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RRSP Basics you Should Know

RRSP basics

RRSPs are one of the best methods of saving for retirement. However, many people do not fully understand this form of investment. The following are some basics you need to know about RRSPs. 

What is an RRSP?

A Registered Retirement Savings Plan is a sheltered account provided by the Canadian government to assist Canadians in saving for retirement. Contributions are tax-deductible and earnings are tax-sheltered. Contributors delay the payment of taxes until retirement, when their tax rate is lower than during their working years. 

How much can I contribute?

The holder of an RRSP can contribute 18% of their yearly income, up to their annual contribution limit. You can find your limit on your Notice of Assessment from the Canada Revenue Agency.

When should I start contributing to an RRSP?

There is no minimum age for beginning an RRSP. As long as you have employment income and file a tax return, you may set up and contribute to an RRSP. 

What investments can I hold in an RRSP?

  • Mutual funds
  • Exchange-Traded Funds (ETFs)
  • GICs
  • Stocks/Equities (both Canadian and foreign)
  • Certain shares of small business and venture capital corporations
  • Options, REITs, coins.
  • Cash
  • Investment-grade gold and silver bullion
  • Treasury bills (T-bills)
  • Bonds (government, corporate and strip bonds)
  • Canadian mortgages
  • Mortgage-backed securities
  • Income trusts

What investments are not allowed to be held in an RRSP?

  • Precious metals
  • Personal property such as art, antiques and gems
  • Commodity futures contracts

Where can I open an RRSP account?

  • Banks and trust companies
  • Credit unions and caisses populaires (cooperative, member-owned financial institutions)
  • Mutual fund companies
  • Investment firms (for self-directed RRSPs)
  • Life insurance companies

What happens when I turn 71?

In the year you turn 71, you need to convert or collapse your RRSP by converting it to an RRIF (Registered Retirement Income Fund), purchase an annuity or both. 

Things you should know:

  • Unused contribution room carries over indefinitely. 
  • You can set up a recurring transfer from your chequing to your RRSP so you won’t be left scrambling to find money to contribute.
  • First-time homebuyers can make a tax-free RRSP withdrawal of up to $35,000 to purchase a home through the Home Buyers’ Plan (HBP). You have 15 years to make equal installment contributions back to your RRSP to replace the funds you withdrew.
  • With the Lifelong Learning Plan (LLP), you or your spouse can withdraw up to $10,000 in a year to further your education, with a total limit of $20,000 over four years. Once your education is complete, you’ll repay 1/10 of the total amount you withdrew, every year, until it’s fully repaid.

 

For most Canadians, an RRSP is the most tax-effective investment they can make. Contribute to your RRSP while in a high tax bracket to get immediate tax savings, then pay taxes on withdrawals from the plan while in a lower tax bracket. 

Looking for business and investment advice? Contact Cook and Company Chartered Professional Accountants. We are based out of Calgary, Alberta, serving clients across Canada and the United States. We provide high-quality tax, assurance and succession planning services for a wide variety of privately-owned and managed companies. Contact us for a complimentary consultation.

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Advantages of Hiring a Bookkeeper

Advantages of Hiring a Bookkeeper

Business owners need accurate, up-to-date financial information in order to make good business decisions, maintain CRA compliance, support readiness in case of an audit and provide preparedness for the possible future sale of the company. Keeping track of business transactions and ensuring accurate books is complex and time-consuming. A bookkeeper can help. 

What are the duties and responsibilities of a bookkeeper?

