Best way to buy an investment property?

Best way to buy an investment property?

Best way to buy a investment property?

After spending many sleepless nights and countless hours into a business the small business entrepreneur would ideally have extra cash saved in the corporation. This cash sitting in the corporate bank account is usually better optimized by investing than keeping in the bank. While meeting your financial advisor the business owner might invest in securities such as bonds, mutual funds and other securities. Others might opt to invest in buying real estate. This blog is for those individuals looking to buy a investment property in the most tax efficient way. Real estate deals add many layers of complexity as different decisions result in adverse tax and legal situations.

Personally Purchasing investment property:
If you purchase a investment property personally that means your name goes on the land deed. You will have to keep track of all the profit and loss that results from this rental property and report it on schedule 776 on your personal T1 tax return. This rental income gets included to calculate your ‘taxable income’ and the respective taxes will need to be submitted to the CRA. Please note that the initial funds used to purchase the investment property are funds that have been already taxed on the personal level.

Corporation purchasing investment property :
If you purchase the property through your corporation it’s the company’s name that goes on the land deed. Any rental income is added to the corporation tax return and the respective taxes are reported on the T2 tax return. Please note rental income is considered passive income and does not qualify for the CCPC small business deduction hence this is taxed at a higher rate than the 14% corporate tax rate for active income.

Bank Mortgages:
Purchasing a property under your personal name generally allows for more mortgage options in the market. Assuming you have a good credit score and have the necessary down payment and the required salary to meet the stress test you can walk on in any of the A list banks and walk out with a mortgage note payable.

A corporation that has not met the 2 years in business will have a tough time getting a mortgage. This is because the banks view the recently incorporated business to be risky and the banks usually avoid lending to corporations for investment properties.

Tax Decisions:
The tax decision really comes down to pre tax dollars vs after tax dollars. Generally keeping the money in the corporation is a better strategy than to take the money out to invest. If your holding or operating company has loads of cash and let’s assume the company earns $500k net profit a year and pays the corporate tax rate of 14% [2018 rates] this would leave after corporate tax income in total cash of $430k. Since this money is left in the corporation and not paid out to shareholders this money is considered to be pre-tax money.

If you want to purchase the property personally you would have to take the $430k out by way of salary and dividend and the personal tax bill can go as high as 54% so your tax bill would be $232k in this case. The total personal taxes are so high that it would make a lot of sense to use the corporation to invest pre-tax dollars ($430k) rather than the after tax dollars personally of $232k.

Personal residence exemption:
Generally, when buying your own home it makes sense to buy it personally. This is because of the Personal residence exemption which states that the gain on any profit from the sale of the real estate property is free of any capital gains tax. This tax exemption is in place to allow Canadians to utilize their mobility rights.

If you buy a property for the purposes of renting it out and the property has not been declared as a primary residence than that property will be subject to the capital gains tax on the sale of the property. Although such a rental property will be taxed for capital gains the tax doesn’t kick in until the property is sold.

Corporations in Canada do not get the primary principal residence exemption so if you are planning on buying a second property perhaps a cottage? It might be better to buy it personally.

Legal
A discussion with your lawyer before buying any real estate property is very important. Apart from the tax decisions there are some legal decisions that also need to be made. If a tenant sues they are suing the extra funds in the corporation as well. If a corporation buys a rental property and adds shareholders or plans to add shareholders than the initial rental property is also being sold part of that deal. You are essentially selling a portion of the rental property to the new shareholders.

If you are planning on buying the property personally than you can lower your liability by moving the deed name to your spouse with a hopefully lower liability than you. This will help to mitigate any potential law suits.

What’s my best option?
As you can gauge from the above there isn’t a cookie cut solution. The tax/legal solution depends on your income, corporate structure and future vision. Please reach out to your lawyer/accountant to consult on the best investment solution for you.

Let’s setup a quick call if you have questions: Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

-Written by Jag Bath

 

Hubdoc – Keeping it Paperless

Hubdoc – Keeping it Paperless

One of the greatest benefits of cloud accounting is the opportunity to take your business from being audit prone to be audit proof. The way Hubdoc helps to do this is by digitizing all receipts by using the smartphone in your pocket. Hubdoc is like your digital cabinet as it stores all your receipts, bills and other bank/credit card statements. It’s super easy to send bills received via email that come in the mail by simply forwarding them to the unique email address Hubdoc provides.

Now to address the elephant in the blog. The most frequent question we always get is ‘why do I need to manage my receipts in 2018?’ Well if you have your own corporation the CRA requires you to keep your receipts and documents for their potential review/audit for a minimum of 6 years. If you don’t do this than any expenses you have claimed will be disallowed and added back to your corporate income and taxed with penalties and interest being backdated. As you can imagine the cost of going through this is quite punitive. Comparing this to the Hubdoc monthly fee of $25 seems more than reasonable for what the app does for you. 

Hubdoc has a basic proposal which is to organize all financial documents in one place automatically. The key here is automatically. Hubdoc being a smart cabinet uses machine learning-powered data extraction to read the receipt for the key details like vendor name, date, and total amount. These details are extracted and used to ‘file’ the receipt into a folder. All this happens automatically, and the bots do this themselves. It’s quite magical really. #DisneyMoments

Traditionally, Accountants accepted shoe boxes of receipts that clients dropped off which went through quite the process. I think we can create a small film named “the life of a receipt”. Seriously though these receipts were sorted, reviewed and entered in to a desktop based Accounting system. As you can imagine the painful nature of going through this process was not a value addition to clients. Eliminating the need to do data entry switches the focus from administration to strategy. Accountants that use Hubdoc can inherently add more value to their clients by not focusing on receipt sorting but helping a business project and forecast the future performance. Using Hubdoc also helps to work with your Accountant more efficiently by reducing the administration involved in year-end tax preparation. 

Hubdoc plays really well with two main online cloud accounting solutions being QBO and Xero. When a receipt photo is taken, the machine-learning powered data extraction technology kicks in and all the necessary fields are generated by Hubdoc. Within 24 hours from the time the picture is taken the receipts are reviewed by our staff and published. When a receipt is published it gets connected to the transaction in the cloud accounting solution. This creates perfect synergy because now your receipt is attached to the actual transaction from the bank. If the CRA ever target the business for an Audit the receipt is easily found as proof of the transaction is attached to the transaction in QBO/Xero. Hubdoc also has the unique ability to ‘fetch’ bank and credit card statements from the bank which helps with bank reconciliations. The bank reconciliations are extremely important for the purposes of knowing that the pro-forma financials are free of material errors. 

