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Can I get Tax Benefits for Insurance I offer my Employees?

Can I get Tax Benefits for Insurance I offer my Employees? - Cook and Co - Calgary Accountants - Featured Image

Employers may choose to offer life, health and/or disability insurance to their employees. Should your business offer these benefits? Will your company’s insurance expenses be tax deductible?

 

  • Group Life insurance is term insurance with your company holding the master contract and coverage extending to your employees. It’s relatively inexpensive and usually garners high participation among employees. If a life insurance policy is owned by your employees, but the premiums are paid by your company, you may deduct the premiums against business income as long as the premiums are a reasonable business expense. If you have shared ownership of the policy with your employees, the premiums are not tax-deductible.

 

  • Group Health insurance plans provide coverage (supplemental to government health care plans) for a company’s employees at a reduced cost. If the health insurance policy is owned by your employees, but the premiums are paid by your company, you may deduct the premiums against business income as long as the premiums are a reasonable business expense. Premiums are not deductible if paid for shareholders who are not employees.

 

  • Group Disability insurance provides a percentage of pre-disability income (for a specified period of time) when an employee is unable to work due to illness or injury. Typically employers purchase plans that cover 50 to 60 percent of income. Disability insurance premiums are paid with after-tax dollars, but the benefits are received tax-free.

 

As business insurance issues are complex and convoluted, talk to your accountant before claiming a tax deduction for life, health or disability insurance premiums offered to your employees.

Not sure whether you can claim the life, health and/or disability insurance premiums you offer your employees, contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company use their experience, knowledge and expertise to help your business. Contact us for a complimentary consultation.

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Should I Pay Myself a Salary or Dividends?

Should I Pay Myself a Salary or Dividends? - Cook and Co - Accountants in Calgary - Featured Image

If your business is set up as a corporation, you can choose to pay yourself a salary, receive dividends or a mix of both. It makes sense to choose the method that best accommodates your financial situation, but which practice is most beneficial for your business? There are many factors to consider and each payment method has advantages and disadvantages.

 

Salary: a fixed regular payment, made on a monthly or biweekly basis by an employer to an employee.

 

Advantages:

  • provides a legally recognizable personal income
  • allows you to contribute to retirement funds (CPP & RRSPs & TFSAs)
  • is tax-deductible for your corporation
  • fewer surprise taxes
  • easier to apply for bank loans and mortgages and often a better rate
  • entitles you to a Canada employment credit
  • can reduce exposure to corporate income tax

Disadvantages:

  • must set up a payroll account
  • pay twice into retirement funds, as the employer and the employee
  • a salary is 100% taxed, which could increase your tax burden
  • you won’t be able to carry back a business loss in future years when profits vary

 

Dividends: a sum of money paid regularly by a company to its shareholders out of its profits or reserves.

 

Advantages:

  • are taxed at a lower rate than a salary
  • can be declared at any time allowing optimization of your tax situation
  • save money, no CPP payments
  • simple process and little paperwork
  • don’t require payroll account
  • less chance of payroll penalties
  • do not require the shareholder to be an employee of the business

Disadvantages:

  • reduces the amount of CPP you are entitled to receive when you retire
  • you are not able to contribute to an RRSP
  • prevents you from claiming personal income tax deductions, such as childcare costs

 

Mix of both:

  • a business salary and some dividends are sometimes paid to ensure a corporation doesn’t earn over $500,000, the small business limit in Canada after which the tax rate increases
  • deciding to receive a salary and some dividends is based on income level, cash flow needs, projected annual earnings, the importance of personal cash for investments/tax deductions and/or the business owners age

As a business owner/manager, you can pay yourself a salary, dividends, or a mix of both. Whichever method you choose will depend on your personal and business needs and is best made with professional advice from your accountant.

Not sure whether a salary or dividends are best for your corporation, 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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What to expect if your Business is Audited by the Canadian Revenue Agency

What to expect if your Business is Audited by the Canadian Revenue Agency - Cook & Co - Accountants in Calgary - Featured Image

A tax audit is a detailed examination of a business’ books and records by the Canadian Revenue Agency (CRA). It’s conducted after you’ve received a notice of assessment and is intended to check that your records support your tax return. Audits are meant to ensure that the Canadian tax system is fair for all.