A bookkeeper is a person whose job is to keep records of the financial affairs of a business. He/she undertakes a variety of tasks including:

  • Recording the financial transactions of your business (incoming and outgoing) and posting them to various accounts
  • Processing payments
  • Conducting daily banking activities
  • Developing a system for organizing sales, purchases, payments and receipts
  • Identifying trends and how they apply to your business
  • Producing various financial reports
  • Reconciling reports to third-party records such as bank statements
  • Providing a complete set of year-to-date accounting records
  • Supplying information regarding the performance of your business

Advantages of hiring a bookkeeper:

  • Saves you time: Bookkeeping tasks are time-consuming and tedious. Hiring a bookkeeper relieves you of these duties, allowing you to dedicate your time to growing your business. 
  • Saves you money: The cost of outsourcing your bookkeeping is usually less than employing a full-time bookkeeper. A bookkeeper’s detailed records will save you money by reducing the time your CPA needs to analyze your accounts.
  • Prevents errors: Mistakes are costly. Having a bookkeeper means your books are up-to-date, organized and accurate. 
  • Eases budget creation: A bookkeeper will examine your revenue and expenses, providing you with budget tips that help reduce spending, assist in efficient business operations and contribute to profitability.
  • Enables better business decisions: By identifying spending patterns and sales trends, providing forecasts of seasonal ups and downs, recognizing money-making opportunities, avoiding cash-flow problems and finding ways to increase income and/or decrease spending, a bookkeeper provides you with the information you need to make good decisions for your business.
  • Contributes to effortless tax season:  A bookkeeper provides up-to-date accounting records and a year-end financial statement making it easier to prepare accurate and complete tax returns and avoid tax penalties.
  • Allows maximum tax deductions: Proper bookkeeping allows you to take advantage of all possible input tax credits and deductions. 
  • Ensures compliance with the law: A good bookkeeper complies with the latest legal regulations and remains up to date with recent legal changes. 
  • Provides audit preparedness: Accurate and up-to-date records ensure a smooth audit process. 
  • Promotes ease of securing loans and/or investments: It’s easier to secure capital when you’re able to clearly outline your business’s performance and financial position. 
  • Reduces risk: A good bookkeeper can detect fraud and/or embezzlement, helping you spot suspicious business transactions.  

Businesses benefit from the assistance of a qualified, professional bookkeeper. These professionals help companies through all stages of start-up and growth.

Need professional bookkeeping and accounting services? Looking for business advice? Contact Cook and Company Chartered Professional Accountants. We are based out of Calgary, Alberta, serving clients across Canada and the United States. We provide high-quality tax, assurance and succession planning services for a wide variety of privately-owned and managed companies. Contact us for a complimentary consultation.

References:

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KPIs for Small Businesses

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In order to ensure your company is consistently progressing, it’s important to quantify your business’ performance with hard data. Key performance indicators (KPIs) help you assess your business’ results and build strategies for achieving your goals.

 

What are KPIs?

Key performance indicators (KPIs) are a set of quantifiable measurements used to gauge a company’s overall long-term performance. They demonstrate how effectively a company is achieving key business objectives and help determine a company’s strategic, financial, and operational programs. KPIs can be financial, including cash flow forecasts, gross profit margins, revenue growth rates and relative market shares. They can also be anecdotal, measuring foot traffic in a store, employee retention, repeat customers and quality of customer experience. KPIs help keep a small business on track.

 

Criteria for KPIs:

The goals of each firm are unique. Therefore your company must craft their own KPIs. However, all KPIs should meet the following criteria:

  • Actionable: Your KPIs should concretely and objectively show you the improvements that you need to make to help your business.
  • Accurate: The best KPIs are well-defined, quantifiable measurements that are easy to calculate and interpret.
  • Timely: Using old data won’t give you a measure of what’s going on currently. It‘s only useful if you use it as a comparison tool for current data.
  • Impact the bottom line: Whether your goal is to improve net profit margins or customer satisfaction and retention, an improvement in your KPIs should result in progress toward your goal.

How to choose the right KPIs for your small business:

There is no definitive list of KPIs that all businesses should track. What you measure depends upon your industry, stage of business growth and company goals. However, there are some things you should consider when choosing your KPIs.

  • Your business objectives: Good KPIs help you measure what’s important to your business. What are your company’s goals related to your customers or clients, your employees, your operations and your marketing? Choosing KPIs based on your business objectives makes them more valuable.
  • Your business stage: A new company might focus on customer acquisition cost and user activation rate. Established companies may focus on employee retention to help them grow the business. Focus on KPIs that are most relevant to your stage of business.
  • Lagging and leading indicators:  A leading indicator is forward-looking and can influence results. A lagging indicator is backward-looking and will tell you what results have happened. For example, customer satisfaction is a leading indicator while profit is a lagging indicator. Both are necessary barometers of how your business is and will perform.

