Author: margento

MANAGEMENT

A little adjustment to your sleep schedule before you travel can make you alert and ready for business when you reach your destination.

Despite the ease and relatively low cost of modern telecommunications, it is still necessary for business people to travel to be onsite. This is especially true for business owners who want to grow their businesses internationally and need to meet suppliers and customers to establish the personal connections that will be the foundation of future success. Flying to remote suppliers or clients makes jet lag a reality that should be factored into travel plans.

Body Rhythms

Jet lag or “circadian rhythm desynchronosis” results when high-speed travel from east to west or west to east through multiple time zones interrupts the 24-hour or “circadian” rhythm that regulates our sleep-wake cycle and controls the biochemical, physiological and behavioural activities in our bodies.

Symptoms of Jet Lag

The following are the classic symptoms of jet lag:

• headaches, inability to sleep and irritability
• lethargy, fatigue
• mild depression
• shortened attention span
• loss of appetite
• minor confusion
• gastrointestinal disturbances

Facts about Jet Lag

The effects of jet lag vary from person to person and the distance and direction travelled:

• symptoms become more severe once two time zones have been crossed
• symptoms are more severe flying west to east
• upsets patterns for sleeping, eating and working
• older people take longer to get back to normal circadian rhythm
• cabin air pressure and reduced amount of oxygen reaching the brain may increase the severity of jet lag in some travellers
• flying north/south within the same time zone will not cause jet lag
• north/south travel may exacerbate symptoms if also combined with travelling through multiple time zones (e.g., Vancouver to Sydney, Australia).

Adjust your sleep patterns before you leave home.

Combating Jet Lag

There are several ways to minimize jet lag but they are not always effective. Suggestions made by researchers include the following.

• Do not consume alcoholic or caffeine-based beverages during the flight.
• Stay hydrated by drinking water.
• Be physical fitness regime since physically fit persons suffer less from jet lag.
• Before your flight, adjust your sleep pattern based on the direction to be travelled. If travelling from west to east, accustom your body to the destination by getting to bed earlier and getting up earlier. Research suggests that going to bed one hour sooner for each of the three days prior to your trip and exposing yourself to bright lights (at least 5000 lux) for at least 3.5 hours when you wake up will help. Thus, on day one of the three days, go to bed at 10, the next day at 9 and the next day at 8 and get up one hour earlier and expose yourself to bright lights or bright sunlight depending on the season.
• If travelling from west to east, reverse the sleep pattern adjustment by going to bed later and getting up as if you had had your normal number of hours of sleep.
• When arriving at your destination, adapt to the local timetable. For instance, if you arrive at 11 a.m. local time but it is really 6 p.m. at home, adjust your schedule and habits as if it were 11 a.m.

If you cannot prepare for the time zone of your destination, you may want to consider arriving two or three days earlier to give your body the opportunity to adjust. Not only will this tactic increase your level of performance, it will also enable you to learn about points of interest, the culture and the people at your destination, all of which can be topics for discussion when meeting with your new contacts.

The Final Analysis

Business travellers want to make the most of their time, establish solid personal relationships with their business peers and negotiate the best possible deal with new suppliers or clients. To do so it is in the best interests of your company to minimize the impact of jet lag so you and your staff are at the top of your game when you represent your business whether it is on the other side of Canada or on the other side of the world.

Contact Argento CPA today!

Source: BUSINESS MATTERS Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use. BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members. Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor. Contact us: patricia@adamsonwriters.ca

MANAGEMENT

The pending revision of Canada’s marijuana laws will affect the workplace.

Liberalisation of Canada’s marijuana laws appears to be imminent. The Cannabis Act is currently expected to become law in 2018 and will decriminalize certain activities and make marijuana more widely available under a controlled production, distribution and sales system. Whether or not you agree with the intent of the proposed Cannabis Act, the loosening of the laws governing the sale and use of marijuana raises important questions for businesses regarding health, safety and legal liability.

Most provincial and territorial occupational health and safety regulations require an employer to take all reasonable means to ensure the protection of their workers. The employer also has a reasonable expectation that employees should not be impaired on the job. The question then becomes when are employees impaired and whether, if they believe themselves to be impaired, they are required to inform their employer.

Employer Responsibility

All employers recognize that, if an employee is incapacitated to the extent that they cannot perform their assigned tasks, the employer is required to either allow a leave of absence or find a task within the organization that allows the employee to rehabilitate so as not to create safety or health issues for other workers.

Employers may have to pay for medicinal marijuana.