How does the CRA choose a file for audit?

From 2017 to 2019 an average of 5,900 audits of small businesses and 1,800 audits of medium-sized businesses were undertaken each year. These files are chosen for audit based on a risk assessment; factors such as frequency of errors on tax returns, indication of non-compliance with tax obligations and comparison to similar files. If your file is identified as high risk, a CRA officer will review information from a variety of sources to determine whether they should go forward with an audit.

What are the most common issues that prompt an audit?

For small and medium sized businesses the CRA may consider an audit if they discover:

  •   Multiple or repeated errors on your tax returns
  •   Major changes in income or expenses
  •   Repeated losses
  •   Expenses not in line with others in your industry
  •   Under-reported earnings
  •   Over large charitable donations
  •   Unsubstantiated home office deductions
  •   Discrepancies between GST returns and Tax returns
  •   Shareholder loans that should be considered income
  •   Missing information
  •   Audit of a related party
  •   A lifestyle incongruent with your declared income
  •   Real estate transactions
  •   Vehicle expenses
  •   Informant tips

What is the procedure for an audit?

A CRA auditor will contact you by mail or phone and set a date, time and location for the audit. A review may be held at your place of business, your representative’s/accountant’s office or at a CRA office. You’ll receive the agent’s contact information and be informed of the scope of the audit. You’ll be asked to provide supporting documents for the review. The auditor may make copies of your records and/or borrow some of your documents. The agent will discuss with you any questions that arise during the audit and address your concerns.

What documents are required for an audit?

The documents requested may include:

  • Business records (ledgers, journals, invoices, receipts, contracts, rental records, bank statements)
  • Personal records (bank statements, mortgage documents, credit card statements)
  • Records of other individuals related to the business (spouse, family members, corporations,    partnerships, trusts)
  • Records from your accountant that relate to the books, records and tax returns of your business

What happens when the audit is complete?

  • The auditor will prepare a schedule of proposed adjustments to your tax assessment including detailed calculations and explanations
  •   The agent will hear and discuss your explanations before closing the audit
  •   You’ll receive a letter explaining the results of the audit
  •   If changes are made, you’ll receive an amended notice of assessment

What do I do if I disagree with the results of the audit?

If you disagree with the reassessment, contact the auditor, explain your concerns and provide documents to support your position. If you are not able to resolve the disagreement, you have the right to appeal.

Filing taxes for a small or medium sized business is a complicated procedure. A CPA will ensure your tax return is complete and accurate, reduce the chances of your file being chosen for an audit and ensure you’re rewarded the deductions you’re entitled.

For all your tax needs contact Cook and Company Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to make tax time a breeze. We will assist in dealing with the CRA in the event of an audit. Contact us for a complimentary consultation.

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What to Consider when Scaling Your Business

What to Consider when Scaling Your Business - Cook & Co - Accountants in Calgary - Featured Image

Scaling a business refers to setting the stage to facilitate and support growth in your company. It involves planning, acquiring funding, ensuring sufficient staffing, improving processes and utilizing technology in order to manage an increase in sales/work/output without compromising performance or losing revenue. It’s about capacity and capability. So, what do you need to consider when scaling your business?

 

  • Plan and Evaluate: Are you ready for growth? Do you have the staff and systems to handle an increase in sales? What processes can you handle internally? Which should you outsource? Do you need new technology, more equipment, larger facilities? Take stock of where your business is now. Generate a detailed sales growth forecast; a month by month prediction of the level of sales you will achieve, a break down of projected sales (by product, market, and geographic region), the number of new customers required, orders you wish to generate. Anticipate where expenses will rise. Consider what you will focus on, what you will change and what steps are involved.  If possible, involve staff in your vision and planning. If they are invested they will work harder and remain longer.

