Tag Archives: Canada Revenue Agency

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!

Types of Corporations in Canada Influences the Tax Paid

In Canada, there are two types of corporations. The first type is the corporation created under federal law, and the second type is the corporation formed under the provincial laws of the provinces and territories. Typically the federal form is preferred because it allows business operations across the country and the statutes controlling the corporation are consistent. The province and territory statutes vary quite a bit concerning issues like the rights of minority shareholders, internal governance, financial recourses and soon.

When you start a business, there are basically three business structures to choose from: sole proprietorship, partnership or incorporation. There is a fourth form called a cooperative, but it’s a very specialized and uncommon business form. The choice of business form influences the types of deductions you are allowed to take. Incorporation is often chosen because it can allow you to maximize the benefits of expense deductions while limiting personal liability.

There are several corporation types in Canada as summarized below:

• Canadian-Controlled Private Corporation (CCPC) – resident in Canada and is not controlled by corporation(s) or person(s) outside of Canada.

• Private Corporation – resident in Canada, not a public corporation, and not controlled by one or more public corporations

• Public Corporation – resident in Canada and meets requirements for listing of shares on the stock exchange or elects to be designated as public under Regulation 4800(1)

• Other Corporation – corporation form that doesn’t fall within the other 3 types of corporations

The advantages of incorporating include limited liability, ongoing operations with transferable ownership, easier to raise capital, possible tax deferral and lower tax rates. For any of these reasons, sole proprietors may choose to incorporate. For example, the Canadian-Controlled Private Corporation eligible for a small business deduction will currently pay a net federal tax rate of 11 percent which may be much lower than a personal income rate.

Corporations are also able to deduct all operating expenses while sole proprietorships face limitations. This gives you much leeway in terms of controlling the tax you will owe. For example, corporations can pay out profits to its management and staff turning what would be taxable profit into a deductible expense. A sole proprietor would have to pay all the tax due on business profit and personal income. In addition, any legitimate and legal expense incurred to operate the corporation is deductible, while it may be more difficult to separate personal from business expenses in a sole proprietorship.

It’s important to make sure you are getting all possible tax deductions on a business. The business structure you choose makes the difference on the type and amount of those deductions in addition to the tax rate paid.

Let's Talk About Business Expenses

If you are a business owner, expenses incurred while running your business is,well, a cost of doing business. Expenses are a way to offset income which would otherwise be taxed, and so they offer opportunities to decrease income taxes. However, you cannot expense everything and some allowable expenses are subject to certain limitations. Since you can only expense costs related to generating income, personal expenses are not deductible – they don’t help to produce an income. There are also expenses deducted under the capital cost allowance provision which represent an annual amount for depreciation related to assets acquired to assist in income generation but also expected to be in use for longer than a year.

There is a long list of business expenses and each one is carefully defined, sometimes in a complex manner. For example, there are stringent rules concerning documentation of all auto related expenses including the total amount of business related kilometres driven annually. There are limits on deductibility of lease payments, loan interest and depreciation. It is also necessary to prove that trips claimed were actually for business purposes.

The long list of possible business expenses includes bad debts, business-use-of-home, fuel costs, insurance, accounting and legal fees, maintenance and repairs, office expenses, property taxes, rent, salaries and benefits, supplies and many others. Each category is precisely defined by law and regulation, meaning you can’t just deduct an expense because you think it should be deductible. The expense must be related to commercial activity, meet the regulatory guidelines, be well documented with detailed receipts and incurred for the purpose of contributing to the production of profit.

Given the complexity of the tax laws and to avoid a tax audit as much as possible, it’s always wise to let an accountant determine which expenses are deductible. The staff at Five Star Accounting can provide invaluable guidance on appropriate expense documentation and ensure that the business is claiming all its allowable expenses.

CPP Changes for Retired Small Business Owners – What You Need to Know

Changes to the Canada Pension Plan could affect your or your employees’ early retirement plans. The government-run Canada Pension Plan, or CPP, allows working Canadians to receive a retirement benefit after paying into a pension plan. CPP also has a disability benefit and a death and survivor benefit.

Below are a few things you need to know about new CPP changes:

You May Have to Deduct Contributions
CPP has undergone some notable changes in recent years, including new regulations for those who want to start collecting early. The most recent change took effect Jan. 1, 2012. Employers were notified that companies must deduct CPP on pensionable earnings from employees 60 to 65 even if they are collecting CPP.

How it Affects Employees 65 to 70
Employers also must deduct contributions for all employees between the ages of 65 to 70 – unless the employee decides not to contribute to the plan and has filed the election to stop paying CPP Employees cannot contribute the month after turning 70.

Under the Microscope
The Canada Pension Plan has come under scrutiny in recent years as employees and employers alike try to make sure they receive adequate retirement incomes. Employees – especially those nearing retirement age – should check with their employers to see how the changes impact them, and small business accountants should work with their employer to review how the changes could impact both the work force and the company’s finances.

For more information, click here to be redirected to the Canadian Revenue Agency.

Prepping Your Books for a CA Review

No matter how well you or your bookkeeper stay on top of all your business’ expenses, there may come a day when one or more auditors from the Canada Revenue Agency come knocking on your door. But being audited can be a relatively straight-forward process if all the paperwork has been accounted for. Below are a few small business accounting practices that will help ensure the process goes smoothly.

When in Doubt, Keep It

If, for whatever reason, any of your receipts aren’t legible, then it’s not considered a supporting document, and you lose the deduction. You also lose the deduction if you can’t produce a receipt. Your claims will be matched with your receipts by an auditor. Bottom line: When in doubt, keep track of all your receipts.

What’s Acceptable?

Credit card statements, bank statements and cancelled cheques are required documentation but are not considered an acceptable form of verification in Canada. Instead, you’ll be asked to produce invoices, receipts and mileage records.

Keep Track of Mileage

Even if you drive your personal car for business, you’ll still want to keep a detailed daily mileage log book that includes the starting mileage, name of people or places you visited, and the ending mileage. Your log book should also include all original gas station receipts.

Who Did you go to Dinner With?

If you go out to eat or entertain a client, make sure you write their name on the back of your receipt. There are some instances where you can claim meal expenses by yourself, too, for example if you can show that you had to work out of town that day.

What if I work from Home?

You can claim a home office if you can show that you have an area dedicated for work and to meet clients. That area can’t be your bedroom, though; it has to be enclosed and furnished as an office.

These simple tips will ensure that your records are more accurate, making tax time simple and efficient.