KPIs most every business should track:

There are a few key performance indicators that are advantageous for almost every business to track. Though they are not the only KPIs that your company should track, they’re a good place to start.

  • Sales revenue refers to the income from all customer purchases and is the first KPI most companies evaluate to gauge success and market demand.
  • Cash flow forecast: Flow in and out helps business owners assess whether their sales and margins are appropriate and estimate payment timing and likely costs. It also helps in tax preparation, new purchases, or identifying any cash surpluses. This is one of the most critical KPIs for small companies to track.
  • Net profit and net profit margin: Net profit equals your revenue minus expenses. Keeping track of this KPI lets you know whether your business earns more than it spends. Your net profit margin is used to measure how profitable your business is and is a stronger indicator of your company’s financial health.
  • Gross profit margin is an analytical metric expressed as a company’s net sales minus the cost of goods sold. It shows the amount of profit made before deducting selling, general, and administrative costs. The benefit of tracking this KPI over time is that you can easily quantify how much money you’re keeping against the amount paid out to suppliers.
  • Monthly recurring revenue (MMR): If your firms’ focus is on retaining customers and preventing churn, then this KPI is important. You’ll want to measure new MRR (new customers), expansion MRR (customer who upgraded their plan) and churn MRR (revenue lost from customers cancelling before their expected average customer lifespan).
  • Customer acquisition cost is a measure of how much you have to spend to get one new customer. This KPI helps to determine how costly, and ultimately how profitable, growth is for your company.

 

Tracking KPIs is vital to the health of your business. The most successful businesses use KPIs to help them measure outcomes. Picking the right KPIs and utilizing tools to monitor them can help you make informed decisions to grow your business. Small business owners should incorporate key performance indicators in their business strategy to help evaluate progress and set goals. Keep your company on track with KPIs!

 

Need advice and help to grow your company through the use of key performance indicators? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.

 

 

References:

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Fraud Tips for Business Owners

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All businesses are susceptible to fraud, though small and mid-sized businesses are the most common victims. These companies are targeted as they often have few preventative policies in place. Though it’s impossible to be fully protected, there are proactive steps that you can take to minimize exposure to fraud risks.

 

Types of fraud: Fraud comes in many forms from both inside and outside a business.

  • Internal Fraud: Employee theft is a common source of fraud (lost inventory, unethical accounting, theft of financial assets, fake expenses, overinflated commissions).
  • External Fraud: Customer fraud (counterfeit bills, bad cheques, stolen credit cards, fraudulent requests for refunds/returns), third-party contractor fraud (overbilling, fee schemes, failure to deliver) and computer fraud (hacking, information theft, data mining) are the most common types of external fraud.

 

Ways to reduce fraud: There are many policies and practices that can help to reduce the possibility of fraud in your business.

