Stuff every business owner should know… and we’re happy to share it with you.
Given that you probably have about as much time to read this stuff as we have to write it, we’ll endeavour to keep it short, informative and relevant. Have a question you’d like us to answer here? Send us an email!
Paper is your friend: The importance of keeping your business receipts
It is also important that the receipts stay legible. There are some receipts that fade in the sun or wear off because of the type of paper they are printed on. Once you return to the office you should take an image (photocopy, or an uneditable scan) of the receipt. You can then attach the copy to the original and file it away. This image copy will ensure that there is a legible paper backup if you’re ever audited.
Bank statements and Credit Card statements DO NOT count as proof of purchase in CRA’s eyes (they see statements as only a third-party confirmation of payment). You need BOTH the receipt and the statement as back up of the transaction. If you only have the statement then CRA can choose to disregard the expense altogether.
For CRA purposes any business receipts must contain the following information (requirements vary by receipt amount):
(Click to view full-size table)
In the case where no description is written on a receipt, you should write on the back what you purchased and what it was for so that an auditor can see that it was a legitimate business expense.
How to read the Profit and Loss Statement provided by your bookkeeper
How long should I keep records?
Why should I register for HST?
In most cases, no matter the size of your business, voluntary registration for HST just makes sense, especially when you’re starting your business. Think of it as someone else paying the HST on your sales (you’re just holding it for them until it becomes due) and you getting every single cent of HST that you pay on your purchases back from the government.
Let’s do the math.
You’re just starting your business and have limited sales, although you’ve spent a bundle putting together a basic infrastructure for your business. You’ve voluntarily registered for HST (do this right away) and your sales and expenses for your first quarter look like this:
|Net Sales:||$6,700||Net Purchases:||$15,000|
|HST Collected:||$871||HST Paid:||$1,950|
|Total Sales:||$7,571||Total Purchases:||$16,950|
According to this example, you’ll be getting an HST refund from CRA for $1,079 when you file your HST return (amount collected minus amount paid). If you hadn’t registered for HST, that’s just unnecessary money out of your pocket. Make sense? If you haven’t registered yet, do it now. We’ll wait.
Important filing deadlines
Determining if you have an employee or a contractor
The facts of the relationship as a whole will determine employment status.
If the worker is an employee (employer-employee relationship), the payer is considered an employer. Employers are responsible for deducting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax from remuneration or other amounts they pay to their employees. They have to remit these deductions along with their share of CPP contributions and EI premiums.
An employer who fails to deduct the required CPP contributions and EI premiums has to pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus penalties and interest. For more information, go to www.cra.gc.ca/payroll.
This chart provides an outline of the questions that CRA asks when determining if a worker is an employee or a contractor (if after answering the following questions, a worker or payer is not sure of the worker’s employment status, either party can request a ruling from CRA to have the status determined):
Bookkeeping tips that save you money
Stay organized. While most bookkeepers don’t mind the “shoebox approach”, sorting and organizing your documentation takes time. By simply keeping your documents sorted by month, you’ll be saving yourself money.
Opt to do some of the bookkeeping yourself. Many of our clients prefer to do their own invoicing and receive their own customer payments in QuickBooks. Not only does this reduce the time spent by your bookkeeper when it comes to entering your transactions, it keeps you in tune with your cash flow on a more regular basis.
Get help at the right time. If you’ve opted to do your books yourself and you’re feeling a little lost, or have hired an inexperienced bookkeeper who’s making a mess of your books (it happens), seek help. It costs much more to repair a set of books than it does to enter things properly from the get-go. Save yourself the unnecessary expense of a huge clean-up by either having an experienced bookkeeper complete your books for you, or ask the questions and receive proper training on how to do them yourself. And the earlier the better.
Keep your business and personal transactions separate. Yes, we all know not to mix our personal and business transactions, but do we really know why? Once you flow a personal transaction through your business (or vice versa), you’ve opened your personal accounts as part of a business audit. That being said, in real life, it happens. As a small business owner, you’ve deposited personal money into your business bank account to cover your payroll while you’re waiting on customer cheques to come in. You’re at the grocery store with a $300 grocery bill, realize that you don’t have your personal bank card with you, and use your business bank card. The good news is that there are ways to account for these transactions in your books. The bad news is that if you mix the two frequently, it takes time to account for them.
Paper is your friend. Make sure to keep all of your source documents – receipts, statements, invoices, cheque stubs, deposit slips… Your bookkeeper will need these to properly reconcile your books, and they provide you with an audit trail in case CRA ever decides to pay you a visit. By putting them aside now, you’ll be saving yourself and your bookkeeper time when it comes to tracking down missing documentation. Expenses are not tax deductible without the source document. A lost invoice or receipt means increased taxes, which means less money in your pocket.
Do your best to keep the number of bank/credit card accounts to a minimum. If you’re dealing with three different bank accounts and twelve different business credit cards on top of an assortment of personal payment sources (don’t laugh, we’ve seen it), it is going to take some time to reconcile each one and determine which payment source was used for each receipt.
Pay your government remittances on time, every time. Late remittances mean penalties and interest, and we’d both rather see that money in your pocket. While CRA’s interest rates won’t break the bank, their penalties add up quickly (especially for things like monthly payroll source deduction remittances), and after a trust review automatically sit at 20% of the amount due for EACH late payment. We’ve seen small business owners end up owing thousands of dollars in penalties and interest for late remittances, and the heartbreaking part is that in most cases, this was avoidable.