the expense of a salary, office resources, and benefits required for a full-time internal corporate accountant.
  • To put you in control: The financial reports and advice provided by a CPA will give you the information you need to successfully chart the direction of your company.
  • To give you access to expertise: When you hire a CPA you get access to specialized skills, knowledge of finance and experience in corporate finances, tax law, and tax planning.

A CPA has the financial proficiency, strategic vision, and commitment to help your organization succeed. Look for a Chartered Professional Accountant to ensure you are getting the very best advice and service. It is a decision you will not regret.

Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook & Company will put their experience and expertise to work for you. We offer a distinctive approach to accounting and tax advice, with personalized one-on-one service, creative financial solutions and unique strategies to handle everything from income tax planning to financial statement audits and financial planning. Contact us today to find out how we can help your business. Call (403) 768-4383 or contact us at [email protected] for a complimentary consultation.

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How Your Business Strategy and Accounting Should Work Together

The accounting and financial details of your business represent more than just numbers. They represent the fruits of your labour and the heartbeat of your career as an entrepreneur. As such, they should always help inform the strategy that directs the course of your company, but how?

 

Focusing on Important Metrics

 

Metrics of the performance of your company should be integral to the way you formulate and maintain your business strategy. Financial KPIs like net profit and cash flow should be a key part of determining what initiatives or resources your company can invest in moving forward. Measuring operational efficiency can help you determine what goals need to be set regarding the management of your debtors, your inventory, and other elements. Growth indices can help you set and keep tabs on goals for growth, helping you maintain an upward trajectory. In short, understanding the metrics behind your performance is fundamental to your strategic objectives.

 

Marketing and Accounting

 

There are few things as influential over the success of your business as how you market it. Naturally, marketing is an investment that needs to provide returns to your business in the form of new customers and continued loyalty. This is what you’ll get when your business strategy is supported by effective investment in strong approaches to marketing. Financial KPIs like those listed above can in many cases inform what marketing initiatives you invest in and how. Your customer acquisition ratio, for instance, may be useful in determining whether you need to focus on new business or retention, and inform your marketing expenditures accordingly.

 

Having a Strong Financial Plan

 

Financial planning can be one of the most challenging aspects of running a business, but the challenge is well worth it. The more robust a financial plan you have, the more readily and efficiently you can determine the right goals and objectives for your company. Without strong financial planning, the road ahead can be unclear, unpredictable, and riddled with unnecessary risk. Whether you need to determine your pathway into a new market, reimagine your company’s capabilities, or identify and correct errors in your business strategy, a financial plan structured with the help of an experienced CPA will help you every step of the way.

 

The Calgary CPAs here at Cook and Company aren’t just great accountants, they understand the nuances of financial strategy that define the success of a business. When you work with us, you plan for success. Call us at (403) 768-4377 to learn about our financial planning services.