 

  • Acquire funding: Find the funds to fuel your growth. Evaluate all possibilities; a kickstarter, crowdfunding, monthly subscription model, a partner, investors, debt financing, a business loan, equity financing, a line of credit.

 

  • Utilize technology: Examine the possibility of using technology to streamline operations,  reducing time and labour while boosting volume. Evaluate software (CRM, marketing automation, sales management, inventory, manufacturing, accounting, payroll, HR, shipping, training) and hardware (servers, computers, printers, telephone equipment). Decide whether to invest in internal IT support or outsource.

 

  • Find and hire the right people: Having the right team with the right skills is crucial for coping with the challenges of scaling your business. Determine how many employees you need for customer service, manufacturing, inventory, management, accounting/payroll and delivery of products. Can you use contractors or part time employees? How will you onboard/train new hires? Who will recruit and hire? Do you have a strategic interview process in place? Offer benefits to attract top candidates.

 

  • Simplify processes: Complexity requires more meetings, more explanations, more communication, more training and more people. It slows down a business and inhibits growth. Constantly look for ways to simplify strategies and operations.

 

  • Collect and use hard data: Collect data regarding your customers and prospects; how they move through your sales funnel, how long it takes to convert, what causes them to leave/stay, how they engage with your business, what their trigger/pain points are, their complaints/issues with your product/company, what they love about your product/company. Use this information to inform your marketing campaigns.

 

When you’re ready to scale your business, aim for a slow, steady, strategic rise. Plan thoroughly, hire quality staff, keep your costs low, pay attention to your data, simplify when possible, make wise use of technology and obtain sufficient financing. Think big. Then take small individual steps to make your vision come true.

 

Thinking of scaling your business? Let Cook & Company help. We’re a Chartered Professional Accounting firm that’s helped countless businesses achieve financial success. We offer a different approach to accounting and tax advice, personalized one-on-one service, creative financial solutions and unique strategies to handle everything from income tax planning to financial statement audits and financial planning. Contact us today to find out how we can help your business. Call 403-768-4383

 

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Reviewing Recent Changes to Small Business Taxation

Anyone who wants to utilize the tax planning options available to them and avoid complications or penalties should always stay updated on tax policy. There are several changes to Canadian tax law going into effect this year, so let’s look at some that are relevant to business owners.

 

Small Business Tax & Capital Cost Allowance

 

In a positive development for many Canadian business owners, the small business tax rate will be reduced to 9%, effective in January of this year. This is down from the 10% rate established in 2018, which was a reduction from the previous 10.5%. Meanwhile, temporary amendments are being introduced to the rules dictating capital cost allowance. These will enable full first-year write-offs for the purchase of certain machinery and equipment, specifically those that are used to manufacture and process goods and for clean energy equipment. A temporary enhanced first-year CCA rate of 100% has also been introduced for eligible zero-emission vehicles.

 

Accelerated Investment Incentive

 

Similarly to the temporary enhancements for CCA deductions mentioned above, the government is also rolling out what it calls the Accelerated Investment Incentive. This is designed to encourage capital property investments made by businesses and applies to businesses across the spectrum, whether small or large. The primary component of this incentive affords businesses an enhanced first-year allowance of CCA deductions on certain capital property. In addition to this, however, its secondary component effectively allows for an enhanced CCA rate that is equal to three times the amount you would normally be able to claim for that first year.

 

New Rules for Passive Income & Split Income

 

While the changes noted above are advantageous for many Canadian businesses, there are of course plenty of adjustments in effect for 2019 that will present challenges. Most prominently, the more passive investment income a business holds above a threshold of $50,000, the more constrained its access to the small business deduction will be. This renders the first $500,000 of your company’s income far more vulnerable to taxation. Additionally, the CRA’s new rules on Tax on Split Income are in effect this year, notably expanding their scope to adults. Speak with your CPA to find out how these developments affect your business and how to adapt to them.

 

You can always count on the team at Cook & Company to keep you updated on the latest developments in tax law. If you have any questions regarding the latest tax changes affecting business owners, our Calgary accountants are here to help. Call us at (403) 768-4377 today!