It may come as a surprise to employers to discover that, in the event an employee is injured on the job, the employer, as part of the restitution/rehabilitation package, could be required to pay for the employee’s use of prescribed medicinal marijuana. This would not be dissimilar to the payment for any other medication that may be required to assist an injured employee in getting back to work.

Employment Agreements

Employment agreements usually address issues such as alcohol, the use of smartphones while driving and sexual harassment. These agreements reflect management’s due diligence in acting to avoid or mitigate huge losses from lawsuits against the company. Even though both employees and employers have a responsibility to ensure a safe workplace, the employer, its management and directors bear the ultimate legal responsibility.

In the matter of marijuana prescribed by a doctor for pain relief, employees may be unable to travel to jurisdictions with criminal laws for possession. Not only does this cause concern for the employer, but it may also jeopardize an employee’s future if arrested, charged and convicted by a foreign government. A prohibition on future travel for work in such jurisdictions may never be lifted.

Drug Testing

The employer has a responsibility to establish the grounds for any proposed drug testing. Some businesses have employment agreements that require drug testing to ensure employees are not impaired. The liberalisation of the marijuana laws creates a whole new area of uncertainty as to whether an employee is impaired. Random drug testing of employees can become problematic. If the employee refuses and they are fired, they might sue for wrongful dismissal. Further, some chemical components of marijuana, as for some other drugs, may linger in the employee’s system and be picked up by the test even though the person is no longer impaired.

Review Your Contracts

Your business may have employee contracts which stipulate that substance abuse is not allowed on the job site. What happens in the event one of your employees is on medicinal marijuana? Is this in violation of the contract? Is this in violation of safety regulations? Is it a violation of the Charter of Rights and Freedoms?

Owner-managers are well advised to seek professional assistance as well as legal advice to review all:

• contracts with companies and government agencies from whom they receive contract work
• employment contracts
• policies and procedures on the safe use of machinery and equipment
• protocols for detecting impairment and the penalties and/or sanctions that may need to be rewritten
• medical insurance policies
• insurance policies for third-party liability or vehicle insurance that may contain caveats that cancel payout in the event of drug use
• in-house education programs to make sure workers know how to recognize their impairment and when to communicate their inability to perform their tasks safely.

It is difficult if not impossible at the present moment to determine the consequences of legalizing marijuana and its impact on employers, employees and existing contractual arrangements with contractors, subcontractors, government and regulatory authorities, both within our borders and without.

Examine Procedures and Protocols

Good business practice suggests that owner-managers become proactive and educate themselves on the effects the pending legislation may have on their business. Procedures and protocols may have to be changed or new ones created to ensure a workplace that accommodates the health concerns of the workers without compromising the safety of the workplace.

 

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

MANAGEMENT

Shoplifting can ruin your business.

Fred Tarasoff loves music. In fact, he used to own a record store, but had to go out of business in 1989 in large part because of inventory losses through shoplifting. Then he was assaulted by a shoplifter while he was running a health food store. Since that time, he has devoted himself to researching shoplifting and the retail industry in order to develop training programs to prevent and detect shoplifting. He currently works closely with law enforcement, industry associations and security firms to fight this crime. In the course of this work, Mr. Tarasoff has developed a simple way to calculate the losses suffered from shoplifting.

According to Mr. Tarasoff, even if your business has excellent controls, you can expect losses will approximate 1% of gross sales. Thus, if your retail store sells $600,000 a year, at least $6,000 will be missing from your sales figure. But, if your business does not have good controls, losses could be as high as 8% or $48,000 on $600,000 of gross sales. If your store works on a 20% gross margin your business is out $38,400 (i.e., 80% the sales loss of $48,000).

Deterring Theft Starts with Good Management Practices

• Adequate staff is essential. One person in the store is simply not enough people to work the cash register and watch the customers.
• If you can only afford one sales representative in the store, they should lock the door as a matter of policy when they have to take a break.
• Greet each customer. This is not only good public relations, but it indicates to the potential shoplifter that you are aware they are in the store.
• Provide a receipt to each purchaser. Post a policy statement that refunds will not be provided without proper receipts. This will prevent thieves from attempting to return stolen merchandise later for a cash refund.
• Make sure your staff knows the prices of all items. This will help employees to determine whether lower-price tags have been switched to higher priced items.
• If the package has been opened by the customer, be sure it is reopened by the cashier to prevent product substitution or the theft of other merchandise hidden in the package.
• An open bag with your store name on it is the perfect shoplifting tool. Seal all bags with store seals to ensure that other items cannot be placed in the bag as the customer exits your store.
• Do not stereotype customers by appearance. That gruff looking character may be honest while the nicely dressed family of three may be a team of professional shoplifters.
• Do not age discriminate. Statistics indicate that 25% of thefts are committed by those in their teens or younger, but 75% is committed by adults.

