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Employee vs. Independent Contractor: Tax Differences

Employee and Independent Contractor Taxes

For employees that receive a salary, taxes are fairly straightforward for both employee and employer. The employer deducts the appropriate amount of tax, employment insurance and pension contributions from each paycheque. The employee fills out a standard tax form at tax time. When you’re an independent contractor, taxes are more complicated and so are the required tax forms. The deductions for self-employed contractors are unique as are their contributions for Employment Insurance and the Canadian and provincial pension plan.

Who qualifies as self-employed or independent contractor?

According to the Canada Revenue Agency, a self-employed individual:

  • usually works independently 
  • does not have anyone overseeing activities
  • is free to work when and for whom they choose 
  • may provide their services to different payers at the same time
  • can accept or refuse work from the payer 
  • has a limited relationship with the payer (not ongoing), often restricted to a specific job
  • does not personally have to carry out the work for which they’ve been hired, can hire another party to complete all or part of the work 
  • typically uses their own tools, space and equipment  
  • generally takes on a measure of financial risk and can incur losses 
  • often has fixed operating costs relating to operating a workspace or hiring helpers/assistants 
  • has a working relationship with the payer that does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship 
  • is responsible for paying provincial and/or federal sales taxes and may claim certain deductions as business expenses 
  • is not entitled to benefit plans

Who qualifies as an employee?

According to the Canada Revenue Agency, an employee:

  • works for one client or company (payer)
  • the payer has direct and effective control of how and when work is carried out
  • tools and equipment are usually provided by the payer, who is responsible for repair, maintenance and insurance costs and retains the right to use the tools and equipment provided 
  • does the work they have been assigned and cannot decide to hire helpers or assistants without the express consent of the payer 
  • is generally reimbursed for any expense incurred in completing their work 
  • is not usually responsible for any operating expenses nor financially liable if they do not fulfill the obligations of their contract 
  • relationship with an employer is continuous and not limited to a specific task
  • is entitled to benefit plans such as registered pension plans, group accident, health and dental insurance plans 

Tax benefits of hiring an independent contractor:

  • save on labour costs
  • no need to pay benefits (disability, accident, life insurance, health and dental insurance)
  • not necessary to pay the employer portion of the Canadian pension plan, healthcare, workers compensation and employment insurance
  • less paperwork and responsibility
  • more flexibility to meet the ups and downs of business,
  • better manage cash flow
  • no paid training

Tax benefits for independent contractors:

  • larger take-home pay
  • can pay your significant other and/or kids and the money paid to them is tax-deductible, as long as the salary you’ve paid them is reasonable for the work they’ve done
  • more write-offs you can claim:
    • Operating expenses (rental of space, office supplies, repairs, maintenance, inventory, payroll, utilities, professional fees)
    • Home office expenses: If you run your business from your home and use the space for the majority of your activities, then you can deduct a fraction of the cost of your home rent for the tax period. 
    • Meals and entertainment costs associated with a self-employed business are eligible for tax write-offs as sanctioned by the CRA. These costs must be incurred in the company’s name (client dinners, employee lunches, etc.) and only 50% of the total cost of the meals and entertainment can be written off. You’ll need to show evidence that the food or entertainment costs were reasonably and appropriately used for your business. A guide to claiming meals and entertainment can be found on the CRA site.
    • Travel: The CRA allows tax write-offs for self-employed persons who travel outside their usual area of business for work-related reasons (meet a client, pick up inventory, attend a professional conference).
    • Vehicle expenses: Personal vehicle use is not eligible for any type of write-off, but a fraction of such costs can be written off if you drive your car for work-related reasons. You’ll need to track your mileage. If a vehicle is only used for business purposes, then almost all costs associated with its running are eligible for deductions (gas, mileage, repairs, maintenance, insurance, oil changes).
    • Advertising/marketing: A part of your advertising and marketing costs can be deducted. 
    • Websites and software: The CRA dictates that certain costs associated with your business website are tax-deductible (software/website development, cost of products, contractor fees for installation and/or technical help). 
    • Bad debt refers to money owed to you by others that cannot be paid back. It’s uncollectible revenue and it is considered a business expense. In order for bad debt to be expensed and written off, you must have done one of two things: establish that an account receivable is a bad debt expense within the specific tax year and/or include the bad debt in your receivable income. Then you are able to claim bad debt under business expenses using the T2125 form.
    • Private health service premiums: If you pay for a private health plan each year, then the premiums you pay on that plan are tax-deductible. 
    • Industry/professional fees: The expenses associated with professional certification required to work in your industry are eligible for write-offs (licenses, certifications, dues and requirements).
    • Professional development and educational expenses: Further learning and professional development can be deducted from your personal returns. 
    • Interest and bank charges attached to your business accounts can be written off. There are strict limits on the interest you can deduct depending on what the loan was for. 