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Employee vs Contractor: Why Does the Classification Matter?

Everything your company accomplishes depends on both the work of your employees and the services rendered by the contractors you retain. These two types of individuals are treated differently when it comes to taxation, and accurate classification is crucial for several reasons.

Broad Distinctions

Employer-employee relationships and payer-contractor relationships can exhibit some minor similarities, but a wide range of factors make them legally distinct from one another. Typically speaking, an employee follows certain requirements determined by the employer such as reporting location and hours. A contractor, meanwhile, usually dictates when, where, and how they do their work. Employees generally use supplies and tools provided by the employer, while contractors often invest directly in the means of their own work. The risk of incurring losses or the chance of making a profit are also usually factors specific to contractors and not employees.

Taxation and Benefits

Unlike contractors, employees are provided benefits by the employer (such as health insurance and pensions), are more difficult to terminate, and can receive severance pay. They also qualify for employment insurance. Unlike employees, contractors can take advantage of far more tax deductions for work expenses but must also pay both employer and employee Canadian Pension Plan contributions. Considering the costs saved on EI deductions, CPP, and benefits, not to mention various logistical advantages, business owners may seek to hire contractors whenever they can. This is why the CRA is diligent about penalizing worker misclassification.

Why It Matters

Today’s economic landscape is more complex than ever. Countless types of working relationships manifest in different ways. Additionally, the criteria that the CRA uses to define employer-employee and payer-contractor relationships can be quite elaborate. Despite this, it’s crucial for businesses to avoid misclassification at all costs. If you classify a worker as a contractor and they are eventually found to be your employee, you could be liable for unpaid income tax deductions (with interest and penalties) plus unpaid CPP EI, overtime, and vacation. Wrongful termination lawsuits and other forms of litigation are also common consequences of misclassification. If you’re in doubt, consult a professional to be sure!

Are you unsure of whether to classify someone as your employee or an independent contractor? Whatever guidance you and your business may need, our Calgary-based CPAs are always at your service. Give our office a call at (403) 768-4377 to schedule a meeting with us today, we’d love to help!

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How a CPA Can Help You Plan Your Business Succession

Operating a profitable business is no simple task, but ensuring that it will remain viable across generations is a challenge in and of itself. Far too many promising businesses fail to make the transition properly, but with the help of experienced CPAs, you don’t have to be one of them.

 

Planning Ahead

 

Any skilled CPA knows that planning ahead is everything, whether it’s getting the most out of tax planning opportunities or carrying out effective risk management. Business succession is no exception. Depending on the structure and scale of your business, as well as your intentions for succession, the process should begin at least five to ten years in advance. A chartered professional accountant will therefore play the integral role of factoring a future succession into various aspects of your accounting and tax planning. They will help you optimize the company finances to make the transition of ownership and management as effective as possible.

 

Minimizing Tax Liability

 

Business succession can be a taxing process, both figuratively and literally. One of the more important forms of taxation to take note of in this context is capital gains tax. The disposition of company assets (including shares and property) may amount to capital gains that are subject to a significant tax burden. You may be selling personal shares to an outside party, selling company-held shares and/or property to an outside property, or handing assets down to an heir. Whatever the case may be, a skilled CPA can help you maximize the value of your succession by exploring a wide range of tax planning strategies that may apply to your circumstances.

 

Why It’s Crucial

 

Roughly 30% of family-owned businesses make it through a generational transition, and even fewer stay in operation into a third generation. The importance of having all hands on deck when it comes to succession therefore can’t be overstated. CPAs are not the only people you need to work with during this process, but they’re an essential component, especially if you hire corporate accountants and tax specialists who have experience with a broad range of business types. Foster a strong relationship between your company and a dependable CPA and you’ll be all the more prepared to ensure the longevity of the business you’ve worked so hard to build!

 

Our Calgary-based team of chartered professional accountants won’t simply fortify your company’s finances and tax strategy in the short term. They’ll help you turn your successful business into a powerful legacy. Give us a call at (403) 768-4377 for a free consultation today.

