Category: Insights

Let’s Incorporate

Post author By margento
Post date February 8, 2016

INCORPORATION

The incorporation process is relatively simple whether you incorporate provincially or federally.

As a sole proprietor, you may be looking back at last year’s results and ahead to the time you have to pay your taxes, and wondering whether you might not be better off incorporating to control the income tax expense on earned income. In Canada, a company may be incorporated provincially or federally. Federal incorporation has some advantages:

You can carry on business in any provincial jurisdiction using the federally approved name.
The head office can be in any province.
Books and records can be maintained in any province.
Annual meetings can be held in any province or territory.
If you are incorporated provincially and wish, for example, to move your business from Alberta to Manitoba, it would be necessary to dissolve the Alberta corporation and reregister in Manitoba or apply for a discontinuance in Alberta and apply for a continuance in Manitoba. If your business is incorporated federally, you need only file Articles of Amendment indicating the head office is moving and register an extra-provincial corporation in its new home province.

Whether you are thinking of incorporating provincially or federally, the following are a few areas to consider:

Naming the Company

The corporation can have a name company or a number. If you incorporate using a number, you may also use a name (i.e., 1234567 Ontario Ltd. could also register itself as “Able’s Horse Stable”.) This name becomes “attached” to the registered number.

When conducting business using the trade name, you must still identify the company by its registered name. For instance, sales invoices could show “Able’s Horse Stable” but should indicate that the actual incorporation name is 1234567 Ontario Ltd.

The name chosen cannot be either identical or deceptively similar to existing registrants in the province. The name or number must be identified as a corporation by using the French or English forms of “limited” or “incorporated”.

Location

The head office of a provincially incorporated company must be located in the province of incorporation. The head office is usually at the same location as the operations but, if there is more than one operating location, a choice can be made.

Ownership and control are determined by the number of shares held.

Ownership

Shares must be issued in order for the company to be owned. The owners must decide among themselves the minimum number of shares that will be owned by each shareholder. The shares provide the owners with voting rights. Whether the corporation issues 10,000 or only 50 common shares with voting rights, the degree of ownership and control are determined by the proportion held by each individual. The value of each share is decided at the time of issue. If share value was set at $10 per share, then the holder of, say, 5,000 shares would have to remit $50,000 to the corporation to purchase ownership.

Private corporations may not have more than 50 shareholders. The residential addresses of all shareholder(s) must be provided for notification purposes.

Directors

All corporations must appoint at least one Canadian resident as a director. If four or more directors are appointed, 25% must be Canadian residents. The residential address of the directors must be provided along with the residency status.

Officers

In owner-managed businesses, it is not unusual for the shareholder(s), director(s) and officer(s) to be one and the same. It is not a requirement for officers to own shares or be directors of the corporation. However, in that officers manage the operations of the company, they are held to a high standard of stewardship and thus the appointments should not be taken lightly. The residential addresses of the officers must be provided.

Year-End Date

You will have to determine a fiscal year-end date for the corporation. Depending upon the date of incorporation and the business cycle, you may choose a year end other than the calendar year end. It is advisable to speak to your CPA about the best month end for your type of business and to maximize tax-deferral possibilities.

Auditor or Accountant?

Provincial acts of incorporation may require audits of financial statements. This requirement can be waived for non-publicly traded companies as long as all of the shareholders agree to waive the audit provision. Consent to waive an audit is required each year. Most business owners, their banks and creditors do not require audited financial statements; waiving audit provisions in favour of reports provided by a CPA is an acceptable alternative.

Even though the appointment of an auditor may not be required, it is wise to consider appointing a CPA as part of the incorporation process to assist in setting up the required books and records, tax accounts, business number, WSIB, employee payroll remittance accounts, HST or PST accounts and all the other regulatory registrations that may be specific to your business.

Seek Professional Advice

Incorporation requirements vary from province to province. The guidelines above are provided as general consideration as to what is normally required. Entrepreneurs considering incorporation should seek professional assistance in their jurisdiction to ensure the appropriate steps and documentation meet the requirements under their provincial incorporation act.

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

Insights

Crowdfunding

Post author By margento
Post date February 7, 2016

TAXATION

Crowdfunding is a new way to raise money; however, be careful of the tax implications.