Support trained staff with physical theft deterrents.

Physical Deterrents the Next Line of Defence

• Staff training to reduce potential shoplifting must be supported with physical theft deterrents.
• Ensure every part of the store can be seen by sales staff at all times. Blind spots, dressing rooms and tall shelving units make theft easy.
• Users of dressing rooms expect privacy, but there can be no such expectation on the store floor. Security cameras should be placed strategically to monitor the floor area. A large monitor at check out will provide live video from every camera to enable cashiers to view suspicious actions.
• Placing mirrors to view blind spots is an alternative to cameras although not as effective since staff cannot always be watching.
• Expensive merchandise should be looped through an alarm box or fitted with Radio Frequency Identification (RFID) devices that sound an alarm as soon as the product is removed from its packaging or its shelf space.

Please Leave the Store

You have the right to ask someone to leave your store. Most merchants are hesitant to do this because they do not wish to create conflict or negative publicity. Nevertheless, you are well within your rights to ask someone to leave and inform them that if they return, they will be trespassing. Do not provide a specific reason. Above all, never suggest they are stealing and do not physically touch them. Such actions will not only escalate the situation but could result in legal actions against you. If an individual refuses to leave, contact the police and have the individual removed. Most provinces will have a trespass act that provides you with grounds to inform the unwanted customer either in writing or orally that they are not welcome on your premises. The wording will read something like the Ontario Trespass to Property Act (1990):
2. (1) Every person who is not acting under a right or authority conferred by law and who,

• (a) without the express permission of the occupier, the proof of which rests on the defendant,
  (i) enters on premises when entry is prohibited under this Act, or
  (ii) engages in an activity on premises when the activity is prohibited under this Act; or
• (b) does not leave the premises immediately after he or she is directed to do so by the occupier of the premises or a person authorized by the occupier, is guilty of an offence and on conviction is liable to a fine of not more than $10,000.

Detaining the individual on suspicion of theft without immediately calling the police is unwise since it risks a charge of “forcible confinement” under the Criminal Code. Consult with your lawyer to establish how and on what grounds your staff can approach and temporarily hold any suspected shoplifter.

Train Staff

Store staff are the frontline in shoplifting prevention. Educating staff in anti-shoplifting procedures combined with a one-time installation cost of physical deterrents should return your inventory costs and profit to their normal levels.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

 

TAXATION

A “tax refund” is really just the CRA giving you back your own money.

“The government gave me money back” is a common phrase often heard after the April 30 or June 15 filing deadline. The truth is that the government is not being charitable; it is only refunding the tax that you or your employer had overpaid throughout the year.

Because the rate of tax withheld at source throughout the year may be different than the tax rate applicable to your actual taxable income (after taking into consideration all other income and deductions), you might have remitted more money to Ottawa than was necessary. Your “tax refund” is the difference between your remittances and your actual tax liability.

One of the biggest misconceptions is that, upon filing of their personal income tax returns, people with a lower income will likely receive a tax refund while people with a higher income will usually end up owing tax. This is not necessarily true because the tax refund/liability is not based on your income level but rather on the difference between the remittances paid compared to the actual tax liability.

How It Works

For example, assume Mrs. A, who normally earns a $200,000 annual salary, only worked six months during 2016. Mrs. A’s employer would have withheld taxes based on the $200,000. However, since Mrs. A worked only half the year, her actual 2016 income was $100,000. Because the tax remittances calculated on $200,000 were higher than the actual taxes applicable on the $100,000, Mrs. A will receive a tax refund.

On the other hand, assume Mr. B has two jobs each paying $30,000 throughout 2016. Mr. B’s employers would have withheld taxes based on Mr. B’s actual income of $30,000 from each of them. However, Mr. B’s actual income for 2016 was $60,000. Because the sum of the two tax remittances calculated on $30,000 earned from each employer would be lower than the actual taxes applicable on the $60,000, Mr. B will likely have to pay additional taxes.

In order to avoid such differences between the withheld taxes and the actual tax liability, everyone should review their current personal and taxable income situation to determine whether they can reduce withholding taxes to minimize the cash advance provided to the treasury. It is very important that your employer be aware of any other sources of income you may have or other deductions to which you are entitled, so that all of it can be considered when determining the appropriate amounts to be withheld.

What Should I Consider?