We at Capex implemented Hubdoc as part of our Core app closet. Hubdoc has helped our clients get more organized, keep our clients audit proof and also help us provide a seamless accounting experience. Our goal has always been to provide the Small business owner with high value and low administration. It turns out people love taking pictures with their smartphone because it ultimately saves them tax money. I highly recommend everyone to start implementing this solution for their respective businesses. If you have any questions on how Hubdoc works please reach out to us as we fully support the platform. 

Hubdoc: 
www.hubdoc.com

CRA Receipt rules:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/long-should-you-keep-your-income-tax-records.html

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

Top 3 questions we get asked. Literally everyday!

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Top 3 questions we get asked. Literally everyday!

If you have a business can’t you expense everything?
This is a common misunderstanding amongst new business owners. There are many benefits of having your own business and having the ability to “expense” business expenses helps to reduce your taxes. This is because the tax act allows for business owners to be taxed on Net Income which is the net of Revenue minus Expenses. You have to be careful here because not all your expenses can be expensed such as personal clothing, Gym memberships and LCBO liquor. Generally, your accountant will provide guidance and restrict the personal expenses so you don’t get burned when it comes time for CRA Audits.

Is my data safe in the cloud?
Your data is actually safer in the cloud than on a PC. On the cloud your data is stored behind servers which are protected by companies like Quickbooks who spend millions of dollars to ensure the security upkeep. Now compare this to your $29.99 antivirus program on your PC. The cloud also has the benefits and ability to safe guard your financial data as no one can walk away with it. With a PC desktop based if someone has the backup of your data they now have complete historical access to customers, pricing and other things. So short answer is yes the cloud is much safer in the long run and also cheaper when accounting for the risks of having a desktop based.

What kind of Support should I expect from my accountant?
It’s easy to make a sale but it’s harder to provide robust support. Client’s almost always leave a business because of customer service and lack of support. Most people are so focused on the ‘next sale’ that they lose vision of the bigger picture. It’s important to adopt technologies like Join.me screen sharing which allows our team to effectively troubleshoot and resolve any issues clients have. The after support is so critical to the success of your business that we consider sales as #2 and support as #1. Our clients become our sales agents because of the awesome support they receive.

Business owners usually rush to hire an Accountant on the basis of them having Accounting and Tax experience. Although having Accounting and Tax experience is critical for a good accountant a great accountant would also have real life business experience. It’s important to decide on a Accountant that has business experience so that they can share those insightful business knowledge with you. Ask yourself this: Wouldn’t you rather have a strategic finance partner than a number cruncher? 

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

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How do I take out $800,000+ from the sale of a business tax free?

How do I take out $800,000+ from the sale of a business tax free?

The question on tax free income is always a recurring question we get in everyday practice. This is one of the most exciting Tax techniques used to provide a shareholder of a corporation access to Personal tax free money. The key here is personal tax savings! So let’s get into this.

Let’s say that John Smith has ran his small business with average revenues of $480,000 a year and he pays himself $100,000 a year. He’s now thinking of exiting the business to retire and enjoy other things in his life. There’s a buyer named Andrew in the market who is willing to pay $1,000,000 for John’s corporation. If John sells the shares of his small corporation to Andrew he will have been deemed to have a Capital Gain on the sale of his shares. Assuming John built the company from scratch and the adjusted cost base was $0 the total gain would be the $1,000,000.

Capital gain is basically the government’s way of taxing income which comes from the sale of assets or shares. In this case John has sold his shares and he will be taxed under the Capital gain tax. The great thing about the Capital gain tax is that it’s 50% tax free so that means that of the $1,000,000 only $500,000 of that cash will be taxable for the capital gain tax and let’s assume that $200,000 will be the capital gain tax amount. Once this tax has been paid by the corporation the rest of the money sitting in the corporation would be $800,000.

Maneuvering the left over money in the corporation to John is a tricky task. One of the best ways to take the money out tax free would be to use the Capital Dividend Account or referred to as the CDA account. This account allows a shareholder to not be double taxed when the funds are transferred to the shareholder personally.

Your accountant will calculate the CDA account for you which is a quite involved exercise. Next this calculation will be confirmed by the CRA for the CDA account. This part particularly takes a long time as the CRA are very slow at confirming balances which is usually 6-8 months time. Once the CRA confirms the total CDA balance, your Accountant would file a form referred to as the T2054 declaring the dividend being paid to be a capital dividend. This step is critical to get right as the penalties are punitive.

Penalties for getting the above wrong is highly punitive in nature. If you over reach on the CDA the CRA will assess 60% of the excessive amount declared to be the penalty. So if you miscalculated by $100,000 than the total penalty will be $60,000. As you can imagine trying this at home is not recommended and you should always reach out to your Trusted Tax advisor to discuss this strategy.

The exciting piece of this entire strategy is that John gets to take the $800,000 of money tax free to his personal bank account by only having to pay the $200,000 in corporate taxes he completely bypasses the personal tax. Now, John can invest his $800,000 in different securities that give him a return of 8 to 10% resulting in a net taxable income of $80,000 to $100,000 which matches the initial money he was taking out of the business in the first place minus all the work involved. 

Remember the goal isn’t how much money you make in your business it’s how much you keep from the tax man. Legally of course!

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

How does the taxes work with Stocks?

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How does the taxes work with Stocks?

Most boot-strapped companies with limited cash funding offer stock options in place of higher salaries. This strategy works out quite well where the company is encouraging the employees to stay long term with the organization with no up front cash outflow. It’s important to understand the complex tax consequences. Unlike, Employment income which is source deducted Stock options are not actually taxed when they are handed out to employees.

In order to explain this let’s consider a small CCPC company Snowman Inc. that just hired their new employee Santa in Jan 2013. The option’s offered to Santa was  to purchase 100 shares at $1 per share in four years. On Santa’s T1 personal tax return for 2013 he would not report the stock options as they have not been exercised yet so it will be a regular tax filing with employment income and any other tax slips. The reason for this is because Santa was offered a Option not a Stock of the company. 