One of the latest means of raising money to start a new business, raise operating funds, or tackle costly research and development projects is to make a broad-based appeal for funds with crowdfunding. Crowdfunding is not new; it was used in the nineteenth century, especially in small communities, to fund local projects through subscription. For example, the monumental base for the Statue of Liberty was financed by a New York newspaper that gathered small donations from 160,000 donors. More recently, it has been used to fund tours of rock bands, and to produce movies, video games and inventions.

Social media have expanded the use of crowdfunding. Social media make it possible to reach a large audience that might be willing to make personal contributions for families with unmanageable medical bills, or to help needy individuals recover from catastrophic personal financial loss.

Why crowdfunding is so beguiling is anyone’s guess, but its success cannot be understated. In 2013, an estimated $51 billion was provided to crowdfunding appeals around the globe.

Crowdfunding and Business

Business entrepreneurs have also discovered crowdfunding as a new means of raising funds because it creates an alternative to traditional financial institutions. Further, the receipt of funds from complete strangers through crowdfunding removes the need for a business to provide the donor with shares, a promissory note, or to pay interest or dividends. At first blush, the recipient might think crowdfunding income meets all of the criteria of a windfall.

Crowdfunding is treated as income and therefore is subject to tax.

Not a Windfall

Because funds raised through crowdfunding are not a windfall or gift, they are treated as income and thus, are subject to income tax.

According to a Dec. 9, 2014 Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime, the CRA states that crowdfunding is a taxable benefit. As a starting point, the income tax folio states:
1.5 However, sometimes individuals receive a voluntary payment or other valuable transfer or benefit by virtue of an office or employment from an employer, or from some other person. In such cases, the amount of the payment or the value of the transfer or benefit is generally included in employment income pursuant to subsection 5(1) or paragraph 6(1) (a). (See also Guide T4130, Employers’ Guide — Taxable Benefits and Allowances.) Similarly, voluntary payments (or other transfers or benefits) received by virtue of a profession or in the course of carrying on a business are taxable receipts.

The Folio continues with an example specific to crowdfunding:
Assume a business uses crowdfunding as a method of raising funds for the development of a new product and the contributors do not receive any form of equity. The amounts received by the business would be included in its income pursuant to subsection 9(1).

Subject to Tax

Whether the business organizational structure is a proprietorship, a partnership or a corporation, funds received from crowdfunding are subject to tax. If, as part of the crowdfunding activity, consideration is provided in the form of thank-you plaques, pens, T-shirts, etc., then these costs are deductible expenses. In addition, many campaigns raise money for a particular purpose. If spent for that purpose, little or no taxable income may result. If one also considers that financing costs are minimized along with the need for debt repayment and perhaps personal guarantees for the borrowed money, the income tax cost, if any, may not be onerous.

Selling Ownership

Some entrepreneurs want to use crowdfunding to raise equity capital. Securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia have implemented or expect to implement registration and prospectus exemptions that will enable start-ups and early-stage companies to do just that. Companies will be allowed to raise up to $500,000 in a year through approved Internet funding sites. No more than $250,000 of this can be raised in one offering, however. No individual can invest more than $1,500 per distribution. People will have the right to withdraw their money within 48 hours. Ontario has decided to develop separate standards. As would be expected, funds raised through an equity issue are not taxable to the recipient company, but any dividends or capital gains received by the contributors will be subject to income tax.

Be Aware of the Tax Implications

Raising money through crowdfunding, whether for operational, developmental or equity issue, is a relatively new means of raising funds and many budding entrepreneurs may not realize the tax implication of receiving crowdfunding money. For businesses or corporate entities considering using crowdfunding as a means of generating operating capital, it would be wise to consult your chartered professional accountant to determine the amount of tax for which they may be liable.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

I Hear You

Post author By margento
Post date February 6, 2016

MANAGEMENT

Effective communication is the key to effective management.

The new technologies may enable us to send and receive messages at the speed of light, but the understanding and interpretation of those messages still depends on the clarity of the message itself. A meeting or set of instructions is worthless if its message is ambiguous.

Hearing is something we do all the time. Listening, on the other hand, is the process of decoding, understanding, and retaining what we have heard. As a result, management and staff have a vested interest in ensuring that the message presented is the message received, and that what is said is what is heard.