Here are some of the personal tax credits that your employer should consider in reducing the amount of withholding taxes to be remitted:

• Are you eligible for an age amount (e.g., tax credit available for those 65 or older)?
• Are you eligible for a spousal credit (i.e., if the spouse’s income is under the basic personal amount)?
• Are you (or your children) enrolled at a university, college or other educational institution and are eligible to receive tuition credits?
• Are you (or your dependants) qualified for a disability amount?

Before you approach your employer to reduce source deductions, consider the total of all deductions allowed as well as your individual tax bracket. On the one hand, there is little to be gained in cash flow savings if the overall taxable income reduction is miniscule. On the other hand, if the gain could be substantial, taxpayers should make every effort to minimize the tax dollars advanced to the Canada Revenue Agency (CRA). At the same time, taxpayers should understand the rules and regulations that accompany an attempt to reduce deductions at the source.

Make sure your TD1 information is correct.

Be Informed

The CRA requires that employees complete a TD1 form when starting employment. Make sure the information provided is correct from the start to enable payroll to make the correct calculations for source deductions. Correct information regarding spousal amounts or caregiver amounts makes a difference to non-refundable tax credits and the calculation of source deductions. If life circumstances have changed, submit a revised TD1 form.

CRA Form T1213

Should you have significant deductions available in any given year to reduce the withholding taxes at source, file a “Form T1213 Request to Reduce Tax Deductions at Source” (see CRA website for the forms). Regulations require that this form be submitted each year; however, if similar circumstances will exist for two consecutive years, you can apply for two years as long as you submit one T1213 form for each year. Given the CRA’s response time, it may be advisable to consider the two-year option and provide such data to the CRA before the end of 2017 so that it will become effective January 1, 2018. When you receive the letter of approval from the CRA, submit it to your employer to reduce the source deduction amount or adjust your instalment payments as required. Some of the tax deductions that can reduce the tax withholding at source are listed below:

• Will you be contributing a lot of money to your RRSP for the next few years?
• Are there significant child care expenses?
• Are you making any support payments?
• Does your employee contract or self-employment require you to pay for work-related expenses such as vehicle, lodging, supplies, or tools?
• Will you split pension income with a spouse in a lower income bracket?
• Are you anticipating costly moving expenses when moving for employment reasons?
• Do you have non-capital losses you can carry forward for a number of years?
• Do you pay significant brokerage fees to manage your investment portfolio?
• Have you borrowed for investment purposes?
• Have you purchased rental properties that will create rental losses for the foreseeable future?

CRA Interest Percentages

In the event you do not make sufficient source deductions or instalment payments, the CRA will charge you with interest and penalties of 5% on overdue income taxes. If you are overzealous and overcontribute to the treasury, the prescribed rate for refunds of overpaid tax is 3% for individuals.

Example

A single adult in Ontario earning $100,000 employment income had source reductions for 2016 of approximately $24,829 or $2,069 per month. If the anticipated RRSP contribution for 2016 was $12,000, the tax liability would have been $19,763 (using 2016 tables), an annual cash flow reduction to the CRA of $5,066 ($422/month).
If other factors increased the overall deductions to $20,000, total source deductions drop to $17,127 and thus reduce cash outflow to the CRA to approximately $7,702 ($642/month).
By filing the T1213 form, the foregoing scenario anticipates two-year reductions in cash outflow to the CRA ranging from $10,132 to $15,404. Rather than waiting for a lump-sum refund at the time of filing, these funds could be received each month and used to pay down a mortgage, reduce high-interest debt or invest in additional RRSP, Tax Free Savings Account (TFSA) or make other investments.

Keep Cash Advances to a Minimum

As personal debt and the cost of living rise, taxpayers should consider the financial advantages of ensuring cash advances to the treasury meet their obligations and nothing more. The advantages of reviewing the impending 2018 and 2019 taxation years with your CPA and forecasting the potential to put money in your pocket sooner, rather than later, is certainly worthwhile.

 

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

TECHNOLOGY

WiFi offers new retail marketing strategies.

The use of cut-out and email coupons to create consumer awareness of your business and your products has been around for a long time, but their effect on your revenue and profit is notoriously hard to measure. Some marketers are now hoping to get around this problem by offering WiFi services to their in-store customers to get them to stay within the store environment. This idea is based on the well-tested principle that the longer a person stays in the store, the more likely they are to buy something. In fact, a recent survey has shown that 62% of customers will linger longer in shopping environments that provide free WiFi. The same study showed that half of those customers actually spend more money while they remain in the store.

