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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.

 

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Succession Planning for Small Businesses

Succession Planning for Small Businesses

Planning can be overwhelming! Because of this, sometimes we avoid planning or we do it quickly and poorly. Small business succession planning is particularly difficult as it’s complex, people are often resistant to change and there’s potential for conflict. But no one stays in the same position forever. Illness, retirement and/or turnover are inevitable. If a company fails to plan, knowledge may be lost, opportunities missed and clients delayed. Succession planning provides a business with a framework that ensures continuity when change occurs. 

What is succession planning?

Succession planning is a process of identifying and developing future leaders/owners of your company. This strategy prepares your business for all contingencies by training high-quality people for advancement. It ensures that your business continues to run smoothly after key people retire, resign, move on to other opportunities or pass away. This process involves the coaching and development of designated successors.

Why develop a succession plan?

There are multiple benefits and reasons for succession planning for your business. 

  • Lower hiring costs
  • Stronger internal hires
  • Shorter vacancies for key positions
  • Better career development
  • Increased employee engagement
  • Higher performance
  • Increased retention
  • Higher job satisfaction
  • Disaster-proofs the business
  • Identifies the most-qualified future leaders
  • Creates a structure for training and development
  • Maintains brand identity
  • Helps a company plan for the long-term

Phases of succession planning:

  • Phase One/Identification: Establish who you are as a company and what you want. Then, consider all key roles in your organization determining the day-to-day import of each position and the impact that would occur if that position was suddenly vacant. Identify multiple candidates for each position (a short list) and teach them the values, guidelines and vision of the business.
  • Phase two/selection: This is where a specific candidate is chosen for each role. The successor may be the person next in line in the organizational chart but may also be a promising employee from another position. Look for those who display the skills necessary to survive and thrive in the new post. Objectively consider your shortlist for performance, skills and emotional intelligence. Choose a candidate who is a lifelong learner and both self and socially aware.
  • Phase three/training: This phase involves scheduled professional development for the chosen successor(s). This may include job rotation (for knowledge and experience), mentoring in soft skills (communication, interpersonal relations, empathy, diplomacy), position shadowing and/or taking over when the person presently in the role is on vacation. 
  • Phase four/transition: This involves the present position holder retiring/stepping down and the chosen successor formally taking the role. 

Succession planning keeps a business moving forward, prepares a company for inevitable changes, assists in retaining strong performers and supports the continuity critical to a company’s future. A succession plan is a good idea at the start-up, growth and maturity stages of a company. It’s worth the investment of time and effort.

Need help with a succession plan for your 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.

 

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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.

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Preparing a Business Budget

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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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Questions You Should Ask Before You Hire an Accountant

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An accountant can save you money, help you avoid difficulties with the CRA, assist you in growing your business, provide useful information/advice, prepare profit and loss reports, balance bank statements, prepare tax forms, assist with payroll and help you stay compliant with government regulations. With so many choices (firms and individuals), you may have to do some investigating to find the accountant that is right for you. Ask prospective agencies the following questions and listen carefully to the answers.

 

    • How long have you been in business? Look for an accountant that has experience with and understands the difficulties you face; a firm that has a record of supporting businesses with similar challenges.

 

  • What licenses do you/your staff have? The CPA (Certified Public Accountant) designation is the most respected credential.

 

    • What services do you provide? Most CPAs provide a range of services (monthly bookkeeping, payroll processing, tax preparation, payroll taxes, profit and loss reports, business advice, audit representation, etc.). Make sure your accountant offers what you need.
    • What kind of clients do you work with? Look for an accountant who has worked with other businesses like yours and knows the ins and outs of your industry.
    • Do you have references that I can contact? Reputable accountants will provide references upon request. Talk to some of the references you’re given. Ask them if the accounting firm can accomplish what they promise.
    • What is your fee structure? Ask about billing options; explore hourly, monthly, flat and project-based rates. Get an estimate of likely fees.
    • What’s your experience with the CRA? Ask if the firm is qualified to represent you in a CRA audit and how many tax audits they have participated in.
    • What’s your tax philosophy? Is the prospective accountant cautious, assertive or aggressive about tax deductions? Find an accountant who agrees with your philosophy.
    • How often will we communicate? Can you call them when you have issues? Will you meet mid and end of the year or quarterly? Make sure you feel comfortable with the frequency of communication.
    • How do you communicate? Firms may communicate in person or via telephone, email, Skype, teleconferencing and/or other online services. Be sure you are comfortable with their style of communication.
    • How long will it take for you to respond to my queries? Will they respond to you within a day? A week? A month? Specify your desired time limit.