Management must be sure the message is clear and concise and that the listeners have the skills to understand the information as presented. Having listening skills is essential to absorbing and comprehending the message.

To improve your listening skills, consider the following.

Turn off your smartphone.
Pay absolute attention to the presenter. Listen not only to the words but also to intonations of the voice and observe the body language. These markers communicate as much as the actual words because they provide indications of the importance attached to specific subject matter.
If you are listening to a formal presentation, save your questions until the end. Everyone will benefit from hearing the uninterrupted flow of the speaker’s argument. This allows the presenter to complete the line of argument and perhaps actually answer your question before you even ask.
Phrase your question carefully. You must be specific in your question to receive a specific answer. Do not ask open-ended questions. A well-structured question relates directly to what has been presented and simplifies the work of the presenter.
Do not interrupt the speaker’s answer to your question. Interruption redirects the presenter’s thinking and, as a result, the response may not be as in-depth as it should be.
Always acknowledge the answer to provide closure to the presenter and other participants.
There is a difference between not understanding a topic and not understanding what a presenter has said. Often a presenter’s syntax may leave you wondering just what was meant. If that is the case, seek clarification by raising the issue and presenting the thought in your own words. For instance, if the presenter were to say: “Well, that is water under the bridge” and you did not quite understand the idiom, you might ask: “Did that last comment mean the issue is behind us?”
Leave your personal biases and opinions at the door. We all have an opinion on how the system should operate but clinging to one idea closes the mind and does not allow for understanding of the other point of view, nor does it encourage the creation of a dialogue or the possibility of creating an entirely new process.
Presentations are built from the ground up and contain snippets of information that may seem off topic to the listener but are part of the larger message. If you are unsure about the relevance of the specific item, make a note. When it is time for discussion, ask a question to get clarification as to how the point ties into the overall project.
When colleagues ask for clarification, let the presenter handle the question. Do not distort the question by interrupting or adding your opinion unless asked by the presenter to do so.
As well as listening to what is being said, it is important to listen for what was not said to determine whether there is a subtle message not being brought to the forefront. (By way of explanation: If a presenter indicates that 30 new staff will be hired, is the hidden message that people may be let go?)

Keep Their Attention

The presenter’s role is to get and keep the listeners’ attention. An attentive and involved audience is more likely to retain more information. Researchers have discovered that those who attend a 10-minute presentation retain only 50% of the topic presented. To involve participants in listening, the presenter should keep the following in mind:

Know your audience. Know what they need to know and do not talk over their heads or treat them like simpletons. For example, an engineer would present the same information one way when talking to fellow engineers and in a different way when addressing salespeople to upgrade their product knowledge.
Make sure you have the central point of your presentation clear in your own mind.
Be enthusiastic and entertaining. No one benefits from a dull, monotonous, fact-filled presentation.
Indicate the length of the meeting, its purpose and the topics to be covered. Explain what attendees are expected to know at the end of the presentation.
Ask for the participants’ attention. Request that all smart phones be turned off.
Keep the meeting short and on topic.
Be prepared. Know your topic better than the participants. Anticipate any questions they may have.
Do not wander off topic with anecdotes but use plenty of simple illustrations.
When participants raise enquiries outside of the agenda, indicate that the issue is outside the scope of the discussion and ask them to talk with you about the issue after the presentation.

Check your equipment before starting the presentation.

Make sure beforehand that all your equipment is working. Check and double check that your projector, computer and software are working. Always have backup available.
If the Internet is necessary, be sure it is on line and working.
Toward the end, summarize the main topics and line of argument.
Close by restating the purpose of the meeting and how the subject matter achieved this purpose.
Reiterate the goals and ask individuals if the presentation, in their opinion, met specific goals that you had hoped would be obtained.
Provide a hardcopy summary of the presentation at the meeting or later on the corporation’s website.
Stay within the time allowed.

Responsibilities

Employees and employers have a responsibility to ensure that what is communicated is understood by the one receiving the communication. Good listening skills enhance efficiency, effectiveness and harmony within the work place.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

Dashcams

Post author By margento
Post date February 5, 2016

TECHNOLOGY

Dashcams can provide the key evidence in a vehicle accident or fraud claim.