    • Create a fraud policy that covers topics such as what actions constitute fraud, how to report suspected fraud, who is responsible for investigating fraud, and confidentiality. Clearly outline your expectations related to employee conduct and the consequences for violating these policies.
    • Provide education for all employees (security awareness, fraud policy understanding). Make sure they are aware of the need to create secure passwords, that they change passwords often and to keep passwords safe. Inform them of the importance of phishing awareness and remind staff about the dangers of clicking on unexpected links and attachments.
    • Limit file access: Give employees access to only those files that are necessary to do their job. Require more than one person to complete key tasks (approving payments, writing cheques, managing petty cash, processing client receivables, approving overtime claims, recording in the accounting system).
    • Protect bank accounts and credit cards: Create separate bank and credit card accounts for your personal life and business. Check security systems your bank uses for online banking to be sure automatic logout is available. Ensure that your credit card provider has suitable fraud protections in place, such as automatic alerts if an employee spends over a certain amount. Limit how and with whom you share confidential banking information.
    • Keep detailed and accurate records: Accurate, detailed record-keeping (accounting records, inventory controls) helps shield your business from fraudulent activities.
    • Go paperless: Going digital reduces access to information, enables fraud preventive accounting controls, permits authorization limitations and creates an easy to trace audit trail.
    • Fine-tune payroll procedures: Ensure that payroll processes require HR and your payroll company to confirm deposit accounts with employees. Pay using direct deposit or open a separate business account to minimize circulation of your company’s bank account information. Use regular audits to keep check for falsified hours, inflated commissions, and other irregularities.
    • Use secure payment methods: Switch to direct deposit or fund transfers. Encrypt payment transactions and partner with a secure payment processor. Consider a cheque imaging solution (scanning or picture taking) making it possible for you to deposit money automatically.
    • Audit high-risk areas often: A daily check of accounts and statements is a great way to protect against fraud or accounting errors. Routinely audit areas of your business that deal in cash, refunds, product returns, inventory management and accounting functions.
  • Establish a thorough hiring process: Check each new hire’s references and previous employers. Do a criminal check, especially for those employees who handle cash, manage payments and have access to bank account information. Use a reputable service that specializes in pre-employment screening.
  • Keep your point-of-sale secure: Make sure all your POS devices are digitally secure. Install passwords and change them regularly. Choose systems that come with end-to-end encryption. Don’t connect your POS to external networks. At the end of each day, account for every POS device and secure devices in a location that only select employees can access.
  • Know who you’re dealing with: Record basic information about the businesses/clients you deal with (address, name, two phone numbers, references). Check who the owners are and how long they have been in business. Search the company’s name online with the term “scam” or “complaint.” Before engaging with suppliers, ask for recommendations from other business owners in your community.
  • Invest in insurance to help with the recovery of some or all of your losses in the event of fraud. Consult with an insurance specialist for help evaluating possible risks and determining what kind of insurance will best suit your business.
  • Get expert advice: You don’t have to figure it all out by yourself! Talk to a small business advisor and/or a commercial banking consultant about products and services to help prevent fraud.
  • Enable whistleblowing: Create a system that enables employees to anonymously report tips essential to dealing with fraud.
  • Update all devices to the latest security software, web browsers, and operating systems. Use antivirus software, anti-malware and firewalls.
  • Create a mobile device action plan to encrypt data. Make sure each employee has a separate user account, so you can trace activity if there’s a problem.
  • Back up critical business data and store the information in the cloud.
  • Secure Wi-Fi networks with Service Set Identifier (SSID) and password protection.

 

It’s easy to put off fraud prevention until an issue arises. Be proactive! By taking a few simple steps to put a fraud prevention plan into action, you’ll protect your business, establish a culture of zero-tolerance for fraud and help mitigate unforeseen threats in the future.

 

 

References:

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Is the GST Quick Method Right for You?

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Completing your company’s GST claim can be a hassle! You have to track the GST you’ve been charged and the GST you’ve paid and back up these claims with invoices and receipts. If you miss any input tax credits, you pay too much. Luckily, the GST quick method can save business owners both tax and time. You can use the quick method if taxable sales for your business do not exceed $400,000 for the fiscal year. Instead of claiming the GST paid on purchases as an input tax credit, you need only remit a portion of the tax you collect to the Canada Revenue Agency (CRA).

The GST Quick Method:

  • Is a simplified accounting option (eliminates the need to record and report the actual GST paid or payable on most purchases)
  • Reduces paperwork
  • Simplifies calculations
  • Requires submission of  2.6% of the first $30,000 of gross revenue and 3.6% of the gross revenue after that
  • Can save you $1,000 or more each year
  • Allows you to claim ITCs on purchases of real property, capital property (computers, equipment, vehicles), eligible capital property, and improvements to those properties

You can use the GST quick method if: 

  • You’ve been in business continuously throughout the 365-day period ending immediately before your current reporting period
  • You’re a new registrant and you expect your taxable supplies to be $400,000 or less in your first full year of business
  • You didn’t revoke an election of the quick method or the simplified method for claiming ITCs during that 365-day period
  • You’re not a person listed under Exceptions
  • Your revenues are not more than $400,000 for either the period consisting of the first four consecutive fiscal quarters out of your last five fiscal quarters or the period consisting of the last four fiscal quarters out of your last five fiscal quarters.