 

  • How do you keep up with changes in your profession? Ask about the firm’s ongoing professional development strategies. Do they keep up on the news, information and technology that affects their field?

 

  • Why should I hire you? A firm should be able to explain what makes them uniquely qualified to help your business.

Finding the right accountant for your business is crucial and may seem daunting. Use these questions as a starting point for assessing the suitability of potential firms. It’s worth the time and effort to make sure you hire the accountant that matches your company’s needs.

Looking for an accounting firm to help your business? 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 help your business. 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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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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4 Ways to Minimize the Chances of an Audit

For any Canadian, the idea of being audited by the CRA is not a pleasant one. The CRA’s compliance program pays a particularly high amount of attention to small and medium enterprises, so here are a few ways to minimize the chances of an audit for your business.

 

Be Careful With Expenses

 

Staying smart about how you claim expenses for your business is one of the most significant measures for minimizing the chances of an audit. Excessive expenses or high number of expenses in certain categories will be more prone to attract attention. The same goes for excessive home office deductions and claiming 100% of a vehicle for business use. A CPA can advise you so that your business can benefit from deductions without setting off alarm bells.

 

Maintain Consistency

 

The CRA’s compliance system likes to see overall consistency in business tax returns, and this is true on multiple levels. Your business tax return must be consistent with, for instance, those of others in your industry. If you’re showing abnormal income when compared to your peers and competitors, this will be cause for additional scrutiny. Discrepancies between sales and the total reported on line 101 your GST/HST return will also be one of the first things they look for.

 

Be Thorough and Organized

 

Each time tax season comes around, it’s a good idea to act as your own auditor. Review your documents several times, work with an experienced business accountant, and be thorough. On top of this, meticulous and organized record keeping will always be your most powerful ally when it comes to business taxes. Not only does it help you and your CPA carry out air-tight tax preparation, it helps you to comply swiftly with requests for information from the CRA.

 

Consider Other Red Flags

 

There are certain details that the CRA may be more prone to register as red flags than others. It’s important to know what they are and speak with your business accountant about how to navigate them. Businesses with a high flow of cash, unusually high charitable donations, and recurring losses are key examples. Additionally, if your business is paying income to family members, it must be a reasonable amount that is justified by their contribution to your company.

 

From audit and assurance consulting to GST/HST compliance services, the Calgary CPAs at Cook & Company are here to keep your business in excellent standing with the CRA. Give our team a call at (403) 768-4377 to learn more about how we can help you avoid common issues.

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Ensuring the Success of a Family Business

There’s a certain kind of pride and gratification in running a family business that no other kind of entrepreneurship can offer. Like any type of enterprise, its success comes with hard work, but there are a number of factors specific to family businesses that are important to bear in mind.

 

Communication & Boundaries

 

The cornerstone of any business is communication, but this plays an especially significant role in the healthy function of a family enterprise. It can be easy to assume that because you’re close as family members, you have unspoken understandings about the nuances of running your business. This isn’t a safe assumption, so it’s crucial to be as clear and structured about communication as you would in any other professional context. It’s also wise to set boundaries between how your family members operate with one another in the arena of your company versus at home, keeping these as distinct from one another as you can.

 

Roles & Agreements

 

When family members work with one another, there can sometimes be a risk that roles will blur into one another and become a bit more tricky to define. This can stem from the same sense of informality that can lead to murky communication habits. Avoid this by making each person’s roles, responsibilities, and level of authority as clear as possible. Professionalism is key. Similarly, many people may find it easy to trust family members based on informal or verbal agreements. Despite this, your company is like any other. Everything must be formalized on paper to ensure structured decision-making and minimize risk of disagreements and litigation.

 

Adaptability & Succession Planning

 

Every business benefits from adaptability. As an entrepreneur, it’s in your best interests to be at the cutting edge of your industry and maintain a forward-thinking state of mind. While the more senior family members certainly have many things to teach the generation that will be taking their place, it’s also important to remain open to their input when it comes to the demands of a modern business. At the same time, the owner of a family business must be prepared for the process of succession. Everything that makes your business strong must contribute to a smooth transition of ownership and management, so the sooner you start planning, the better.

 

The majority of family businesses fail to succeed to the next generation, but yours doesn’t have to be one of them. If you want it to thrive for generations to come, you’ll need a carefully structured succession plan. Call Calgary’s finest team of CPAs at (403) 768-4377 to get started.