Let’s Use WiFi

This system works by informing the walk-in customer they have access to free WiFi as an incentive to stay in the store. It does not matter whether the person is using a smart phone, tablet or computer; WiFi is platform agnostic and will work with almost any mobile device.

SImplementations vary; however, most businesses either post a passcode, issue temporary time-limited codes (e.g., on the receipt) or leave the network open (i.e., without a passcode) but require the user to accept terms and conditions before accessing the Internet. Each approach has its pros and cons. If your business does not have the in-house expertise, there are companies that will set up and/or operate your WiFi network on your behalf. In either case, when a customer accesses your WiFi, they have provided either tacit or explicit approval for your business to pick up passive information about them. If you do not require the user to accept your terms and conditions, it is a good idea to have this information posted in your office or on your website. Do not forget to include provisions for capture, retention and analysis of the customer data.

Once the shopper is registered, the retailer has an opportunity for target marketing based on the interest the shopper is showing in products within the store. Incentives such as discounts can then be offered for use while the person is in the store or for an extended period. Electronic coupons can be customized to the user; if they get stale dated they simply disappear from the recipient’s device.

This system also collects data on customers.

This system collects data on the customer that lets you know how many times they have been on your premises and how long they spent there each time.

No Need to Download Your Apps

The simplicity of this approach is that the customer does not have to download your company’s Apps; you attract clients on a voluntary basis by simply offering them your WiFi. You can thus build a customer list of persons who have already shown an interest in your products and entice them back by sending them specials or having them review products on your log-in page.

This innovation has revived the interest in flyers and the use of coupons by reaching potential customers through devices that everyone has in their hand, purse or pocket.

Protect Your Business

It is a good idea to block illegal websites and services, such as torrent sites. If users access these sites using your WiFi, they may consume your bandwidth and slow down the service for your other customers. Content owners also do not take kindly to piracy, and may target the connection where the activity originated (i.e., your business); it is best to try to avoid potential hassles, fines or legal issues.

Worth Checking

Assuming your small business already has WiFi, and estimating an initial set-up cost of about $250 for communication hardware and a daily operating cost equivalent to a few cups of coffee, it is worth an owner-manager’s time to investigate whether this application will help their retail business.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

Self-employed people such as sole proprietors have until June 15^th to file income taxes.  However, note that the payment due date for any balances owing on your tax return was April 30^th.  The following are a few things self-employed taxpayers should be aware of.

First of all, when starting up your own business it is important that you determine the structure of your business.  There are 3 types of business structures to consider.

• Sole proprietorship
• Corporation
• Partnership

For income tax purposes, these structures have different tax implications.  Which is why it’s important to discuss with a tax expert a strategy for success.  When deciding which structure is best, one should consider the advantages and disadvantages of each business structure.

Sole Proprietorship

Advantages

• Easy and inexpensive to register.
• No corporate tax payments.
• Minimal accounting and legal fees to form and operate a sole proprietorship.

Disadvantages

• Unlimited liability (if you have business debt, collectors can make claims against personal assets to pay them off).
• Higher income taxes at your personal rate when the business is profitable.
• More difficult to raise capital from investors.

Corporation

Advantages

• Limited liability and asset protection (if you have business debt, collectors can only make claims up to your investment in the company.
• Corporate tax rates are only 13.00% for small business. This amount is going to decrease to 12.62% in 2017.
• Tax planning is much more effective when you are incorporated and profitable, since you only pay personal taxes on what you draw from the company.
• Income splitting and dividends (a corporation can choose the most tax effective strategy for paying owners or family members involved in the business).
• When it’s time to sell the business, you are selling an independent entity and may be eligible for a one-time capital-gains tax exemption of $800,000. A sole proprietor may not claim this exemption.

Disadvantages

• Higher accounting and legal fees to maintain and startup the company. Typical legal fees range from $1,000-$1,500 to have a lawyer incorporate your business.
• Double taxation. You must file an annual corporate tax return in addition to your personal tax return.
• As a sole proprietor, you can use business losses against other types of income, as a corporation the losses may only be used in the corporation, however, these losses can be carried forward or back to reduce income tax of other years.
• When you want to close a corporation, there is more paperwork involved to dissolve the company.

Partnership

Advantages

• Easy to establish and low startup costs.
• Inexpensive to maintain.
• Ability to pool resources and share financial obligations.
• The partnership doesn’t file its own taxes. Each individual partner files their own tax return.

Disadvantages

• Liability of the partners in unlimited.
• Disagreements among partners.
• Partners are taxed at personal tax rates which are much higher than a corporation when the business is profitable.

