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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.

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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!

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Is It Time for Your Business to Work with an Accountant?

Many business owners have a good grasp on managing the finances of their company. That being said, there are countless reasons why you will need the help of a CPA specializing in accounting and tax planning for businesses. Let’s take a quick look at a few key examples.

Business Structure & Planning

There’s no aspect of a company’s structure that does not in some way require tax planning and accounting strategy. Even if you’ve been operating your company for many years, it’s wise to seek advice from a CPA on a routine basis. However, it’s especially important when undergoing significant developments. Are you in the early stages of founding your company or a subsidiary? Do you need to prepare detailed reports for investors? Are you changing legal status, such as from a partnership to a corporation? Speaking with a CPA specializing in entrepreneurial accounting and tax planning is essential to keeping your operations in good order.

Tax Law Changes

A major part of any CPA’s job is to be as informed as possible as to ongoing developments in tax policy. When you build a strong relationship with a business tax accountant, they will be able to optimize your tax planning strategies accordingly. Just like any type of legislation, tax law is subject to change, and the last thing that any business owner wants is to be left out of the loop. This can lead to missed opportunities for tax savings, issues with compliance, and other unpleasant consequences. The Department of Finance’s recent tax law changes pertaining to entrepreneurs, which we’ve discussed here and here, are perfect examples.

Audits & Compliance

The advent of an audit can create stress for any business owner, and the same can be said for potential mistakes in GST and HST compliance. When it comes to audits, it’s important to remember that companies are selected based on a complex set of factors. While it’s not possible to usefully predict the likelihood that you will be audited, you can plan for it and navigate it most effectively by working closely with an experienced business accountant. They can also help you to ensure that you are aboveboard when it comes to GST and HST compliance. This is your best bet for avoiding penalties and fines.

Cook & Company is Calgary’s finest team of corporate and entrepreneurial tax accountants. If you’re a hard-working business owner hoping to minimize the strain of tax expenses on your company, we can help. Contact us at [email protected] or 403.398.2486 to schedule a free consultation today.