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2019 Tax Season Is Over! How Do You Prepare for 2020?

Now that we’ve made it through the 2019 tax season, there’s no better time to think ahead about how you can stay proactive about tax planning for 2020. If you want to secure the maximum value possible from your hard work as a business owner, there are a few tips to keep in mind.

 

Take Stock of Your Business Goals

 

The journey of running a business is shaped by the objectives you set and the circumstances that arise along the way. These change all the time, affecting various aspect of your financial strategy, including tax planning. With the 2019 tax season behind us, it’s essential to take stock of how you expect your enterprise to change throughout this year. Will its corporate structure or ownership change? Are you anticipating significant and sudden growth or expansion? There are countless developments that can bring new tax concerns into play or open up new opportunities. Whatever the case may be, your tax planning methods should evolve as your company does.

 

Stay Updated on Tax Policy Changes

 

As you make your way through 2019, remember that federal and provincial tax policy are dynamic entities. Stay informed on policy changes so that you can adjust your tax planning accordingly. For instance, the federal small business tax rate was reduced from 10% to 9% in January of this year. Additionally, beginning with the 2019 tax year, there will be new limitations on tax deferral opportunities connected to passive investment income within private corporations. The government will also be implementing measures to enhance capital cost allowance deductions for zero-emission vehicles used by businesses. Keep yourself in the loop!

 

Work with an Experienced Corporate Accountant

 

The above considerations and all others related to your tax strategy are best optimized with the right guidance. This is by far the most practical and effective way to plan ahead, enhance your efforts, and avoid costly pitfalls. The right specialists can offer corporate tax planning solutions tailored specifically to your business goals and circumstances. It’s particularly advisable to seek CPAs who have experience with businesses of all sizes but can offer a direct and personalized approach. The world is full of chartered professional accountants, but only the best can help your company remain as dynamic and efficient as possible from one tax year to the next.

 

Cook & Company is dedicated to providing fully up-to-date and effective tax planning solutions for entrepreneurs all across Canada and the United States. Our Calgary-based corporate accounting office has everything you need, so give us a call at (403) 768-4377 to get started!

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What Advantages Does a Chartered Professional Accountant Offer?

Every business owner wants to fortify the financial integrity of their enterprise, but not all of them take the necessary measures to make it happen. Company growth and longevity are always intertwined with skillful accounting, but what specific advantages can an external CPA provide?

Greater Efficiency

One of the foremost advantages of working with a CPA for your corporate taxes and accounting is increased efficiency, both with regards to time and cost. Your need for a CPA will fluctuate and change in nature throughout the fiscal year. Working with an external firm therefore carries the benefit of producing excellent results in a timely manner without the need for investing in the salary, office resources, and benefits required for a full-time internal corporate accountant.

Specialized Expertise

As long as you’ve chosen the right firm, external corporate CPAs typically bring a range and depth of experience to your company tax planning and accounting that is quite difficult to beat. In the best cases, this experience amounts to a highly specialized skill set and a greater degree of fluency in corporate finances, tax law, and tax planning in the context of multiple industries and enterprise types. The power of this versatility can be considerable for any business owner.

Objectivity

When it comes to corporate accounting and taxes, depending too heavily on an internal perspective can introduce a number of issues. Errors can potentially be glossed over and the company finances won’t be able to benefit from a second opinion. This is an important yet often underestimated advantage of bringing an external CPA into the mix. It makes for a collaborative process that may reveal certain solutions and strategies that haven’t already been considered.

Peace of Mind

If there’s one advantage that encompasses all others, it’s knowing that you’ve taken the right measures to secure the prosperity of your business. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, one thing that all entrepreneurs have in common is a desire for long-term financial strength and tax-efficiency. With the support and services of a respected CPA, you’ll have this and the enduring peace of mind that comes with it.

When you experience the quality of service and level of expertise offered by our CPAs, you’ll see why Cook & Company has become one of the most esteemed business accounting firms in Canada. To ensure prosperity for your company, call (403) 398-2486 and we’ll be by your side.

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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.