Who can use the GST quick method?

Most goods and service-based small businesses are eligible to use the quick method.

  • IT consultants
  • delivery services
  • dry cleaners
  • auto repair shops
  • quick-service food outlets
  • house-cleaning services
  • campgrounds
  • caterers
  • delicatessens
  • painting contractors
  • photographers
  • taxi drivers
  • etc.

 

Who is ineligible for the GST quick method?

  • accountants or bookkeepers
  • financial consultants
  • listed financial institutions
  • lawyers (or law offices)
  • actuaries
  • notaries public
  • listed financial institutions
  • audit services
  • tax return preparers or tax consultants
  • municipalities, or local authorities designated as municipalities
  • public colleges, school authorities, or universities, established and operated not for profit
  • hospital authorities
  • charities and non-profit organizations with at least 40% government funding in the year

How do you elect to use the quick method?

You can elect to use the quick method by using online services:

  • You can also elect to use the quick method by completing Form GST74

 

Do you find calculating GST difficult and time-consuming? The GST Quick Method is faster and easier to use than the general procedure and, in most cases, saves you money. Check out your company’s eligibility for the Quick Method. Save time, money and hassle! Sign up for the GST Quick Method today.

 

Need help calculating your GST? Wondering if you qualify for the GST Quick Method? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help you. Contact us for a complimentary consultation.

 

Resources:

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How to Fix a Mistake on a Filed Tax Return

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You’ve added a stamp and mailed the envelope or you hit the send button and e-filed your tax return. Feels good to have this task done! Then you receive another receipt, realize you used the wrong date for your medical deductions, get another information slip in the mail, notice you incorrectly calculated your deductions, realize you input the wrong social insurance number and/or gave an incorrect bank account or routing number. Don’t panic! There are procedures to follow so you can change your tax return after filing and fix the mistake you’ve made.

 

If you’re requesting a change to a T1 income tax return, the adjustment can be accomplished online or by mail. You can request a change to the current year or any of the previous nine years. A separate request is required for each year you wish to amend.

  • By mail: Send a completed  T1 Adjustment Request form (T1-ADJ) to your tax center or send a signed letter asking for an adjustment to your return. You’ll need your social insurance number, the year of the return you are amending, your address and a phone number at which you can be reached.
  • Online: Use the change my return option found in My Account, a secure online service. You can access My Account in one of two ways, through a Sign-In Partner (selected financial institutions such as BMO and ING Direct) or by creating and using a CRA log-in. You’ll need your social insurance number, date of birth, current postal code and your copy of the tax return you are amending.

 

If you’re requesting a change to your T2 income tax return, you can do so by mail or online.

  • Online: Use commercial Canadian tax software or send your amended T2 tax return in barcode format to the CRA.
  • By mail: Send a letter to your tax center. Make sure you include the name of your corporation, your business number, the tax year and details including revised financial statements and revised schedules. Use Schedule 4 to carry back a loss, Schedule 21 to carry back foreign tax credits, Schedule 31 to carry back an investment tax credit and Schedule 42 to carry back a part I tax credit.

 

After making online changes to your tax return, keep all your receipts and supporting documents in case the CRA asks to see them. Provide supporting documents only if asked to do so and using the method of submission indicated in the CRA’s contact letter.

 

How long will it take for the change to be made?

The CRA will review your request for a change and advise you if the change is allowed by sending you a notice of reassessment or a letter explaining why the changes you requested are not possible. It will take approximately two weeks for a change requested online and eight weeks for a change requested by mail. Additional time may be needed if the CRA contacts you for more information or documentation. Requests which are submitted during the CRA’s peak return processing period, between March and July, will take longer.