Plan Sooner Rather Than Later

It’s very important to decide the structure of your business when you are first getting started.  Once the business accumulates assets and liabilities, there is much more complex accounting work to be done when switching from a sole proprietor to incorporated.  Also, tax planning strategies cannot be put into place retroactively.  Therefore, it’s very important the right business structure is selected from the get-go.

Owners or prospective owners of small businesses should work with their accountant and lawyer to determine what business structure is right for them.

Do you need help filing your tax return? Contact Argento CPA today!

TAXATION

Develop a strategy for distributing earnings and reducing corporate income taxes.

For most owner-managers, their goal is to create personal wealth through the operation of a successful business. Unfortunately, corporate and personal tax liabilities (among other things) stand in the way. Owner-managed businesses must struggle with tax on two fronts:

• making a profit while minimizing the corporate tax liability
• minimizing personal taxes while taking remuneration out of the company.

Have a Strategy

The first step to minimizing personal and corporate taxes is to put a tax strategy in place. Such a strategy depends on each individual owner’s personal cash-flow needs. Because tax rates applicable to corporate income are often lower than to personal income and because this differential is only levied when the owner-manager withdraws the funds, taxes can be deferred to the extent such income is left in the corporation.

Often, this is not a realistic option since the owner-managers may need all or most of this business income for personal use. Then the owner-managers must remunerate themselves in the form of:

• salary
• dividends
• a combination thereof.

Deducting salary expenses reduces taxable income and lowers corporate income taxes. However, because dividend payments are not a deductible expenditure (i.e., it is a distribution of profits), corporate taxes will be higher. Personal income taxes applicable on the dividends are lower than on salary to adjust for the difference (i.e., tax integration).

Tax integration works well for corporations earning active income under $500,000 as the “combined” (i.e., corporate and personal) tax rate differential is minimal (though it varies for different provinces). Therefore, employees are normally indifferent whether they receive salary or dividends, aside from how each affects CPP deductions or RRSP contribution room. However, this is not the case for corporations earning active income above $500,000 as the “combined” tax rate applicable to this layer of income is higher roughly by two-to-five percentage points depending on the provinces.

Avoiding High Tax Rates

Because profits in excess of $500,000 are not eligible for the small-business deduction, consideration must be given to declaring a salary that will drop the corporate taxable income below the $500,000 limit. By declaring a salary, taxpayers do not have to lose two to five percentage points.

After this decision is made, however, employees may find themselves in a higher personal income tax bracket because this remuneration must be added to the regular salary and other benefits received.

Once your personal taxable income exceeds predetermined thresholds, the rate on any excess amount rises significantly. For example, the rates in Ontario for tax year 2016 are scaled as follows for taxable income in excess of:

• $150,000 (47.97%)
• $200,000 (51.97%)
• $220,000 (53.53%).

Sometimes corporate taxpayers may want to be taxed at the higher corporate rate (i.e., decide not to pay the corporate income out in salaries) and leave the corporate income in excess of $500,000. Because the higher corporate rate still provides much lower “immediate” taxes, the corporate taxpayers may choose to pay the extra two-to-five percentage points if their rate of return on the deferral can exceed this eventual cost. Again, such strategy depends on the particular owner-manager’s annual cash flow needs and circumstances.

Be careful when purchasing capital assets.

Avoiding High Tax RatesPurchasing Capital Assets To Save Corporate Taxes

Many owner-managers believe that purchasing capital assets will significantly reduce corporate taxable income. Certainly, purchasing assets will reduce taxable income, but not as significantly as one might believe. Two factors come into play:

• The capital cost allowance permitted by the Canada Revenue Agency (CRA) is a percentage of the cost of the asset and not the entire cost.
• The half-year rule usually comes into play in the year in which the asset is purchased, which restricts your percentage by another 50%.

Example:
Your business purchases equipment for $300,000, which is subject to the prescribed depreciation at the rate of 20%. Therefore, in the year of purchase, your business can deduct $30,000 (i.e., $300,000 × 20% × 50% half-year rule) which only represents 10% of the total purchase price. Assuming the 15% small business rate in Ontario, this provides a tax benefit of $4,500, which is minuscule compared to the actual spending.

The primary purpose of purchasing capital assets should be the need for the capital asset in the business; the tax savings should never be a main objective in arriving at this decision. The need to consider other aspects of purchasing, such as cash flow requirements to meet loan obligations as well as additional expenses for insurance, upkeep and operational costs, should be primary considerations in the decision-making process.

Family

To achieve tax effectiveness, owner-managers may consider bringing family members into the business. There may be benefits to distributing profits through salary or dividends to family members earning lower incomes. However, a caution must be given in both situations. For salary, the amounts paid to the family members must be reasonable and should be a fair consideration for their efforts. For dividends, the family member must own the shares and ensure there is no conferral of benefit when transferring the shares to them. Also, the owner-manager must consider any ownership and control issues consequent upon giving shares to family members.

Bringing family members into the business may also be useful as a long-term strategy in order to reduce or defer the overall impact of personal and “combined” taxes should the owner-manager suddenly die or decide to take early retirement.

Aside from tax objectives, succession planning is also essential should family members want to be part of your successful business. When there is more than one owner, bringing family members into the business needs to be discussed before any problems arise. Original owners will not only want to protect their percentage ownership in the business but will also want to ensure their remuneration is not impacted by distributions to others.

Tax and succession planning require careful review of everyone’s intentions and circumstances and are often technically complex. Your CPA and solicitor should be able to provide guidance as to how to structure ownership through different classes of shares that protect existing owners while providing new shareholders with the rewards of ownership. Such carefully restructured shareholdings can selectively distribute dividends so all shareholders can receive the rewards of ownership and tax savings without undue stress on corporate cash flow.

Plan Early

Because most tax-planning strategies cannot be put in place retroactively, leaving tax planning until the end of your fiscal year end is not a good idea.

Owner-managers should work with their CPA early in the development of the business to establish long-term goals. From then on, they should meet with their CPA annually to monitor whether the goals are being realized. Any adjustments necessary to ensure current financial needs are being met and that the long-term strategy required to build wealth for retirement or succession is on track can be made at these meetings.

 

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

MONEYSAVER

Start planning now for interest rate increases.

Historically low rates have encouraged borrowing for equipment, real estate, operating lines of credit and everyday purchases. How much longer interest rates will remain at these levels is an open question but now is a good time to start thinking about the potential impact of higher rates on your business and personal life.

Potential Effects of Higher Interest Rates

Here are some of the effects higher rates could have on your business:

• Higher interest rates will drive up the cost of operations, manufacturing and delivery, which will force small businesses to either increase prices or face a smaller bottom line. If prices go up, consumers cut back their purchases if they need to borrow for vehicles and mortgages, or use lines of credit.
• Any resulting cash crunch may force customers to stretch payment time on their payables. This makes you your customers’ banker.
• Payout periods of as much as eight years for equipment and vehicles have led many purchasers to believe that if they can make the monthly payments they can afford the asset. But, as the years pass, the warranty expires, the vehicle value plummets and repair bills mount. It may be difficult to finance a replacement if a significant amount is still owing.
• Personal finances are affected as well. A salary increase decreases company profit while increasing personal income taxes.
• Financial institutions become more selective. New companies without credit ratings may find it impossible to obtain a loan. Established companies may not be able to extend lines of credit.

Review income statements and balance sheets.

Proactive Planning

The following suggestions may help reduce the impact of rising interest rates on your business:

• Review your corporate income statements and balance sheets for the last five years because they reflect the lower cost of outstanding debt as well as the historical cost of your operating assets. Calculate the impact on the corporate bottom line if interest rates increase by two, three or more percentage points.
• Review your asset base. Determine what assets will need to be replaced within the next five years and estimate their replacement cost. If sales and expenses in the next five years remain the average of the last five years, would the increase in asset cost, combined with the need to borrow additional funds at higher interest rates, put undue stress on your operational capability?
• Review your personal debt at the same time as you review the corporate financials.
• Start building a cash reserve within your business.
• Consider reducing the long-term payouts on equipment and vehicles.
• Lock in existing secured loans.
• Lock in mortgages.
• Start incremental price increases to avoid a sudden and dramatic increase that may scare off clients if imposed later.
• Reduce the number of days outstanding for accounts receivable. Review your client base with the goal of reducing the lines of credit granted. Negotiate new payment terms with your long-term customers.
• Consider deposits on all jobs. Potential customers should understand that there are up-front costs that must be paid for, and that you are not a bank but a contractor.
• If your business has credit card balances or lines of credit with high interest rates, pay them off. If business credit cards are essential to your business, structure cash flow to pay off monthly balances.
• Use a percentage-of-completion method for payment on long-term contracts. If payment is not made as arranged, stop working. Better to walk away with a 20% loss then a 100% write off.
• Review all sources of company credit. Eliminate those with variable rates. Fledgling entrepreneurs should work to establish a line of credit with their financial institutions and increase it over time to ensure that in the future, that line of credit is still available.
• More established businesses should work to reduce the debt on their lines of credit in case a buffer is needed to meet short-term cash needs.

An Ounce of Prevention …

Should interest rates start to rise, the trend is likely to continue upwards. Owner-managers should start now to model their business activity in potential future economic and credit conditions. Business plans derived from these models will help ensure the continued success of their business and family finances when the 2020 decade rolls around.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca

MANAGEMENT

The more things change, the more they stay the same.

No matter what the economic conditions, some business worries never go away. Here are a few tips on how to handle some of these eternal problems.

Cash Flow

Customers will continue to extend payments over 90 days.

Understand your cash flow. At the end of each week, review accounts receivable, and accounts payable and make sure you know what you must pay in withholding taxes. Do not use your source deductions to pay suppliers unless those deductions are actually in the bank. Send requests for funds to suppliers before the end of the month.

Owner-Manager Fatigue

Overworked and underpaid will continue to be the mantra.

Learn to pace yourself. Work to make money not save money. Work at what you do best and delegate the rest. Consider that if you work 2,000 hours per year and your business has sales of $400,000, you are effectively generating $200 of revenue per hour. Ask yourself why you are trying to learn how to do something a subcontractor can do in a day.

Maintaining Customer Base

Maintaining clients while working to get new ones is going to be a challenge.

In tough times, even long-time customers may ask you to cut your costs or they may cut back their orders. Review the profit on your best customers, not just their sales volume. Visit the customer and find out their expectations for the coming year. Consider limiting services to marginally profitable customers.

Employers

Finding and keeping good employees is never easy.

Older employees may retire and good employees may leave. New, inexperienced employees do not solve short-term problems.

Happy employees are loyal and productive. Be approachable. Let employees tell you what they need. Employees always appreciate a bigger pay cheque, but a good working environment and feeling valued will also go a long way to keeping employees.

Overhead

The cost of everything will continue to rise.

Capital asset costs, fuel, property taxes, light, heat, power, insurance, and maintenance will continue to rise and put pressure on your cash flow. The same cost pressures will also affect the standard of living of your own family and the families of your employees.

Evaluate all aspects of business costs and perks. Look at discounts, value added and other incentives provided to clients. Review perks to employees and determine whether there are more economical solutions that will retain the good will of the employees but not put more pressure on your cash flow.

Technology and Changing Demands

Keeping up with new developments will be a challenge.

Changes in technology, process, or client needs require training and financing to transition from the tried and true. Budget for the inevitable or you risk being outflanked by the competition.

Social media is changing the entire marketing process.

Marketing and Advertising

Connecting with customers will continue to be a challenge.

Maximizing your brand is difficult at the best of times; unfortunately, social media is making the entire marketing process even more problematic. Analyze your market and decide whether the best way to reach potential customers is: one-to-one contact, social media, online advertising, television, radio, newspapers, or magazines. You may find that more and more dollars have to be spent to create a cross-media presence that provides the same information without any guarantee of a return on investment.

Consider a short-term contract with a marketing specialist to review your company and its client base to help determine the best combination of media to reach your target market. Then, develop a plan to deploy your advertising budget to the appropriate media.

Maintaining Control

Managing all sectors of the business will continue to be a challenge.

Managing sales, manufacturing, ordering, marketing, human resources and administration as well as dealing with the considerable number of regulatory agencies will continue to become more complex. Trying to do everything yourself will undoubtedly lead to failure in one or more areas.

Control your business by managing rather than doing. Find the best person to run each particular part of the business. Define their responsibilities with a detailed and accurate job description and schedule regular reports. This will enable you to understand what is happening within the organization, solve problems and improve operations. Have faith in your subordinates.

Regulations

Red tape is and will continue to be the nemesis of small business.

Research suggests that these compliance issues consume eight weeks of employee time per year.

Because collecting and providing information to governments and regulators cannot be avoided, owner-managers should institute in-house procedures and write manuals. Reduce the use of employee time and associated costs by purchasing reporting software. If you do not have in-house expertise, arrange for a third party to prepare regular reports. Filing reports correctly and on time eliminates the cost and stress that follows from non-compliance.

Plan Ahead

The size and complexity of these and similar issues will move forward in lockstep with the business. Analyzing each potential conflict area and developing a process to stave off potential problems is an excellent offensive tactic that will lessen the cost and uncertainty of moving forward for the balance of 2017 and beyond.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members.
Richard Fulcher, CPA, CA – Author; Patricia Adamson, M.A., M.I.St. – CPA Canada Editor.
Contact us: patricia@adamsonwriters.ca