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!
Do you know about the Hiring Credit for Small Business (HCSB)?
The HCSB was a one-time small business credit of up to $1,000 based on the increase in an employer’s employment insurance (EI) premiums paid for 2011 over those paid for 2010. This has been continued for additional years so still applies.
If you are a small business whose total employer’s EI premiums paid for 2010 was $10,000 or less and whose total premiums increased in 2011, you are eligible for this credit. The CRA will automatically calculate the credit when an eligible employer’s 2011 T4 information return is filed (please note that 2011 returns filed after January 1, 2015 will no longer be eligible).
2010 Employer’s EI Premiums: $ 160.40
2011 Employer’s EI Premiums: $ 487.42
HCSB: $ 327.02 (you’re getting this back)
Paper is your friend: The importance of keeping your business receipts
It is extremely important that you keep all receipts associated with your business. Keeping your receipts generates an audit trail and ensures that you are able to claim all of your HST tax deductions. In the eyes of CRA if you don’t have the receipt you don’t get the deduction.
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):
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
The P&L Statement (also commonly referred to as the Income Statement) shows you how much you have earned in a reporting period compared to the costs that go into the business. These costs include the cost of goods you purchase to provide the services and the expenses of operating the office(s) you work out of. When looking at your P&L it is important to look at the expenses that drive your company. These are the largest expenses associated with operating your business. Ask yourself it these costs are reasonable or if there is room to cut back on something. Also compare the expense to what you have earned. How much of what you have earned is being used to pay for that expense? Also don’t be afraid to ask your bookkeeper or accountant for help interpreting the numbers – that’s what they’re there for. The more you know about your business, the better you can manage it.
How long should I keep records?
As a general rule you should keep records for 6 years from the end of the tax year in which they are referring. In other words if the current year is 2017 then you should have complete records dating back to the beginning of your fiscal year 2010. There are, however, some records that you need to keep indefinitely. These records can be, but are not limited to, incorporation papers, charities and political donation receipts, and any appeal letters you may have received.
Why should I register for HST?
According to CRA, HST registration is mandatory if your business’ taxable sales exceed $30,000 annually. If your business earns less than $30,000 in annual sales, then registration is optional.
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
Unsure of when to file your income taxes? Don’t know when your HST remittances are due? How about source deductions? The following chart details some very important filing deadlines. Make sure to file on time to avoid costly penalties and interest.
Determining if you have an employee or a contractor
It is important to determine whether a worker is an employee or a self-employed individual. Employment status directly affects a person’s entitlement to Employment Insurance (EI) benefits. It can also have an impact on how a worker is treated under other legislation such as the Canada Pension Plan, the Employment Insurance Act, and the Income Tax Act.
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
Keep a deposit book. You might be surprised at how much time and detective work it can take to sort out what makes up your bank deposits, especially when you have a large amount of client invoices or are trying to reconcile your bank account(s) over a period of years.
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.
Call us at 613-656-0441 – we’d love to chat with you about the services we offer. Free consultation and the coffee’s on us!