According to Transport Canada, automobile collisions in 2013 resulted in 165,306 personal injuries, of which 10,315 were serious and 1,923 were fatal. These statistics do not take into account the thousands of fender-benders that are not included in Transport Canada’s data. According to the Allstate 2015 Safe Driving Study, rear end collisions accounted for 25% of all accidents while turning at intersections was a close second at nearly 24%. Interestingly, almost 14% of reported accidents involved a parked vehicle.

Owner-managers have need to be concerned about accidents in company-driven vehicles. It may be worth considering outfitting your company-owned vehicles with an onboard camera, better known as simply a dashcam. Typically, a dashcam is used to continuously record video through the windshield. Having a dashboard camera in your vehicles could provide evidence regarding an accident which may help to mitigate legal or settlement costs, as well as to provide detail to establish the driver’s responsibility.

Must-Have Features

Get the best video resolution you can afford; for better results consider models that record in at least 1080p High Definition (1920 x 1080 pixels); additionally, quality night recording capability is a must.

The viewing angle (i.e., how much of the world the camera can see) is an important consideration. A wide-angle lens such as 160-degrees may capture more in the frame but may produce a more distorted image; narrower lenses are more likely to pick up sharper details.

Loop recording automatically overwrites the oldest footage.

Almost all dashcams should have loop recording that automatically overwrites the oldest recording when the storage card becomes full. Choose a dashcam with a G-sensor. The G-sensor automatically indicates when the vehicle is involved in a collision or if there is a need for emergency braking. This specific footage will not be deleted by the loop recording. Given the number of claims involving a parked vehicle, a motion detector feature may prove handy. Upper-tier dashcams should incorporate a buffered parking mode that continuously records what is happening while the vehicle is parked but does not record to memory unless stimulated by the G-force sensor or by the visual motion detector program.

Auto start should be standard. Every time the vehicle is started the dashcam should start recording automatically so that the driver does not have to remember to turn the device on. On the flip side is the need for automatic shut off to avoid draining the vehicle’s battery.

Battery drain is a problem with some dashcam models because they run off the vehicle’s power. Consider models that either contain their own battery for when the car is off, or can automatically shut off when they detect the vehicle’s battery is getting too low to start the engine.

You may wish to consider a unit with a GPS option. Having GPS support most likely does not include any navigation assistance, but it can record the exact speed and position of the vehicle. Some units have the GPS built in and others can connect to an existing GPS device to receive that data.

Date and time stamp are a must. That said make sure the date and time are set up properly. Check the settings occasionally and recalibrate as necessary.

Forward-looking cameras are great, except that when one considers that 25% of accidents happen from behind, it makes sense to consider a Dual Channel model: in addition to the forward-facing camera, some units include a second camera that can be used to look through the rear-view mirror or be mounted in the rear-window.

In that dashcams are mounted at the top and near the centre of the windshield ensure that the power cord is long enough to permit concealment in the vehicle’s window seals whether or not the device is plugged into the dash power source or directly mounted to the vehicle power source.

Memory is extremely important. The more memory available, the longer the camera can run without having to over-write older video. Some units may include a smaller memory card than the maximum they can support. Because memory cards are relatively inexpensive, you may wish to consider maxing out the memory. Do not settle for less than a 64 GB SD card; 128 GB would be even better.

WiFi ranges from a useful feature to an absolute must, depending on the model. Some models include a built-in LCD screen to view and replay recordings right on the device. However, for models that do not include a screen, you may be able to view and download videos from the dashcam to a smartphone or tablet using a WiFi connection. WiFi also allows an easy way to retrieve videos from the dashcam without having to remove the physical memory card.

Check Provincial Regulations

It should be noted that at least one manufacturer combines a radar-detector product with dashcams, which can help users share information on radar and red light cameras, as well as other traffic issues. Before purchasing these devices, check with your province as to whether the units are legal. Further, if vehicles will cross provincial boundaries it would be prudent to determine which provinces discourage or have outlawed radar detectors; the penalties may range from confiscation of the device to stiff fines.

Expensive But Worth It

Inexpensive dashcams can be found for under $100; however, feature-rich models will likely cost about $400-500 per vehicle. Having a recording from a high-end dashcam can go a long way to providing evidence in the event of an accident or a fraudulent insurance claim. As well, they will provide information to monitor employees’ driving habits and check the routes being driven.

Can your business afford to be without a dashcam?

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

Happy New Year!

Post author By margento
Post date December 8, 2015

PERSONAL FINANCE

The end of the year is a good time to review long-term investments and mortgages.

New Year’s resolutions. So easy to make, so hard to keep. According to a Nielsen survey, the most common resolution for 2015 was to keep fit. A resolution to spend less money and save more was only the fourth most popular after lose weight, and enjoy life to the fullest. As we are about to enter 2016, perhaps we should all resolve to pay more attention to spending and saving and the effect on our investment portfolios and mortgages in the coming year.

Review Your Investment Portfolio

Start with investments outside the RRSP or RRIF.
Calculate the gain or loss between the end of 2014 and the end of 2015.
Review your statements for the entire year.
Calculate investment fees paid.
Identify withdrawals or contributions.
Net your gains against your losses.
Calculate the percentage return on investment after deducting the cost of fees paid to your broker, financial advisor or mutual fund manager.
Using this rate of return and a compound interest table, assume a constant rate of growth and calculate what the investments could be worth by the time you want to cash them in.
Calculate the potential future value assuming:
a) a regular annual capital infusion
b) no capital infusion.
Using different rates of return, calculate how much additional capital must be

Review Your RRSP

For self-employed persons and those not in pension plans, the RRSP probably represents the principal source of retirement funds. As such, the capital gains and income generation should be monitored closely. Perform the exercise mentioned above on your RRSP portfolio to determine whether the future value of your RRSP investments will be sufficient when you can no longer contribute and have to roll the RRSP into a RRIF in the year you turn 71.

If you discover the calculated rate of return on the RRSP and your current level of contributions will not meet your investment goals, discuss the various options available to you with your investment advisor. Perhaps you will need to restructure the balance between equities and interest-bearing securities, increase the risk or increase your contributions. Keep in mind, however, that higher rates of return usually bring a higher risk of a loss.

Now is also the time to review your RRSP contribution limit to determine any unused amount. Do not forget that unused annual contribution amounts are carried forward. If you find a fairly large balance of accumulated contribution room, you and your advisor may be able to develop a strategy to meet your investment/retirement goals.

Funds can be withdrawn from a RRIF into a trading account or a TFSA.

Review Your RRIF

If you have already rolled your RRSP into your RRIF, review the RRIF portfolio using the procedure outlined above. There is a mandatory withdrawal rate based on a predetermined percentage. (This information is available from CRA or from your investment advisor.) Review the current value and rate of return. Remember that the withdrawal rate simply determines the portion of the RRIF that must be deregistered each year and brought into taxable income. It does not mean you have to sell that portion of your portfolio every year. In a self-directed plan, for instance, the taxable amount can be transferred in kind into a trading account and thus remain part of your total investment portfolio for future use.

Instead of having a trading account to receive the securities withdrawn from your RRIF, you could move them into a Tax-Free Savings Account (TFSA) if you have the room. Future capital gains and income within the TFSA are not taxable.

Review Your Mortgage

Reviewing your mortgage should be part of any New Year’s resolution. Look at the current balance and determine when the mortgage will be completely paid off at the current payment rate. Ideally, your mortgage should be fully paid before retirement so you do not retire still having to withdraw funds from your RRSP or RRIF to meet mortgage payments. Review the mortgage agreement and identify any lump sums that can be paid to reduce the remaining balance owing. Use an amortization table to calculate the number of years by which the life of the mortgage can be shortened by doing any or all of the following:

a) finding a better interest rate
b) changing the payment frequency from monthly to weekly, or
c) making a lump sum payment.

Work with Your CPA

Whether projecting income within your investment or retirement portfolios or calculating a strategy to reduce your mortgage, amortization tables will help you with those calculations. Work with your CPA to provide unbiased feedback on the choices available to you in your particular circumstances. The decisions you make now will impact not only your lifestyle but personal income taxes in the future.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

Marshmallow, Anyone?

Post author By margento
Post date December 7, 2015

TECHNOLOGY

Security of the mobile devices used in your business should be a primary concern.

Because mobile devices are able to take on more and more tasks traditionally performed by desktop computers, work done in an office environment can increasingly be done almost anywhere. As a result, the security features of the mobile device and platform should be important considerations for your business.

Encryption

Marshmallow devices ship with full-disk-device encryption enabled by default although some exceptions are permitted for lower-end models that do not have sufficient computing performance to encrypt on the fly. Encrypting the entire storage capacity means all data and apps stored on the device will be essentially unreadable without the cryptographic key. Google has also enhanced the Verified Boot function, which checks to see whether the operating system has been tampered with.

If you are concerned about encryption on your other computing devices, full device encryption is available on Windows and Mac computers and is already on by default for iOS devices.

Flex Storage

A number of Android devices over the years have included a Micro SD card slot, which allows you to add more storage capacity. Most current models no longer ship with this feature; however, that may change with Marshmallow. Google’s Flex Storage feature allows the expandable storage to be formatted, encrypted and integrated with the main memory. This offers a secure way to substantially increase the capacity of your device without having to micro-manage what gets stored where. The downside, however, is that the memory becomes more or less permanent: if you remove your Micro SD card, apps stored on it will stop working; since it’s encrypted, anything stored on the card will not be readable on another device. Currently, iOS devices do not offer expandable storage as a feature.

Apps in Marshmallow request access to functions the first time they need them.

App Permissions

One of the biggest new security features in Marshmallow is a substantial change to the way apps may be granted access to certain functions. Previously, an app would request access to all functions it supported at the time of installation from the Google Play store. Apps in Marshmallow now request access to functions the first time they need them, such as a camera app requesting permission to use the camera. If an app requests access to a function you don’t think it should have, you can say no and the rest of the app should still work normally. Permissions can also be reviewed and individually revoked at any time from the Settings. In iOS, app permissions already have this level of granularity.

Auto Backup

Another security feature is the automatic backup to Google Drive. Google will back up your data as long as there is a WiFi connection. Thus, if your device is lost, stolen or broken or if all your data is wiped out, you can restore it onto a new Android device. The iCloud Backup feature on iOS provides similar backup and restore capabilities.

Fingerprints

Marshmallow includes support for fingerprint recognition as part of the operating system. This will allow other app creators to more easily make use of the fingerprint reader via an API (application programming interface). Google’s own services will also support the fingerprint scanner for authentication, such as authorizing a purchase in the Google Play store. Apple’s TouchID feature supports fingerprint authentication on devices with a fingerprint reader; all current iPhone models and most iPad models now include TouchID.

Other Features

In addition to security enhancements, Android 6.0 Marshmallow also includes a number of other features, such as Now on Tap, which integrates Google’s search nearly everywhere on the device. Hardware support for the new USB 3.1 standard, with the Type-C connector (easily insertable on the first try since there is no correct “up” side), is also included.

Get the Right Features

The mobile platform you choose for your business will depend on a number of factors. Security is important, but you will likely also need to consider the app ecosystem, app availability and potentially cross-platform interoperability. If you need a specific app that is only available on one platform, you will need to consider that too. Likewise, many popular apps are available on both Android and iOS. You may also want to give consideration to employee preferences; some employees will not care, but some will have a strong leaning for one platform over another.

A word of advice: do not go low end for your business. A high-end or mid-range device is more likely to include newer capabilities, which are not always easily dismissed as “bells and whistles”; good security features like full disk encryption and fingerprint scanners require better hardware. You only get what you pay for.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

Tax Benefits for the Self-Employed

Post author By margento
Post date December 6, 2015

TAXATION

There are many tax advantages for self-employed Canadians who work from home and hire family members in their business.

The December holiday season is a time for home and family. This year, if you are self-employed, you may want to consider incorporating home and family into your business to create tax benefits for both the business and the family. Consider the following opportunities to reduce your taxable income and thus increase the amount of money left over to support your family.

Individuals in a 40% tax bracket save $40 on every $100 spent.

Hiring Family Members

If your business needs employees, why not hire your children or your spouse? Of course, the job must correspond to their abilities and the pay be reasonable in terms of the going market rate for such skills. It is usually more beneficial for a sole proprietor to pay family members rather than a third party for the same work. Suppose, for example, you pay one of your children or your spouse $5,000 per year for performing a task and they have no other income. Because the $5,000 is less than their personal exemption ($11,327 for 2015) they will not have to pay any income tax on the earned amount. Further, the payment is deductible from your self-employed income. If, as sole proprietor, you are in a 40% tax bracket, the $5,000 paid to the family member effectively saves $2,000 on your self-employed income while providing $5,000 of tax-free income to the family member.

If, for example, you are paying $5,000 per year for your child’s tuition and the child was not paid from your business, you are effectively paying in after-tax dollars. That means you will have to earn $8,350 (40% of $8,350 = $3,340) in order to clear the $5,000 ($8,350 – $3,340 = $5,010) needed to pay for your child’s education.

Home Office

You are allowed to deduct at-home expenses if you meet one of the following conditions:

You do more than 50% of your work at home.
The work space is used only to earn income and for meeting customers or clients. You cannot deduct at-home expenses if you are just using your kitchen table to do the work.

Home Maintenance Expenses

You can write off a portion of your home maintenance expenses such as heating, home insurance, electricity and cleaning supplies. A percentage of property taxes and mortgage interest can also be deducted.

Capital Cost Allowance

CRA also allows the deduction of a percentage of the capital cost allowance on the cost of the house or outbuildings. However, since there are tax consequences after the principal residence is sold, discuss this option with your CPA tax advisor before claiming the expense.

Allowable Write-Off

The method of determining the percentage of allowable write-off must be determined on the basis of the space used by each particular business. Some sole proprietorships may only need a 10 x 10 office to conduct their business; others may need a larger office or perhaps even outbuildings for additional office space or storage. The most common calculation method, however, is to take the square footage of used space as a percentage of the total usable space.

Losses

If, for instance, profit before the application of home expenses was $7,000 and the at-home expenses were $8,000, you cannot claim a $1,000 loss. Your taxable income from the business will be nil but the $1,000 that was not applied can be carried forward to the following taxation year and applied against that year’s income. If your business has a loss of $8,000, you cannot increase the loss by the application of at-home expenses. These losses would be carried forward from year to year as well.

To claim business expenses, retain all receipts.

Business Expenses

The expenses listed below are normally common to all businesses. In order to claim any of these, however, make sure they are incurred to earn income and that all receipts are retained:

accounting and legal fees
advertising expenses
business taxes, fees, licences and dues
insurance expenses
interest and bank charges
maintenance and repairs
meals and entertainment
office expenses
salaries, including employer’s contributions
motor vehicle expenses

There may be limitations to deductibility within each category. Seek the advice of a CPA tax advisor before making any claims.

Credit Cards

Interest on credit card balances incurred for business expenses is deductible. But, if business purchases are made with a personal credit card, the CRA will most likely disallow the interest expense because the interest applicable to outstanding business balances cannot be separated from the interest charged on personal balances.

Business Bank Accounts and Business Loans

Business bank accounts allow bank charges to be easily identified as business expenses; deposits and withdrawals can be more readily traced back to suppliers, customers or owner’s withdrawals or contributions. Separating business accounts from personal accounts minimizes the confusion when processing year-end tax information or when preparing for a CRA audit.

Loan Interest

Loan interest for vehicles and equipment is also a deductible expense. Make sure the transaction is transparent so you can establish that the principal went into a business bank account. If the loan is from relatives, make sure proper documentation establishes the date of the loan, the interest rate and the repayment terms.

Mortgages

Should you need to increase your mortgage to provide operational funds for the business, separate clearly in your records the mortgage for the principal residence from the funds for your business. The date the additional funds are deposited into the business account establishes the break. Your CPA tax advisor will thus be able to calculate separately the loan interest attributable to the business and that attributable to your personal residence.

Limitations of Do It Yourself Software

Certainly you may choose to complete your tax return by yourself. “Do it yourself” software can tell you how to fill in the blanks and can do the calculations accurately; however, it cannot analyze the data to determine whether it has been entered correctly or whether you have obtained the maximum tax benefit. Hiring a CPA tax advisor will be your best tax deductible expenditure. Not only will your CPA ensure accurate tax results, but also suggest additional measures you should make this year and in future years to minimize your income tax liability.

Contact Argento CPA today!

Source: BUSINESS MATTERS

Insights

I Am So Tired

Post author By margento
Post date December 5, 2015

MONEYSAVER

Lack of sleep can reduce productivity, increase absenteeism and add to the risk of accidents and errors on the job.

Changing Times

More and more we are increasing the number of hours we work. In a 2012 study, Human Resources and Social Development Canada found that we now devote 10% of each 24-hour day to paid work compared with 8.7% in 1976, an increase of 14.9%. We also spend a lot of time getting to and from work. According to Statistics Canada’s National Household Survey for 2011, 15.4 million people commuted to work and 1.1 million worked from home most of the time. The average time to get to work was 25.4 minutes but many people in Toronto, Montreal, the Abbotsford-Mission area of British Columbia and their surrounding communities spent an hour or more getting to work. A similar amount of time was spent getting home.

Dr. Meir Kryger, MD, a former professor of medicine at the University of Manitoba says people who do not sleep well are more apt to show the following symptoms:

frequent sleepiness
nodding off
difficulty with concentration
memory lapses
poor performance
mood changes

Lack of sleep upsets natural body rhythms.

Working outside the normal daylight hours of 7 a.m. to 6 p.m. upsets the physical, psychological and behavioural changes in our bodies known as circadian rhythms. Although we are hardwired to sleep at night and be active during the day, people often work outside this range. The longer time spent working and commuting means personal chores must be done outside the 7-to-6 norm thereby frustrating the body’s need for sleep.

Potential Catastrophic Consequences

Sleep deprivation is often portrayed as an achievement. A co-worker brags about working until 11 p.m. at night or a student pulls an “all-nighter”. In most situations, lack of sleep does not end with tragedy; however, investigators determined that in the following three instances, lack of sleep contributed to a catastrophe:

Exxon Valdez oil spill off the coast of Alaska in 1989
Three Mile Island, Pennsylvania, nuclear meltdown of 1979
NASA’s Challenger disaster of 1986

Impact on Workers

Long hours and shift work may lead to depression, occupational injury and poorer overall health. Unfortunately for the employer, they can reduce productivity, increase absenteeism, and potentially add to compensation costs. The result is often higher attrition by employees who can no longer tolerate the stress.

Shared Responsibility

Employee and employer are both responsible for maintaining job performance and safety. Employees are responsible for getting sufficient sleep and for recognizing that lack of sleep will affect performance.

Unfortunately for employers, the ultimate responsibility for errors or accidents rests with the employer through the legal principle of vicarious liability. When comedian Tracy Morgan sued Walmart after a Walmart truck struck his limousine, Morgan’s lawyers alleged the Walmart driver had gone without sleep for 24 hours. Walmart, not the driver, settled for an undisclosed amount.

Is There a Solution?

Most provinces legislate the maximum number of hours a driver can operate a vehicle. But beyond these limits, there are few guidelines. Owner-managers should, in co-operation with employees, establish guidelines to ensure that a responsible program is in place to reduce the risk to employees and third parties. Consider the following:

Break every one or two hours if the task is demanding.
Schedule eight-hour shifts five times a week or 10-hour shifts four days a week, especially for night shifts.
Avoid 12-hour shifts for physically or mentally challenging tasks.
Schedule two full days of rest for employees who work five consecutive days of eight-to-10 hour shifts.
Educate employees and management as to the impact of shift work and lack of sleep on their personal and working lives.
Teach employees how to identify indicators of sleep deprivation.
Ensure employees that, if they feel the work schedule is impacting performance or safety, they can speak up and management will offer assistance without retribution.
Determine whether an incident has occurred as a result of fatigue. By formalizing incident reports, employees and employers may discover that the timetable contributes to errors or accidents.

Lack of Sleep Affects Everything

Productivity, performance, employee job satisfaction and customer relations can all be negatively impacted by a desire to put in longer hours at the expense of much-needed sleep. Working together with employees and establishing work patterns that allow sufficient time for rest will cut employee absenteeism, reduce the chance of on-the-job accidents or errors, minimize the cost of WSIB or related claims and consequently improve the bottom line.

Contact Argento CPA today!

Source: BUSINESS MATTERS