 

If you realize, after submission, there’s an error on your tax return, don’t worry! There are procedures in place to help you make changes and adjustments. Tired of completing complex forms for tax? Contact a chartered professional accountant. They have the knowledge and expertise to make tax claims a breeze.

 

Need help preparing your tax return? Require assistance correcting a tax return? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help you. Contact us for a complimentary consultation.

 

 

 

Resources: 

https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2sch42.html

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What you Need to Know to Start a Business

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Starting a business is exciting! It’s also scary! Approximately 95,000 new businesses are created each year in Canada while 85,000 businesses close annually. Less than 50% of  Canadian businesses last 10 or more years. If you’re thinking about starting a business, there are some important steps that you should know to help promote your chances of success.

 

  • Generate an idea: The hardest part of starting a business is coming up with a great business idea. Watch current business trends. Examine budget and profit potentials. Consider your skills, goals and passions. Do you desire to improve upon existing concepts or contribute something new to the market? Do you want to own your own business or purchase a franchise?
  • Do the research: Market research combines consumer behaviour and economic trends to confirm and/or improve your business idea. It helps determine if there is an opportunity to turn your idea into a successful business and helps you reduce risks. Have a look at the demographics of your potential customer base (age, wealth, family, interests, income). If possible, talk directly to potential customers (surveys, questionnaires, focus groups, in-depth interviews). Observe your potential competitors. Peruse their websites. Talk with similar businesses. Keep up with the latest small business trends.
  • Choose a business structure: Which of the three basic business ownership structures you choose influences your day-to-day operations, taxes, personal liability, risk, capacity to acquire finances, etc. A sole proprietorship is a business owned by a single individual, is easy to form and gives you complete control of your business. A partnership is a company jointly owned by two or more people whose shares, rights and responsibilities are spelled out in a partnership agreement. It’s the simplest structure for two or more people to own a business together. A corporation is a business owned by shareholders. This form of business ownership protects its owners with limited liability.
  • Develop a business plan that can be presented to investors and lenders. It’s a roadmap for how to structure, run and grow the business. It guides you through each stage of starting and managing your company. The plan should include an executive summary, a company description, market analysis, a description of the organizational and management structure, marketing and sales plan, details regarding products/services offered, financial projections and funding requirements.
  • Choose a name that communicates what your business does in a visually interesting, memorable, and positive way. Take into account legal considerations. Protect your name by registering it with the right agencies both federally and provincially.
  • Find funding: Your business plan will help you figure out how much money you’ll need to start your business. If you don’t have enough funds of your own, you’ll need to raise or borrow capital. Consider a line of credit, a business bank loan, venture capital, crowdfunding, angel investors, private lenders, a merchant cash advance, invoice factoring, business-to-business lending and/or government-sponsored small business grants, loans and/or subsidies.
  • Get a business license: You may need to get a business license before you can operate legally within your municipality. If your city or town doesn’t have a website, you can find contact information for government agencies online.
  • Pick a location: The location you choose (including an online store) affects your taxes, legal requirements, and revenue. Take into account the location of your target market, business partners, and your personal preferences.  Consider the costs, benefits, and restrictions depending upon location (salaries, minimum wage laws, property values, rental rates, insurance rates, utilities, licencing fees, zoning ordinances, etc.).
  • Register for GST/HST/provincial sales tax so you can take advantage of Input Tax Credits which assist your business in recouping GST/HST paid out on purchases for business use.
  • Open a business bank account to help handle legal, tax and day-to-day issues. Common business accounts include a checking account, savings account, credit card account, and a merchant services account. Rates, fees, and options vary, so shop around to make sure you find the lowest fees and the best benefits.

 

Embrace both the excitement and fear of starting a business! Put yourself on the path to successful entrepreneurship. Follow the key steps outlined here to help ensure the success of your endeavour.

 

Thinking of starting a business? Need help, guidance and advice? Contact Cook and Company Chartered Professional Accountants. Whether you wish to operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help you. Contact us for a complimentary consultation.

 

 

Resources: