Category Archives: Tips for Small Business Owners

Making Instalment Payments to CRA

We often get the question from our clients “Why do I have to pay tax instalments?”

If you had tax owing of more than $3,000 in the prior tax year, the Canada Revenue Agency requires that you make recurring income tax payments (otherwise referred to as instalments) by a specific date.

These recurring payments are tax instalments based on income earned in the current calendar year and remitted to the government, much like an employee has tax withheld on each pay cheque by their employer. These payments are applied to the income tax that will be owing by April 30th of the following year.

There are three options available for instalment payments:
No calculation method – this method is best used when your income, credits and deductions remain consistent every year; CRA uses this amount in the instalment reminder and it is based on the last two taxation years.

Prior year option – instalments are based on the prior year tax return. This method is most suitable if your current year income, credits and deductions are similar to the prior year amount, but differs from the amount two years prior. CRA provides a calculation chart for instalment payments on their website, you can link to it by clicking here.

Current year option – This option should be considered if your income, credits and deductions are significantly different in the current year than in the two previous years. In this case, the instalment payments are based on the net tax owing on your estimated current year income along with CPP contributions and voluntary EI amounts. To assist you with the calculation, CRA provides a calculation chart for instalment payments on their website (see link above)

If you decide to use the prior year option or the current year option and make the payments in full by their due dates, CRA will not charge a penalty or instalment interest unless the amounts calculated are too low.

It is important to note that if you estimate the tax owing for the current year will be less than $3,000, you are not required to make instalment payments, even though you may receive reminder notices from CRA.

If you would like to discuss instalment payments or need further clarification on this article, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

EI Eligibility – What Happens When a Family Member is Employed?

There are over 1.2 million small businesses in Canada, and for many of these businesses it is a family affair.

Many small business owners are, unfortunately, unaware that if an employee on the payroll is related to the business owner, the employee may not necessarily qualify for Employment Insurance (EI) benefits. As such, it is possible that both the employee and the small business are paying EI premiums for a benefit to which the employee will never have entitlement.

There are numerous ways that an employee can be considered related to the employer:

  • The employer and employee are married (or common-law),
  • The employee is adopted, or
  • If there is a blood relationship (parents, brother, sister, children).

There are no rules that prevent relatives from working together, but there are rules about the EI insurability that should be considered in order to ensure that the correct source deductions are being withheld from the employee’s pay cheque. If the CRA determines that the employment situation is not EI Insurable, payment of EI premiums is not necessary and the employee will not be eligible to collect Employment Insurance in the event of employment ending.

If you aren’t sure of your situation, either the employee or the employer can request a ruling from the CRA by sending a letter or a completed Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan or Employment Insurance Act to your local CRA office.

If you would like to discuss EI eligibility for you or a family member or need further clarification on this article, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

Vacation Pay and Vacation Time Explained

Employers and employees often experience confusion when discussing vacation pay and vacation time. While there is some flexibility for employers, there are legislated rules that need to be followed and policies clearly communicated.

With some minor exceptions such as farmers or salespeople whose income is based solely on commission, ALL employees start earning vacation pay on the first day of employment.

In Manitoba, the minimum vacation pay earned by employees is 4% of gross wages from their first day of employment, and increases to 6% after completing five years of employment with the same employer. For a full time employee, 4% vacation pay equates to two weeks of working time and 6% equates to three weeks. Employers may choose to offer higher rates.

Gross wages include all regular wages (including hours paid as commission, salary, hourly, bonuses tied to productivity, and any other wages paid as compensation for the regular hours of work) and any general holiday pay. Overtime wages, wages in lieu of notice, and the previous year’s vacation wages are not included in the calculation of gross wages.

Vacation pay can either be paid to employees on each paycheque, or alternatively, accrued to an account on behalf of the employee. The first method is particularly suited to part-time employees, whereas full-time employees tend to prefer to have their vacation pay “saved” for them. The method of payment is selected by the employer.

When vacation pay is paid on each paycheque, employees are still entitled to take time off as vacation, however, they would not receive additional vacation pay while taking vacation time.

When vacation pay is accrued to an account on behalf of the employer, the employee can “draw” on the account when they take vacation time so that there isn’t an interruption in earnings. Vacation pay must be paid no later than the last day of work before vacation time starts and within 10 months of earning it. If an employee is terminated, the vacation pay “account” must be paid in full to the employee. Employers cannot use vacation in lieu of a notice period when terminating employment.

Employees are eligible to take vacation time after they have completed one year of work and must either take their vacation within 10 months of it being earned or the vacation account paid out. Employees and their employers can agree on when vacation will be taken.

In the event that an employer and employee cannot agree on when the vacation will be taken, the employer sets the vacation date. The employer must give the employee 15 days’ notice before the vacation is to be taken and cannot divide the vacation into periods shorter than one week. Employers can choose to schedule their employees’ vacations as part of an annual shut down.

Some employers allow their employees to take vacation time in the following year if it is not used. Employers should take care not to create a situation where an employee has a significant amount of vacation pay accrued that would then create an extended period of absence from employment; workloads must still be managed.

If you would like to discuss vacation time or vacation pay or need further clarification, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

Tips from an accountant, how to grow your business

Grow your businessManaging your finances is one of the most crucial aspects to running your small business effectively. Without a steady stream of cash flow, your business may not grow as you hope and may even end up in bankruptcy. Keep track of your finances and follow these tips to help make sure your business is profitable.

Get your customers to spend more

The most important factor you need to consider when thinking about increasing sales is your customers. Without customers your business would not be able to run. How can you get new customers, keep current ones and increase sales through each transaction? Determine what products and services you offer will get new customers in the door. Then review their needs to see where you might be able to offer more to increase revenues per customer.
You should also think about creative ways to market your products and services to make sure people are aware of what you do and that your offer stands out from the competition.
Remember, your reputation depends on what customers think about you. Make sure you are achieving a high level of customer service to each one of your customers and clients.

Receivables

For quick payment on invoices, consider asking your clients to preauthorize cheques or keep a credit card on file. This way banks can draw against their accounts at timed intervals. As a thank you, you may want to offer discounts or incentives for clients that pay their bills within a specified time period.

Outsourcing

If you are currently managing your own finances, you should consider outsourcing your accounting and bookkeeping. Hiring a professional will ensure that you avoid any mistakes that can happen when filing taxes at the end of the year. Also, any tax breaks that you may qualify for will not be missed. Late filing penalties will not be incurred.

Take control

The success of your business depends on your financial situation. If you would like to discuss how we can help take control of your business finances and achieve your financial goals contact Five Star Accounting today. We will set you free from your accounting and bookkeeping necessities allowing you more time to do what you do best and grow!

By the books

Five Star Accounting sets you free so you can grow

By Jennifer McFee

Ybonnie_kawkaou can count on Five Star Accounting Inc. to take care of your books while you take care of your business. Offering tailor-made solutions and services for several hundred clients, the homegrown business bases its approach on a five-star system: Team, Trust, Quality, Flexibility and Value.

With over 30 years of accounting experience, president and owner Bonnie Kawka initially founded a company called Hospitality Solutions in 2003, focusing mainly on accounting and bookkeeping services for the restaurant industry. Eight years later, the business rebranded as Five Star Accounting Inc., to better reflect their expanding and diverse customer base. Since then, it’s seen steady growth, with a mid-sized team who share Kawka’s passion for accounting and bookkeeping.

“We stand out because of our value, our systems and our processes,” Kawka says. “We’re very structured. We have a qualified staff. We have a thorough in-house training process as well. This is to ensure every staff member has an understanding of what is required to
properly take care of our clients.”

Accurate bookkeeping is essential to operating a healthy business, but it’s a task many entrepreneurs don’t enjoy. “I’m very passionate about accounting,” Kawka says. “I love it.”
Five Star Accounting Inc. focuses on three key components that simplify clients’ lives.

Read the entire article in Who’s Who, Manitoba Women in Business.

Five ways the 2015 federal budget positively affects small business

Small business ownerOur review of the 2015 Federal Budget, released on April 21, 2015, revealed the following five initiatives that provide opportunities for increased profitability in your business:

1. Reduction of the small business corporate tax rate from 11% to 9% over the next four years.
To ensure small corporations ($500,000 or less in sales) receive this benefit, these cuts will be guaranteed by law. Some examples of savings:

  • Net yearly taxable income of $30,000: $1,500 in tax reductions over four years
  • Net yearly taxable income of $500,000: $25,000 in tax reductions over four years

2. Significant reductions in credit card processing fees and new rules to ensure fairness in the payments industry.
Earlier this year, Visa and Mastercard promised significant reductions to merchant fees. Key changes were passed, ensuring that reductions will be passed along to small businesses, including the following:

  • Merchants will be able to opt out of their contracts if their payment processor raises rates or doesn’t pass on savings from Visa/MasterCard.
  • The entire code will now apply to mobile payments.
  • Payment processors can only auto-renew a contract for up to six months, enabling merchants to switch to more beneficial contracts.

3. Major changes at the Canada Revenue Agency, including less frequent tax remittances for new firms, a commitment to honour all written advice (including the CRA website) and a new CRA forum with CFIB.
Currently new businesses need to remit monthly for one year before becoming eligible to remit source deductions quarterly. Beginning in 2016 new employers with remittances under $1,000 per month will be eligible to remit quarterly provided they keep a perfect compliance record.

4. Confirmation of reductions
A new rate setting mechanism will be implemented in 2017, which is expected to result in a 21% reduction in the EI premium rate, from the current employee rate of $1.88 per $100 of earnings to $1.49 per $100 of earnings. Employer contributions would be reduced from $2.632 per $100 of earnings down to $2.086 per $100 of earnings.

5. Accelerated Capital Cost Allowance (CCA) for manufacturers extended for the next 10 years.
This is a write off used to encourage product-enhancing investment spending in the manufacturing sector that was first introduced in 2007 but due to expire in 2015.

For questions or clarification regarding these or any other portions of the recently released 2015 Federal Budget call your Five Star Senior Accountant today at (204) 927-7111!

Accepting Credit Cards Can Save You Money

Cash used to be king.

Today’s customer, however, rarely has more than a few dollars in his or her wallet.  Interac debit cards, as well as a wide variety of credit cards (most of them bearing the Visa or MasterCard logo) have replaced the wad of money that used to be in most Canadians’ billfolds.

Customers love the convenience the get when paying by plastic – it’s more secure than carrying around a week’s supply of cash, and all of their record keeping is done automatically – they can keep track of each and every purchase they make, down to the last penny.  If they’re careful consumers, the added convenience doesn’t cost them a penny.

As a small business, however, it does cost you.  Credit card companies and banks are offering convenience to their customers for free, and charging you a usage fee.  Many businesses hold out until they can no longer justify not accepting credit and debit cards, and then are pleasantly surprised when the finally do.  Here are some of the advantages of accepting credit and debit payments for your business:

  1. Increased revenue level.  Anytime you turn a customer away because you have a “cash only” policy, you’ll not only lose that single sale, but there’s a good chance they won’t be back.  Lost opportunities add up!
  2. Reduced collection costs.  If you extend credit to your customers, or you accept personal cheques, you will have a certain amount of delinquency.  Debit/Credit cards are authorized at the time of purchase, so you won’t be chasing people for money.
  3. Easy Recurrent Payments.  If you bill your customers periodically, setting up a pre-authorized payment plan will increase convenience for them, and make it easier to retain clients over the long haul.

In the 21st Century, debit and credit payment options aren’t going to go away anytime soon.  Accepting the forms of payment that your customers prefer is a must, even if the usage fees are a little daunting.

What Revenue Level Dictates Outsourcing?

When will your business be making enough money to justify outsourcing some of the things you don’t want to do, or don’t do as well as someone more qualified could?

Our answer, when it comes to accounting and bookkeeping, is right from the get-go.  And we don’t say that just because we’re accountants and want to get paid.  We have years of experience in the small business marketplace.  We’ve seen firsthand the advantages that a small business that’s financially informed has, and we’ve also had to do some serious clean up work when we’ve gotten that call too late in the game.

Professional accountants have knowledge and tools that can make every stage of business growth easier.  We can do financial projections that can be instrumental in creating the initial business plan, and we can help when it comes to convincing lenders that your plan is solid.

Accountants know how to deal with the government.  In the start-up phase, you’ll be providing all kinds of compliance documents, which can be confusing and time-consuming for the uninitiated.  We spend a great deal of time learning how to navigate the legal landscape surrounding small businesses, and can put this knowledge to work for you.

Once your business is up and running, accounting and bookkeeping services will keep your cash flow flowing, your payroll paid, and your finger on the financial pulse of your business.  And, since you’ve outsourced the work, your hands will be free to do the thing you set out to do in the first place – build your business.

At Five Star Accounting, we know what it’s like being a small business in Winnipeg.  Besides fitting into that category ourselves, we have many years of experience in the field.  We know that the economy needs small businesses. Wherever you are in your business trajectory, from initial concept to full-blown operation, you can count on Five Star Accounting to provide professional accounting and bookkeeping support.  It’s never too early to get the help of a professional accountant, but it can be too late.

There’s Money to be Saved

Generally, the fewer employees a business has, the more hats each one has to wear. A truly small start-up, with only a few employees, can be a very stressful place to work.

When you’re responsible for every little thing that happens in your business, it’s easy to lose sight of the bigger ones.  We call it losing the forest in the trees.

When it comes to the financial health of your business, as an involved owner you feel a responsibility to your business, your customers, your employees, and your family to do the best you can.  After all, livelihoods depend on your ability to stay afloat.

One of the things that you’re tasked with, when your business is small, is cost control.  You have to determine, much of the time by instinct, which supplies and services are needs versus those that fall in to the category of wants.

The services of an accountant or bookkeeper almost always count as needs.  Some tasks you can perform yourself, but at great cost of time (and, if you’re like many people, sanity), and others simply require the expertise of a financial professional.

At Five Star Accounting, we have years of experience in the small business environment. We’re well versed in Canadian tax regulations, and we’re passionate about what we do.  Many business owners see bookkeeping and accounting tasks as punishment.  They’re our whole reason for existing.  We can save your business money because we know our way around cash management, payroll administration, and accounts receivable and payable.  We can help you navigate the stressful waters of business accounting, saving you money and freeing up your time to focus on the things that are important to your business.  Like your business.

Small businesses like yours are the engine that drives the economy, here in Winnipeg and across Canada.  For advice and help with accounting and bookkeeping that you can trust, contact Five Star Accounting for professional service with a personal touch.