Tax disadvantages of being an independent contractor: 

  • have to pay both the employer and employee amounts for Canada Pension Plan and Employment Insurance
  • large tax bill because taxes aren’t withheld at the source
  • required to complete Form T2125 (Statement of Business or Professional Activities)
  • must follow complex rules regarding tax deductions
  • must be familiar with all of the tax rules
  • must budget and set aside money for taxes owed 
  • required to charge your clients GST

The largest tax advantage for an independent contractor is the potential for tax deductions that aren’t available to employees. A self-employed person can generally deduct all reasonable business expenses. However, an independent contractor must properly estimate and remit income taxes on a regularly scheduled basis as dictated by the Canada Revenue Agency. The biggest tax advantage when hiring an independent contractor is the savings on the cost of labour and benefits as well as reduced paperwork. Individuals and companies need to weigh the tax benefits and disadvantages of hiring/becoming independent contractors. 

Need help with the tax complexities of being an independent contractor? Want advice regarding the advantages/disadvantages of hiring a self-employed contractor? Contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, we use our experience and expertise to assist you. Contact us to request a meeting.

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Options for Financing a Business

Options for Financing Business

Businesses come in all shapes and sizes, from large corporations with hundreds of employees to mom-and-pop enterprises. But there is one thing that all businesses need, financing. Being aware of the financing possibilities available for businesses can help a company succeed. The following is a list of various financing alternatives.

  • Bank loans: A commonly used source of funding, bank loans require a solid business plan and often a personal guarantee from the entrepreneurs. More than 50% of small businesses use some type of institution-based credit to start, operate or expand their business.
  • Government grants: Government agencies provide financing such as grants and subsidies that are available to many businesses. Check the Government of Canada website for business grants and financing options. 
  • Business incubators: A business incubator is a program that gives early-stage companies access to mentorship, investors and other support to help them get established. There are a number of business incubators in Alberta such as Innovate Calgary at the University of Calgary, The Northern Alberta Business Incubator in St. Albert, Tecconnect in Lethbridge and the Agrivalue Processing Business Incubator for food-based businesses in Leduc.
  • Venture capital: A venture capitalist is a person or firm that invests in small companies, generally using money pooled from investment companies, large corporations, and pension funds. Though less than 1% of small businesses in Canada receive equity-based funding from venture capitalists, there are ways to find this type of funding by networking and meeting people at local start-up groups, or by researching, contacting or joining groups like the Venture Capital Association of Alberta. Venture capitalists are generally looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications and biotechnology.
  • Angel investors: Angels are wealthy individuals or retired company executives who invest directly in firms owned by others. They often contribute their experience, technical knowledge, management skills and contacts. Angels tend to finance the early stages of a company. They often reserve the right to supervise the company’s management practices and may be looking for some sort of share in a company. Check out this bdc site for information on finding angel investors and the National Angel Capital Organization.
  • Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. It makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites and brings investors and entrepreneurs together. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists. The National Crowdfunding Association of Canada is a good place to find information on crowdfunding for small businesses. If you’re considering the crowdfunding route, ensure that your intellectual property is protected. Read the fine print on crowdfunding websites.
  • Peer-to-peer lending: P2P lending is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. It allows investors to lend money directly to other individuals via a P2P platform. Check out Peerform and Funding Circle.
  • Microloans are simply small business loans that are issued by individuals rather than banks or credit unions. These loans can be issued by a single individual or aggregated across a number of individuals who each contribute a portion of the total amount. They are a great option if you need a bit of capital to fund specific operational costs, expansions, or projects. They typically have specific limitations in regards to how much you can borrow. Check out Accion, LiftFund and Kiva.
  • Pitch competitions are contests where entrepreneurs present their business concept to a panel in the hope of winning a cash prize or investment capital. Even if you don’t win, the pitch competition can be a way to introduce yourself to the elite world of venture capital and angel investment. Check out Hatch Pitch, Disrupt and PITCH.
  • A business line of credit: This is an option for those who need cash quickly and have good credit. Check with your local bank.
  • Personal funds: Many businesses use some type of personal funds to finance themselves (savings, mutual funds, collateral).
  • Love money: This refers to money loaned by a spouse, parent, family member and/or friend. 

If you’re interested in starting or expanding a business and you require financing, there are many and varied options available. No matter the size of your business or the amount required, there is a method to finance your company that suits your needs. Contact us for a complimentary consultation.

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Mutual Funds vs. Exchange Traded Funds

Mutual Funds and Exchange-Traded Funds

You may have heard about mutual funds and exchange-traded funds (ETFs). How do you decide which best fits your investment needs? Both offer many benefits for your portfolio and they have a lot in common, but mutual funds and ETFs have some key differences. The following are the similarities and differences and how to determine which of the two instruments is best for you.

What is a Mutual Fund? 

A mutual fund is an investment vehicle that pools money from investors to buy a basket of stocks, bonds, and other securities. This allows you to invest in different companies or bonds at the same time so as to diversify your investments and reduce your risk. Investors buy shares of a mutual fund directly from the company issuing shares or through a broker who purchases shares for investors. Since you buy and hold shares of a mutual fund with the fund company, you cannot move the assets to another financial institution without selling. Mutual funds typically have minimum initial purchase requirements and can be purchased only after the market is closed when their net asset value (NAV) is calculated and set. These funds are generally actively managed by professional money managers so they try to beat their benchmark and may charge high expenses and/or sales commissions. 

Advantages of Investing in Mutual Funds:

  • able to react quickly to changing market conditions (flexibility)
  • a single mutual fund may contain dozens or even hundreds of separate stocks or issuers (diversification)
  • mutual funds can be bought and sold once every trading day (liquidity)
  • a manager is involved in the funds’ investment selection and management, offering investment advice and providing a simpler, more hands-off experience
  • can easily set up automatic investments in fixed amounts

Disadvantages of Investing in Mutual Funds:

  • are expensive and often perform only as well as passive automated investments
  • management fees tend to be high, eating into your returns.
  • may have built-in “loads,” which are essentially sales commissions
  • advice is often an additional cost
  • the vast majority of actively managed mutual funds fail to outperform benchmarks
  • many active mutual funds fail to outperform the market yet you still pay for “active” management
  • traded only once per day at the closing NAV price
  • most mutual funds are not guaranteed
  • the level of risk in a mutual fund depends on what it invests in

 

What is an Exchange-Traded Fund (ETF)?

An exchange-traded fund (ETF) is an investment vehicle that pools money from investors and uses the funds to buy a basket of stocks, bonds, and other securities. You can buy and sell shares of an ETF just like you would buy shares of a stock from a stock exchange. There are various types of ETFs available to investors that can be used for income generation, speculation, price increases and to hedge or offset risk in an investor’s portfolio.

  • Bond ETFs include government bonds, corporate bonds and local or municipal bonds
  • Industry ETFs track a particular industry, such as technology, banking or the oil and gas sector
  • Commodity ETFs invest in commodities, including crude oil or gold
  • Currency ETFs invest in foreign currencies, such as the Euro or the Canadian dollar
  • Inverse ETFs attempt to earn gains from stock declines by shorting stocks (selling a stock, expecting a decline in value and repurchasing it at a lower price)

Advantages of ETFs:

  • access to many stocks across various industries
  • low expense ratios and fewer broker commissions
  • risk management through diversification
  • ETFs exist that focus on targeted industries
  • no investment minimums
  • no fees or sales charges
  • can trade on an exchange throughout the trading day
  • you control the managing of your investments
  • usually generate fewer capital gain distributions overall which makes them somewhat more tax-efficient than mutual funds.

Disadvantages of ETFs:

  • actively-managed ETFs have higher fees
  • single industry focus ETFs limit diversification
  • may contribute to market instability
  • many ETFs are based on unproven models

 

Which is right for you?

Understanding the differences between ETFs and mutual funds can help you decide which is best for you and your business.

Use ETFs if:

  • Tax efficiency is important: If you’re investing in a taxable brokerage account, having more control over capital gains distributions may be important.
  • You’re an active trader: ETFs allow you to set limit orders, stop-limit orders or use margin in your investing strategies as they trade just like stocks. 
  • You want to gain low-cost exposure to a specific market without researching individual companies: A lot of ETF options benchmark niche market indexes.
  • You may change brokers in the future. ETFs are easily transferred between brokers. 

Use Mutual Funds if:

  • You value the potential to outperform the market through active management.
  • You’re investing in less-efficient parts of the market. Actively managed funds have the best potential to outperform in these areas.
  • Comparable ETFs are thinly traded.

 

If you’re not sure whether a mutual fund or ETF is best for you, consider consulting your Chartered Professional Accountant. They understand these products and can offer advice that meets your specific needs. 

 

Need help deciding whether ETFs or mutual funds are right for you? 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.

 

 

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The Benefits of a Holding Company

Benefits of a Holding Company

The Canadian taxation system allows for the establishment of holding companies. The registration process is the same as any other company. You can register at a regional or federal level. If you wish your company to have an official name, ensure that the proposed name is available for use by doing a search through  NUANS. Your corporation can alternatively be recognized by a unique number assigned to it by Corporations Canada.

What is a holding company?

A holding company is an entity created for the purpose of gathering various assets under one umbrella (real estate, shares, stocks, GICs, term deposits, bonds, other companies). This type of company doesn’t conduct any operations, ventures, or other active tasks for itself. There are several types of holding companies (pure, mixed, immediate, intermediate).       

  • A Pure holding company is formed for the sole purpose of owning stock in other companies.
  • A Mixed holding company (also known as a holding-operating company) not only controls another firm but also engages in its own operations. 
  • An Immediate holding company is one that retains voting stock or control of another company, in spite of the fact that the company itself is already controlled by another entity. 
  • An Intermediate holding company is a firm that is both a holding company of another entity and a subsidiary of a larger corporation.

What are the advantages of having a holding company in Canada?

  • Increased Asset Protection: A holding company helps keep assets safe from creditors in the event that something happens to the operating company. The operating company can take risks without exposing the holding company because the holding company performs no transactions and therefore does not move cash and other assets. The only risk is the extent of the holding company’s investment in the operating company. 
  • Tax Benefits:  Since dividends between Canadian-controlled private corporations (owned by the same person) are tax-free, you can move money from an operating company to a holding company with no negative tax consequences. 
  • Lock in the Capital Gains Exemption: There are specific criteria that need to be met to claim the Lifetime Capital Gains Exemption (LCGE).  A holding company can help business owners meet these criteria.
  • Estate planning: Shares in an operating company can be transferred to younger family members through a holding company by way of an estate freeze that is structured to cap a person’s tax liability upon his or her death and transfer any future growth to family members.
  • Limited Liability:  Companies frequently get sued by employees (wrongful termination), by suppliers and vendors (breach of contract) and by customers (product liability). Holding companies can protect an individual’s personal assets, shielding the individual from debt liabilities, lawsuits, and other risks. 

What are the disadvantages of having a holding company in Canada?  

  • Costs: Holding companies require set-up costs (incorporation fee, lawyers fee) and yearly compliance expenses (financial statements, corporate tax returns).
  • Complexity: A holding company adds a level of complexity that requires reliance on professionals. 

Holding companies are not right for all organizations. If your business is accumulating excess cash and you’re looking to invest, incorporating a holding company may be the right decision for you. Establishing a holding company is complex, so consult a Chartered Professional Accountant to discuss the pros and cons. Ideally, a holding company provides tax savings, helps you reach your estate planning goals, assists in growing your business, provides asset protection and limits your liability.

Interested in establishing a holding company? 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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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.

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Preparing a Business Budget

Preparing a Business Budget - Cook & Co - Professional Accountants Calgary - Featured Image

A budget is a financial plan for a company’s future; an estimation of revenue and expenses over a specified period of time. Creating a budget for your business promotes accurate goal-setting, assists in writing a business plan, informs spending decisions, unifies stakeholders, attracts investors and aids in determining staffing needs. It makes operating your company easier, more efficient, gives you the best chance of achieving your long term goals and helps you reap rewards for your hard work. So, how do you go about preparing a business budget?

 

  • Tally income sources: Determine how much money your business brings in each month and where that money comes from. Tally sources for a 12 month period. Look for seasonal patterns.
  • Determine fixed costs: Fixed costs are expenses that don’t change. They may occur daily, weekly, monthly or yearly and include payments such as insurance, rent, website hosting, payroll, bank fees, accounting and legal services, supplies, debt repayment, taxes and equipment leasing.
  • Include variable expenses: Variable expenses are costs that change each month based on your business performance and activity such as usage-based utilities, shipping, packaging, sales commissions, travel costs, inventory, production costs, professional development and marketing.
  • Predict one-off costs: These costs fall outside the usual work of your company. They may be start-up costs (equipment, furniture, software) or infrequent expenses (business course, cost of moving to a new location, purchase of real estate, purchase of new equipment, large-scale facility upgrades, severance pay, etc).
  • Create a contingency fund: Prevent the problems associated with unexpected costs by keeping extra cash on hand for difficulties such as equipment breakage, inventory damage, a security breach, etc.
  • Put it all together: Tally the total income and expenses. Then compare cash flow in to cash flow out in order to determine profitability. Adjust the figures throughout the year. As projections change, alter how money is spent and allocated.
  • Create a budget spreadsheet: A simple spreadsheet provides you with all the information you need at a glance making summarizing and reviewing your finances easy. Make budget evaluation a regular habit. Monitor and adjust numbers as needed.

Creating a budget takes time and effort but it’s worth the toil. Budgeting gives you the insights you need to make good decisions regarding your company’s finances. It’s an essential process for all businesses and will help you grow your company, compete and ensure a solid emergency fund.

Need help preparing a budget? 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.

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What Do You Need for a Successful Audit?

Business accounting and tax planning can be challenging, and if you’re selected for an audit by the CRA, it may seem as though things are only going to get more difficult. However, auditing is a fairly misunderstood process, so there are a few things to know if you want it to go smoothly.

Don’t Panic

First things first: Audits are not cause for panic in and of themselves. You may be inclined to think that the way you’ve prepared your business taxes has raised a red flag with the CRA, but this may or may not be true. Whether or not an audit is taking place to investigate a serious issue or discrepancy, the nature of this can vary widely and will result in different types of audits. Sometimes it’s because your business is showing financial activity that is atypical relative to other similar companies, and sometimes it’s simply random selection. A smart first step is therefore to find out and take note of why you’re being audited so that you can better prepare.

Be Organized and Prepared

Speaking of preparation, this is one of the most important pieces advice you can ever follow if you want an audit to go smoothly. Regardless of the nature of the audit, smart organization of your company’s financial records is everything. From bank statements to income records and balance sheets, it’s essential to have everything in good order. In fact, even when there isn’t an audit on the horizon, you should proactively keep records as thorough and well-systematized as possible. Anything pertaining to expenses and deductions is particularly important. This is the key to fully cooperating and being able to answer inquiries promptly, clearly, and accurately.

Get Help From a Professional

Running a company involves an often overwhelming amount of financial paperwork and records keeping, and preparing for an audit is liable to introduce extra stress into your day-to-day operations. This is why it can be a game-changer to seek out external help from a CPA who is experienced with business audit preparation and assurance. Not only should you work with a professional if there’s an impending audit, but also on a continuous basis in order to minimize the likelihood of an audit in the first place. There’s no better way to prepare than working with a great business accounting team to take all the right preventative measures.

The chartered professional accountants at Cook & Company are driven to provide the most approachable and dependable corporate accounting services in Calgary. If you want to better prepare for the possibility of an audit, we can help. Call (403) 398-2486 to learn more today.

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Tax Considerations for E-Commerce Business Owners

E-commerce retail revenue is expected to reach almost 29 billion Canadian dollars by 2021. This is a considerable portion of the Canadian economy, and the same is also true on a global scale. So what tax implications should you bear in mind if you’re an e-commerce entrepreneur?

Sales Tax & Customs Duty

Because e-commerce businesses are particularly likely to deal across provinces, it’s critical that you know when and how to charge GST, HST, PST, and QST. If you sell taxable goods to clients in other provinces, you will typically need to collect sales tax in accordance with the province to which the goods are being delivered. Many e-commerce platforms, as well as the advice of an experienced business accountant, can help you execute this the right way. Meanwhile, if you deal with clients internationally, it’s a good idea to make sure that they are aware of any customs duty that will be charged upon import of your goods.

Your E-Commerce Website

Building and operating an e-commerce website is a process that incurs expenses, and you’ll naturally want to know which ones you can deduct. The CRA will deem different aspects of the site to be either a current deductible expense or a capital expense claimable under the capital cost allowance system (something you may remember from this article). Many software, hardware, labour, and consulting expenses will be considered capital expenses, while others may be deductible for the year that you paid them. It’s often a case-by-case issue, and the right CPA can help you secure your deductions properly.

Taking Responsibility

Whether it’s big or small, an e-commerce business is just as obligated to abide by applicable tax laws as a company with a brick-and-mortar presence. The CRA is diligent in taking measures to keep online enterprises in compliance, so hoping for special exceptions or loopholes isn’t wise. As with any company, it’s of the utmost importance to keep consistent, detailed, and accurate records. Consider using a well-respected e-commerce platform like Shopify or Magento, which will help to ensure proper calculation of sales tax and other factors. Speak with a business tax expert who can advise you based on your needs and circumstances.

Whether you run an online retail shop or you own a franchise of restaurants, a skilled and attentive CPA is one of your greatest assets for financial success. Cook & Company is the Calgary business accounting firm you can always depend on, so call (403) 398-2486 today.

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Managing Taxes as a Sole Proprietor

There are countless sole proprietorships operating all across Canada and the United States. While being your own boss offers many professional, logistical, and tax-related conveniences, it also comes with a number of important responsibilities. We’re here to help you stay prepared.

Defining Sole Proprietorship

Some professionals who are considering a pivot towards working independently may be unsure as to what exactly the CRA or the IRS consider to be a sole proprietorship. Whatever your circumstances, it’s an important definition to understand. In short, if you are the only owner of an unincorporated business, whether or not you have employees, you’re operating a sole proprietorship. Because this is by definition not a corporation, it is not its own legal entity and you are personally responsible for its debts. In the US, if you’re the sole owner of an LLC, you are only technically a sole proprietor if you do not choose to treat your LLC as a corporation.

Advantages and Freedoms

In addition to a high degree of professional independence and autonomy, there are plenty of tax planning benefits of being a sole proprietor to be aware of. One of the most important examples is the range of deductions and credits that may be available to you. Depending on a number of stipulations and eligibility factors, sole proprietors are able to deduct the cost of certain living expenses, health insurance premiums, internet and supplies, transportation, and countless other expenditures. The capital cost allowance deduction, which we’ve touched upon in this article, is also particularly relevant and beneficial to sole proprietorships.

Obligations and Responsibilities

As a sole proprietor, your personal income and business income are not separate in the way that they would be if you were employed by someone else. This means that you’ll be paying taxes both as an employer and an employee, such as the full 9.9% contribution to CPP in Canada or the self-employment tax for social security and Medicare in the US. You also may be subject to a more scrutiny when it comes to auditing, as the CRA and IRS often see sole proprietorships as being particularly conducive to conflation between business and personal spending. Always keep thorough and well-organized records of your expenses.

Are you a self-employed Canadian looking for an experienced chartered accountant for your business? Cook & Company can offer you the expertise of a big firm with a level of personalized service and dedication that you can’t get elsewhere. Call (403) 398-2486 for a free consultation!

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Business Succession: How to Minimize Your Tax Burden

Whether it’s due to retirement or death, the succession of a business is a challenging process. One of the major elements of succession that will be on your mind is your potential tax burden, not to mention that of your children or other future owners. Here are a few key tips to consider.

Understand Capital Gains Tax

The act of gifting, bequeathing, or selling your shares (a “deemed disposition”) will usually be subject to capital gains tax based on the appreciation or depreciation of their fair market value. The lifetime capital gains exemption is designed to allow qualifying businesses to reduce their capital gains tax burden. An estate freeze, meanwhile, allows business owners to exchange their common shares for fixed-value preferred shares and issue new common shares to their successors without being subject to capital gains tax. The applicability and details of these and other strategies will vary depending on your business and its circumstances.

Utilize Life Insurance

Another useful tax strategy among many business owners planning for succession is to leverage the advantages of a good life insurance plan. This is, of course, only applicable in the event that your business is passed down due to your death. Tax expenses can cut significantly into the value of your company shares as a disposed asset, but if you’ve taken out a strong and well-structured life insurance plan, its proceeds can significantly offset the tax burden of business succession for your family. The policy itself can be owned either by you or by the company itself, which is another decision that an accountant can help you with.

Think Ahead

It is of the utmost importance to remember that succession planning is not an event, it’s a process. An effective succession plan will take quite a bit of time to fully form, so the more you plan ahead, the better. Consider your circumstances. Are you intending to retire from the business soon? Do you have a plan in place in case of your death or sudden health problems? There are countless ways to maximize the tax-efficiency for your business now that will enhance the benefits of succession strategies later. This, in addition to ongoing changes in tax law, is why it’s so critical to explore the options available to you. Don’t wait too long to speak with a CPA.

When you’ve worked hard to build a business, it’s only right that you have the tools you need to ensure its longevity within and beyond your lifetime. It’s our objective at Cook & Company to help you accomplish this and more. Call us at (403) 398-2486 for a complimentary consultation!