So Santa has been with Snowman Inc. for the four years now and the vesting period is up. This means Santa can exercise his options. Snowman Inc. has been producing great income returns over the past couple of years and as such have been able to secure investments where the valuation of the shares were deemed to be $10/per share. Remember, Santa had the options to exercise at $1 regardless of the price in 4 years when he bought it back in 2013. Now in 2017, Santa can turn around and buy the shares for $1 per share for a total of $100 cash which would generate a benefit of $900. In 2018 the founders announce that GrassCutters Inc. have acquired Snowman Inc. and Santa can cash out on his shares. During the take over preceding the payment per share is deemed to be $100 per share and Santa cashes out on this offer. 

There will be a total of two types of taxes reported. 

Taxable Benefit: 
In the T1 tax return for 2017 Santa exercised his options for the $1 per share which was valued at the time for $10 per share. The difference between the exercise price and the market price is called a taxable benefit. This is because people outside the company do not have access to the same benefits. Snowman Inc will include this part of his T4 and add it as a taxable benefit of $900. Assuming he is in a tax bracket of 30%, Santa will end up paying $300 in tax for the use of his options on the shares for 2017. 

Capital Gains: 
As the company was sold for $100/per share and Santa’s stock options were worth $10/share the difference will result in a capital gain. This is calculated by taking the shares valuation price ($10) minus the exit sales price ($100). The great thing is that Capital Gains are taxed at 50% of the gain so that means 50% of the gain would be exempt from the capital gain tax. Unlike employment income which is taxed at 100%, capital gains are restricted to 50%. This would mean that Santa will end up paying taxes on $100*100 shares = $10,000 *50% restriction = $5000 minus the Adjusted cost base of $100) = $4900. Santa will pay additional taxes on the additional income of $4900 on his next personal tax return with a rate of 30% that would be $1,470. 

Consultation:
There are many complexities with stock options and how to execute on these for your employees. It is advisable that you meet with a Tax advisor to ensure you are tax compliant but also to build the right compensation plan for key executive members. Please remember that the rules for CCPC are different than public companies. Timing is critical when you are planning the sale of stocks and your investment advisor can definitely help with this! 

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

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3 Tips for Succeeding with an E-Commerce Business

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3 Tips for Succeeding with an E-Commerce Business

Most business owners will tell you that just starting out is the most exhilarating and stressful time of owning a business. The excitement and anticipation run high, but the funds run low. How can you make ends meet and ensure success for your new business? Our e-commerce tips will help.

1. Rely on E-Commerce to Boost Your Business
You may have heard that e-commerce can boost businesses, but you might not know exactly what e-commerce is. According to BigCommerce, “Essentially, e-commerce (or electronic commerce) is the buying and selling of goods (or services) on the internet. From mobile shopping to online payment encryption and beyond, e-commerce encompasses a wide variety of data, systems, and tools for both online buyers and sellers.” Because e-commerce is one of the fastest-growing aspects of retail today, business owners turn to it as a solution for growing their business. In fact, many find that they are more successful online than they are in a brick-and-mortar store because they can reach so many more customers.

There are several other reasons to rely on e-commerce, according to The Balance:

●      A website and online store establish your presence and improve your company image.
●      You can sell 24 hours a day, seven days a week, 365 days a year; you never close, and your customers             can always buy.
●      You can provide better customer support by creating videos, sharing frequently asked questions (FAQs),          offering product spec sheets, and making it simple for customers to contact you using a contact form.
●      You will have low start-up costs if you are starting from scratch online; you won’t have to purchase or                 lease a building, buy or rent vehicles, or hire excess staff.
●      You take advantage of the fact that the internet was built for business; customers are one click away                 from your online store, and you can accept orders and payments directly.
●      You have the flexibility of living and working from anywhere when you sell online. Simply set up your                 home office with any special equipment you might need, and you’re ready to go.

2. Put Your Business Online in the Right (Inexpensive) Way
The trick to relying on e-commerce is creating a website that appeals to customers and delivers a seamless shopping experience. Thankfully, there is a plethora of online website builders and services that help small business owners build their websites, even if you don’t have any web design know-how or experience.

Many small business owners who are just starting out choose a free website builder and then hire a website designer when they can afford it. These designers and developers have the experience needed to migrate your original content to your new site and to make the transition without affecting your existing customers.

3. Use Information Available Online to Boost Your Business
Today, customers rely on online reviews to make purchase decisions more than ever before. In fact, 84 percent of people now trust online reviews as much as they trust their friends, and 91 percent of people regularly or occasionally read online reviews. Because online reviews matter, you need to give your customers a way to leave reviews for your products and services. Consider emailing customers after they make a purchase to entice them to write a review, give you a star-based rating, or complete a customer satisfaction survey.

You also can create social media profiles for your business to give customers another avenue for finding you, and writing and reading reviews. Also, link to your social profiles from your website to make it easy for customers to start following you, and so they can share news and reviews about you with their followers. In fact, social media marketing is one of the best ways to increase sales and drive more traffic to your site.

You also can decide which products to sell and ensure you meet more customers’ needs by using information available online. For example, read reviews on Amazon or your competitors’ sites. Uncover what people like and dislike about the products, services, and companies and what they would improve. The more insights you can gather online, the better positioned you will be to meet needs and grow your business.

To succeed in business, you should rely on e-commerce. Put your business online by creating a website, online store, and social media profiles. Then, use other information available online to make sure you have found your niche market and are meeting customers’ needs.

Written by - Larry Mager

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

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Top changes from the 2018 budget for Corporations

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Top changes from the 2018 budget for Corporations

It’s been a wild year in the tax world. Another year brings another Tax budget from the government. The 2018 Federal budget was announced on Tuesday Feb 27th and much expected relief to most small business owners. Some of the tax changes that were proposed from July 2017 were not present in the current 2018 budget. This was great news but only after the country wide uproar on the changes. 

Here’s a list of some notable changes in the budget that will be impacting some of our clients: 

Passive Income
What is passive income? it’s basically not active income which means it’s not transactional income. Passive income best described would be something like mutual funds or shares held by the corporation. The change that comes to Canadian Controlled Private Corporations (CCPC) is how the passive income will be taxed. Companies currently earning or projected to earn more than $50,000 of investment income will be affected adversely. It is recommended to speak to your tax advisor/accountant on this. 

A typical CCPC corporation earning active business income is taxed at corporate tax rates which are lower than personal income tax rates. The tax savings generated by leaving the money in the corporation allows the small business owners to invest more after tax dollars into their respective corporations. Any income earned on Passive income is taxed at a higher rate than the corporate rate to make the tax payable similar to those who invest personally. When the corporation pays out a taxable dividend to a shareholder a portion of that “extra” investment tax is refundable in the corporation’s RDTOH - refundable dividend on hand account. Think of this account as a claw back account for the taxes paid. 

Now that we have gone through some of the history the major change is to the small business deduction which is a preferential tax rate charged on the first $500,000 of taxable income. As a go forward a corporation can earn up to $50,000 of passive income without affecting this small business deduction. For every $1 on top of the $50,000 of passive income the small business limit will be reduced by $5. This means if a corporation earned $51,000 in passive income this would reduce the corporation’s small business limit from $500,000 to $495,000. Once the corporation reaches $150,000 in passive income there will be no small business deduction available.

RDTOH - Refundable Dividend Tax On Hand Account
Currently, a dividend refund is available to corporations at roughly 38% of taxable dividends paid to the extent that there is an available balance of RDTOH at the corporation’s year-end. The RDTOH balances are typically increased where a corporation earns passive investment income. Prior to this Budget, a corporation would receive a refund by declaring an eligible dividend which carries better personal tax treatment than ineligible dividends. 

The budget proposes to introduce measures that will generally allow the CCPC to recover the RDTOH only on the payment of the non-eligible dividends before it can obtain a dividend refund from its eligible RDTOH. There is a exception arising on the payment of Part IX of the tax on eligible portfolio dividends. Such RDTOH will be recoverable on the payment of the eligible dividends. 

TOSI - Tax on Split Income (Income Sprinkling changes) 
Prior to the changes TOSI only applied to minors which was taxing certain types of income at the highest marginal tax rates including taxable ineligible dividends. The new rules stipulate that they will apply to any Canadian resident regardless of age. Fun times I know. Many types of income can be targeted by this new change including taxable dividends, interest on debt obligations. This means that taxable ‘dividends’ paid to a spouse will now be taxed at the highest marginal tax rate unless one of the following exclusions apply.

  • TOSI will not apply for payments made to a spouse who is actively involved in the business. This means for the purposes of taxes the individual engaged in the corporation must be on a regular, continuous and substantial basis. This means the TOSI rules will not affect true family owned businesses where everyone is involved. However, the key word here is “regular, continuous and substantial basis”. This interpretation is based on judgement and it is advisable to see your Tax Advisor to discuss on this exclusion further.

    1. TOSI rules will not affect “excluded shares”. To meet this the following conditions must be met

      1. All or substantially all of the corporation’s income cannot be derived from a related business in respect to the individual.

      2. The corporation cannot be a professional corporation. Also a requirement to be a professional corporation.

      3. The corporation must earn less than 90% of its income from services. This one was to discourage Doctors, Lawyers, Accountants and other professionals from splitting between spouse/professional partner.

      4. The individual must own at least 10% of votes and value of the corporation.

Fortunately, TOSI will not impact the arms length sale of QSBC shares that qualify for the lifetime capital gains exemption. 

There have been many other changes that the Budget brings but the above 3 affect majority of our clients who are small business owners. If you feel that some of these rules are not clear we can definitely help. Please reach out and book in a meeting with us to discuss any detailed questions you might have! 

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

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Financial Spring Cleaning: How to Get Control Over Your Money

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Financial Spring Cleaning: How to Get Control Over Your Money

For many Canadians, financial planning remains a stressful and elusive task. It’s not just about creating a budget and sticking to it; it’s also a matter of seeing into the future, in a way, to ensure you and your family are on the right track. That can be difficult to do when there’s never enough money to add to a savings account or when unexpected expenses drain what you have.

Fortunately, there are several simple things you can do to give your finances an overhaul. It’s important to keep up with spending for the entire family, not just for the sake of your checkbook, but for your own mental health. Money is a top cause of stress for Canadians and it doesn’t seem to matter how good or bad the economy is, because there are always bills to pay. That stress can leave you feeling depressed, anxious, or unable to function at the level you need to, and it can even lead to substance abuse in some cases. For more info about the link between mental health and addiction, read on here.

Keep reading for some tips on how to get control over your finances this year.

Look at your spending
The first step in taking control over your finances is to look at your spending carefully. Sit down with your spouse or partner and go over your bank statements for the past two months. Look at where your money goes, and don’t forget to factor in cash transactions. Outside of utility bills, rent or mortgage, and necessities like gasoline and groceries, what did you spend the most on? Remember that sometimes seasonal factors are at play too, such as having to buy school clothes for the kids.

Cut back
If you see a chance to cut back on your monthly spending, talk it over with your family members. Many families choose to get rid of cable in favor of a less expensive streaming service, or to get rid of a landline phone since they already have cell phones. You don’t have to be brutal with your cuts; if it’s something you enjoy, think twice before getting rid of it or simply cut back. For instance, if you subscribe to a streaming video service and receive DVDs in the mail as well, consider using only one of those.

Set a budget
Creating a budget can be tricky, but it’s important to sit down with your family and talk about spending and how to save. Your household budget should begin with a look at your necessary spending. Once those numbers are added up, look at what’s left and lay out the best ways to use it. You might decide to allot a certain amount for clothing or to start saving for a vacation or a new car. Whatever you decide, make sure you communicate it to the entire family so that everyone is on the same page. Doing this will help give you peace of mind as far as knowing what to expect each week and will help relieve some stress at the same time.

Look at your credit card use
Many of us rely on credit cards to get through the month, but if you can’t afford to pay more than the minimum balance, you’re only digging yourself deeper into debt every time you use it. Come up with a solid plan on paying off your cards and resolve to resist the temptation to open up new accounts when they are offered at retail stores.

Getting your finances in order is rarely an easy thing to do, but it’s absolutely necessary if you feel your family is overspending. Come up with a plan before making any big decisions, and talk to your loved ones about the best ways to stay on the right track.

-Article by Larry

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

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5 Tax deductions for the small business owner 

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5 Tax deductions for the small business owner 

As a Canadian small business, the focus is so heavily on sales that many business owners don't take advantage of the many write offs that are available to small business owners. Writing off applicable business expenses under your business income can reduce the taxable income which reduces your taxes payable. 

Pro tip - always keep your receipts #Hubdoc and your logbook #mileIQ these are necessities. These solutions are more proactive than reactive in case of a audit. 

1. Vehicle expenses:
Many small business owners always inquire on leasing a car or financing a vehicle for business. Each decision carries it’s own decisioning and will require a consultation. 

  • Calculate your total km’s from the total km log and multiple the first 5000km by $0.55 = $2750 + each additional km add in $0.48. So if you drove a total of 10000KM for the business your total deduction would be $5150 + HST = $5819.50 (Which becomes tax free car allowance).

  • Lease the vehicle which is capped at $800 a month but the total km’s you drive for personal will result in a standby charge which is included as a taxable benefit on your personal income.

2. Meals & Entertainment: 
Taking your clients out for working meetings is a acceptable expense. Please remember that all entertainment related expenses are 50% tax deductible which includes expenses related to sporting events, restaurants, gratuities, entrance fees, rentals etc. 

There are a total of 6 meals and entertainment expenses reserved for when all staff events/parties which is 100% deductible. So that Christmas party you are planning it’s on the house! 

3. Furniture & Equipment: 
If your a small business owner who just opened a business and you brought your own laptop and or other necessary equipment. You can sell your equipment/furniture to your corporation at fair market value and take back a due to shareholder note. This movement of assets into your corporation creates the ownership to be held in your corporation however you always hold possession to the furniture & equipment. 

Additionally you get to take depreciation write off for year’s to come against future income.

4. Operating expenses: 
Expenses attributed to create a smooth sail for your business can be written off. This includes your office rent, office supplies, accounting fees, legal fees, computer software etc. You can deduct the cost of these used directly for the business which helped to earn income.

5. Business Insurance premiums: 
Often in business school they teach that the cost of doing nothing is often higher than doing something. That being said you can write off your entire business insurance expense as a eligible expense for your business. Some of the insurances that you should consider are 

  • General Business liability insurance - basically to protect you from potential lawsuits

  • Business property insurance - in case of destruction or theft of your equipment.

  • Business Interruption insurance - to cover business losses in relation to natural disasters and fire.

As always we offer free 30 mins consultations for other in depth questions you might have. Feel free to book us in for a quick call and setup. 

Click on the link below to book a meeting.
https://calendly.com/capexcpa/phone-call-with-jag

- Written by: Jag Bath

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How to Protect Yourself & Your Wallet As You Venture Out On Your Own

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How to Protect Yourself & Your Wallet As You Venture Out On Your Own

Whether you’re just submitting applications to college or finally stepping out into the world, gaining personal and financial responsibility is vital if you want success in life. Unfortunately, many young people are instead finding themselves burdened by finances due to irresponsible use of earnings. However, there are several ways you can secure your future by saving, implementing smart money management techniques and protecting yourself from life’s uncertainties. 

Acquire Self-Control
When it comes to your money, a little self-control goes a long way. Instant gratification seems fun but cumulatively can cause trouble for you in the future. Not taking care of your bills and other necessities can also cause great arrears which can lower your credit and put you at high risk for increased debt. 

According to Creditcards.com, consumers are more willing to spend a considerable amount of money when using a credit card over handing over cash. By doing so, you aren’t actually saving any money at all. In fact, you can get into serious debt if you aren’t paying back those costs on time. When that debt accrues and isn’t paid back, this can put you at risk for garnished wages, bill collectors going after you, and even being sued. 

 Instead, stick to a budget, like the 50-20-30 rule which allows you to see exactly how and where your budget should be allocated. This rule builds a customized financial plan on a unique level since we all have various wants and needs with differentiating incomes.

Shake Off Leeches
Just because you need to save doesn’t mean you can’t go out and have fun. However, it’s important to become aware of money leeches, entities or people that drain your financial resources. A money leech ties itself to you and tries to stick around, but it’s up to you to no longer feed it. 

As a young adult, you will come face-to-face with various forms of temptations; some not so harmful, while others may be dangerous. However, not giving bad habits the time of day will help you to gain control of your own life. According to the National Institute on Drug Abuse, substance and alcohol abuse has risen for college-age students, due to peer pressure. An addiction or unhealthy habit can send you into a downward spiral with financial hardships, so become aware of how such practices can also send you into debt. 

Gaining the confidence to just say no to money leeches will give you the confidence to say no to other activities or things that don’t serve you. Save yourself headache (and money) in the long run by learning what constitutes a necessity versus an option.  

Financial Planning
With the right tools, anyone is capable of setting themselves up for a great future, financially. However, not everyone learns the proper way to manage money. Unfortunately, schools don’t teach financial management and money-saving skills are rarely taught at home, which is why so many young people today are accruing more debt than they can handle. However, it’s never too late to learn how to become a financially independent adult, which can keep you from living paycheck-to-paycheck and also puts you in the position to help others.

 One way of acquiring knowledge about money management is to utilize devices, apps and websites which not only teaches you to budget wisely, but helps you to see where your money is going and has long-lasting effects on how you view money and ways it’s distributed. You may even find speaking with a financial counselor to be useful. Financial counselors are there to help you avoid investment and tax mistakes as well as provide you with a deeper knowledge of how finances work. However, finding one that has your best interest in mind is of the utmost importance. 

While money is a valuable asset, your life is even more precious. Secure it by making the right decisions and creating a viable financial plan that will help you go far beyond your wildest dreams.

Article written by - Larry 

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Firm of the Future 2017 - CapexCPA 

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Firm of the Future 2017 - CapexCPA 

Firm of the Future 2017 - CapexCPA

Quickbooks just released the newest firm of the future accounting firm winners who have been recognized for leveraging the key trends in the Accounting industry. The four major elements being the cloud, service, technology and power reporting. When these four elements are put together, they allow us to create a strategic partnership with our clients and become a Firm of the future.

CapexCPA applied for this contest, where a total of 15 firms worldwide were selected with 4 from each country being Canada, USA, UK and Australia. In Canada, Quickbooks ranked our firm as one of the top 3 cloud accounting firms. We feel honoured to be recognized as one of the firms of the future. At CapexCPA we strongly believe in our signature DNA elements to help our clientele. Below is our take on how we became a Firm of the future. 

The first DNA element is Cloud. 
We feel that using the same cloud accounting platform like Quickbooks allow our clients to understand the numbers better. The cloud eliminates confusion and helps with timely decision making. Keeping transparency is critical in establishing a trusting relationship with our clients.  

The second DNA element is Service.
We make every effort to respond to all emails, phone calls, texts and social media to help communicate with our clients. Providing speedy responses to questions is essential to play the Virtual CFO role. 

The third DNA element is Technology. 
Using technology in every facet from client on-boarding to the tax year-end and repeat. We only use the best in class software providers. Our app closet essentials include Quickbooks, Hubdoc, Wagepoint, and Plooto. We wouldn’t be able to run our Cloud practice without these software platforms. 

The fourth DNA element is Power-Reporting.
Providing our clients with strong analytical reports that extend the Profit & Loss and Balance Sheet is what helps to differentiate us from traditional accounting firms in the industry. Our clients love getting weekly/monthly cloud reports which help resolve real operational issues before they become problems. 

We look forward to working towards introducing a completely paperless and cloud based accounting experience for our future clients. It’s been an amazing ride thus far, and we look forward to growing and helping to pioneer the future of Cloud Accounting. 

Choose Change. Choose Capex.

https://www.firmofthefuture.com/content/intuit-announces-2017-top-four-global-firms-of-the-future/

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- Written by: Jag Bath

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Starting your Business after a Career setback where to begin?

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Starting your Business after a Career setback where to begin?

Starting your own business may seem like an overwhelming decision, but if you’ve recently suffered a career setback, it may be the best path for you. Not only will you be able to dictate what your responsibilities are, you may be able to set your own hours, find a business that you enjoy being in every day, and hire your own set of employees who will work hard to make your dream come true.

There are lots of details to consider, but with a good plan and some preparation, you’ll be ready to tackle anything that comes your way. The first step is to think about what type of business you want to start. Consider your hobbies and things you’re skilled at; if you have a college degree, you can apply it here. Your new business should be something you really enjoy, because it takes a lot of hard work to get up and running and you want to ensure that you’ll still be invested years down the road.

Here are some of the best tips on how to get started with your own business.

Think about the consequences first
Starting a business takes a lot of planning, and things don’t always go as planned. Think a few steps ahead and picture running your business on your own. Will you have the fortitude to handle it? Most small business owners work very long hours and don’t see much return on their investment in the first year or even two years; do you have enough money saved to get you through the lean times? Will your schedule allow for it? Write down all the pros and cons before taking any steps to ensure you won’t have any nasty surprises down the road.

Think hard about the type of business you want
All successful businesses start with a good idea. Don’t allow yourself to be drawn into a business concept that may only be a passing fad; instead, develop a solid plan and work from there. Ideally, it’s something you’re passionate about and/or have experience with so that from the beginning, you’re ready to jump in with both feet.

If you don’t have enough experience in any one field, think about becoming self-employed. This will give you the freedom to set your own hours and choose the type of business you want to break into, such as real estate. Becoming an agent will give you valuable experience and will allow you to work with people who might be able to refer you to new clients, meaning your money-making possibilities will only expand.

For more info on becoming a real estate agent, read on here.

Do some research
Test out the current market for the product or service you want to provide in your community and work your way out to see what the demand will be, and also to find out what competition you may be dealing with. If there is a similar business in your neighborhood, do some research to find out how they do things, what their customer base is, and what their price points are. This will help you decide how to proceed with your own concept.

Establish a budget
One of the most important steps in starting a business is to establish a budget and figure out if you’re going to need investors. Sit down with a financial advisor so that nothing is overlooked and think about what your startup costs will be, as well as how much you’ll need to get through the first several months to a year. Include funds for a storefront, if you’ll be buying one, as well as taxes, licenses, and funds for employees.

Starting your own business is a big job, so reach out for help from professionals or from people who have experience in the field. Garner support from friends and family, as well, so that the process isn’t so scary.

Article written by - Larry Mager

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Top 10 Federal Budget 2017 changes

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Top 10 Federal Budget 2017 changes

On Wednesday March 22nd 2017, our Canadian finance minister Bill Morneau introduced the 2017 budget. Out of the many changes a few were spared including the personal tax rates, corporate tax rates and capital gains rates.

  1. Innovation Credits the Canadian government would like to provide new financing support in the realm of $1.4 Billion for clean technology firms to grow and expand. Over the next coming months the application process for these programs will be finalized and companies can apply.

  2. Tax Planning using corporations is under review by the Canadian government. Corporations were effectively used to avoid or minimize the tax that corporations and shareholders would pay. The main areas of tax planning within a private corporation being targeted is a) Incoming splitting, b) Passive investments and c) conversion of regular income into capital gains.

  3. CCPC Status stands for Canadian controlled private corporation which carries many benefits. Budget 2017 has proposed changes where the status of the CCPC which is entitled to the small business deduction of $500,000 will have to pass additional tests. Although a tax payer may not having voting control (Common shares) of a corporation but they can still have influence over the directors where such a case can be established the small business deduction will have to be shared amongst the corporations.

  4. Stop loss transactions: Before Budget 2017 a taxpayer could enter into two transactions where the first transaction would trigger a loss prior to the tax year and as such reducing the taxes for the current year. The second transaction would trigger a gain preceding the year-end in which the gain would not be taxed for a whole year. If parliament agrees to eliminating this tax technique than all future transactions will be disallowed and taxed under the new measures.

  5. Accrual basis Accounting: As many of you would know there are two methods of accounting being cash and accrual. The primary difference between the two relates to revenue timing. The Accrual method will calculate the tax owing position based on revenue generated and the cash basis accounting method would calculate the tax based on cash collected. The professions being impacted with the new budget will eliminate the choice of choosing between the methods and force Doctors, Engineers, Lawyers and Accountants to use the accrual basis. A letter is expected clarifying this but it will allow for a 2 year transitional period.

  6. Caregiver credit system: Budget 2017 proposes to simply and streamline the caregiver credits. The infirm dependent credit, caregiver credit and family caregiver tax credit will be phased out and replaced with the new Canada caregiver credit. Where the credits will apply to the families that live or don’t live in the same household.

  7. Medical tax credit: Individuals who incur medical intervention to conceive a child will be eligible for the medical tax credits. Prior to the Budget 2017 these expenses were limited to those who would generally be eligible for medical infertility.

  8. Public Tax credit: This tax credit used by many will be phased out as it hasn't encouraged people to use public transit and reduce green house emissions. It's unfortunate as this was one of the few credits that students and commuters would claim.

  9. Ride sharing: Your Uber will be taxed with the GST/HST taxation and have the same rules applied to taxies to be applied to the ride sharing companies. Basically your Uber will cost you more now but be just as safe as taxis due to the added regulations.

  10. Increased funding for CRA: The budget announced that half a billion dollars will be used to fund the CRA over 5 years in an effort to prevent tax evasion and improve tax compliance. It means we will be having many more auditors being hired and policing tax evaders. Ensure you always report everything to the CRA and always keep your receipts as they can go back by 6 years to audit/review your books.

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- Written by: Jag Bath

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We are your Accountant 2.0

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We are your Accountant 2.0

Change is the only constant in the new age of technology. Technology changes companies and even entire industries might get wiped out. The days of looking at a set of financial statements to see how the business is performing are long gone. Small businesses require more relevant information on their business to help make the decisions of tomorrow.

In the past Accountants have played the role of what we call historians. Accountants would typically speak to the historical financial performance and assume that to be a viable representation of the future growth of a business is inherently flawed. Let's think of a practical example, If Rogers Communication loses 20 million in revenue it wouldn't be such a big deal had they lost 20 million cellphone subscribers. Take that in for a minute basically the market now reacts to new information such as the subscriber base which isn't represented in the traditional financial statements. The understanding here is that focusing on the bigger pictures leads to the bigger results i.e. higher subscriber base will bring in the higher revenue.

As such each business has what are called key productivity indicators. It's important to study these metrics as you can not make something better and bigger if you don’t measure it. Measuring can be a lot of administrative work and can be counter productive unless you use the cloud. The cloud can shape your business and empower you the business owner with just in time information. Imagine having the ability to check how your business is doing above and beyond the business bank account.

Imagine being able to run the Profit and loss, balance sheet and cash flow statements all by yourself or just running simple dashboards to see how you did from this month versus the last month? Being able to do projections and set sales targets with a few clicks of the mouse and done. Setting up targets is critical for growth and understanding why you didn't hit those milestones is what financial information should be used for. Reading past the numbers is what business owners require and need and delivering this in a robust and efficient way is what the new breed of accountants will need to adopt.

The 21st century business owner wants a new breed of accountant who plays as a linebacker while they play the quarterback. The days of seeing your accountant once a year are coming to an end and for accountants being a benched player are slowly drifting away. It's game time and it's a exciting opportunity to help each business grow and flourish.

Embrace the silver lining of the cloud and feel the difference!

Choose Change. Choose Capex.

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- Written by: Jag Bath

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'Free' Personal Tax Filing

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'Free' Personal Tax Filing

It's that time of the year again and here we are another year staring at our T4 slips and asking that question….Where did all the money go? It's important to have your taxes filed on time and every year because there are some tax breaks that you can qualify for and receive rebates. These rebates won't make it to your mailbox if you don’t do your annual tax filing.

The perfect website to use to file your personal simple income tax returns is www.SimpleTax.ca. It's a friendly, fast and efficient way of having your personal taxes filed this year. Paying someone to do a simple tax return can be money used to invest in your RRSP or TFSA account. #SaveTheChange

In case you owe money to the CRA outstanding tax owing amounts can rack up penalties and interest. In case your curious the penalty is 5% of your 2016 owing amount plus 1% for every month that it's late for a maximum of 12 months. So a pro tax tip is to file your tax return even if you can't pay the total amount so you can avoid the late filing penalty.

If you choose to skip out on your taxes for multiple years you get yourself into deep waters where the penalties get really expensive. The penalty will be lesser of the 10% of the amount you did not file and or 50% of the difference between the understated tax and or related to the amount you failed to report.

False statements on your tax returns is serious and if it carries it's own set of tax troubles. However, the Canada revenue agency understands that mistakes happen and if you catch this mistake before the CRA than you can get away with just a simple slap on the hand! The program is called the voluntary disclosures program.

Key things to remember when filing your personal tax return this year.

  1. Did you report all your T4, T4E, T5 and other tax slips received in the mail?

  2. Remember that Presto and TTC passes are tax deductible not your regular trips. (i.e. the actual cards).

  3. Did you pay any rent for the year? That's tax deductible

  4. Did you take care of your parents and or child? That's also tax deductible.

  5. If you had any tuition or professional fees paid you should claim those expenses.

  6. One of the expenses rarely claimed is medical bills (i.e. prescriptions).

  7. Did you sell your primary residence in 2016? This is a new requirement and needs to be declared

  8. Do you own any foreign property? Please ensure to claim this on the form T1135.

Please use the following resources:
Interest & Penalties
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/ntrst/menu-eng.html

Deductions:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/menu-eng.html

Tax Software to use:
https://simpletax.ca/

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- Written by: Jag Bath

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Top 5 things you need to know when buying a Business!

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Top 5 things you need to know when buying a Business!

When buying or selling a business there are essentially two types of sales: an asset sale or share sale. The structure of the deal is important to avoid any unwelcome surprises. 
 
There are 5 main considerations you need to look for: 
 
1. Liability - With a share sale, all the assets and liabilities are translated to the new shareholders of the company. This means that the seller gets to walk away from any liabilities and the buyer would assume all responsibility for such. i.e. Pending tax returns or tax liabilities. As an Asset sale allows the buyer to essentially pick and choose the pieces of the business that are attractive the liabilities generally remain with the seller. 
 
2. Employees - In an asset sale, the non-union employees i.e. regular employees will not be taken by the buyer. More commonly, however, the seller will negotiate extended contracts for the employees so that wrongful dismissal claims from employees can be avoided. In a share sale, the targeted company's employees remain employed with the company as only the ownership of the shares are swapping hands. If the buyer chooses to retain or terminate the employees then the buyer will have to pay the severances accordingly. 
 
3. Complexity - Share sales are less complex than asset sales. An asset sale will require additional documentation of the assets being transferred over at fair market value and non-arm's length. In contrast, under a share sale the assets of the target company will remain within the company and only the shares and any shareholder loans would need to be accounted for. 

4. Taxation - Share sale - The proceeds of a share sale above the seller's adjusted cost base are taxed as Capital gains (50%) to be included as income. However, if certain conditions are met such as the business being a active business then the $824,176 lifetime capital gains exemption( 2016) can be used to avoid the capital gains taxation for qualified small business corporations. The capital gains taxation can be further reduced by using intercompany dividend transfer strategies. 
     
A buyer might prefer to do a share transaction to take advantage of the non-capital tax loss carry forwards (business losses) can be applied against future income. A share purchase also allows the buyer to avoid paying sales and property taxes on purchased assets. These taxes can be significant when combining the sales tax and the property taxes which can be avoided by implementing the right strategies. 

5. Taxation - Asset Sale - A seller will usually want the purchase price to be optimal to minimize the recapture of capital cost allowance previously deducted on depreciating assets. If the price paid for a real estate building was $500,000 the historical price recorded would have been that on the balance sheet. However, the fair market value of such a building in downtown Toronto today could fetch $1.5 million which would be hit with a 50% capital gain tax leading to a hefty tax bill. 
     
A buyer, however, will like to allocate as much of the purchase price as possible to the depreciating property so that they can take advantage of the higher tax depreciation expenses to offset income. The valuation of these transactions will be restricted by the fair market value of the depreciating property. The buyer will be hit with the property transfer tax on real property such as buildings and equipment and the sales tax on equipment or inventory. 
    
As you can imagine the complexities behind making such a business transaction requires a deep understanding of the tax act. It's always a good idea to get a second opinion and to structure the business deal so that it benefits both parties. Get a Capex CPA to help you keep more money in your pocket! 

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- Written by: Jag Bath

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What is a Capital Gain?

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What is a Capital Gain?

When making financial transactions most investors forget about the "Capital Gains tax". Most financial transactions are subjected to Capital gains taxation when you sell or are considered to have sold capital property. So what are some examples or cases where you are considered to have sold Capital property?

  • You exchange one taxable property for another

  • You sell your property for non-cash i.e. a gift

  • Shares or other securities in your name

  • You settle a debt owed to you

  • You transfer certain property to a trust

  • Your property is expropriated (government takes it over)

  • Your property is stolen/destroyed

  • A Corporation redeems or cancels shares (T5 slip)

  • You leave Canada permanently

  • The owner dies.

If any of these above situations apply to you then you would have to declare them on your personal T1 Tax filing (line 174 for the curious people).

There is an exemption on your principal home being the house you live in. When you sell your principal home and move to another home the gain on such a transaction is free of capital gains to the maximum of $813,600 lifetime exemption (line 254). In fact, up until Oct 2016 you didn't even have to declare any of these transactions on the T1 Tax returns. The Minister of Finance declared that a major change to the principal home exemption will be that all such sales will need to be reported on all Tax returns effective November 2016. Why these rule changes you might be wondering? Perhaps the CRA are trying to limit the house flippers in the market or maybe it's because too many people are misusing or not paying the capital gains on these property dispositions. #TaxLoopHoles

To fully understand the capital gains taxation, we have to look at the adjusted cost base. The adjusted cost base (ACB) is essentially the total cost of buying the property plus any expenses on disposition. Once you have the ACB what you can do now is take the total sale price ($100) minus the cost ($80) gives a total profit of $20. This profit of $20 will be 50% exempt from capital gains tax but the other 50% will be taxable. The $10 profit realized will be taxed at 35% which would raise a capital gains tax of $3.50. #Simple

There are certain rules in the tax act which are "special" in nature and can truly work in your favour. One such special rule is identical property rules or better known as replacement property rules. Let's think of a golf course and owner John bought this property in 1988 and sells it now in 2016. Now evidently, the price paid for such a golf course in 1988 would have had a smaller ACB resulting in a higher capital gain. Identical replacement property rules allow for the capital gains tax to be deferred by replacing the property with another golf course. This golf course can be anywhere within Canada and in many such cases, it's cheaper to buy another replacement property than it is to pay the capital gains tax.

It might be beneficial for you to speak to your accountant to time your financial transaction to ensure you are not hit with a Capital Gain tax. A great CRA resource to check out is the following below link.

http://www.cra-arc.gc.ca/E/pub/tg/t4037/README.html

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- Written by: Jag Bath

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Charity Tax Benefits

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Charity Tax Benefits

Generally, there are two main advantages that arise from giving to registered charities. Well, the first one is that you're helping out some people who actually need help and you’re getting a tax break. If you’re in the Christmas spirit and would like to make some charity donations then it might be a "Taxvantage" for you to donate to a registered charity. The tax savings you get from the first $200 of donations on your federal income is 15% ($30 tax benefit) and if you decided to donate $100 more bringing the total donation to $300 the federal income tax credit jumps to 29% ($29 tax benefit). The obvious incentive by the government is to have you donate more than $200 a year.

To receive credit for the donation you made you must receive an official receipt from the registered charity. An exception to this is when donations have been made by your employer on your request which shows up on your T4 tax slip. It's always a great tax strategy to bump up on your donations during the end of the year like December is a perfect month to be charitable. You can make your charitable donations using your credit card and as long as the donation is processed by the end of the year the receipt will be dated for the current year. This is important because for T1 tax returns are based on a calendar basis i.e. Jan 1st to Dec 31st.

Take advantage of the special tax rules by donating other types of assets than cash. When you "gift" an asset in most cases you're considered to have sold the asset for a price equal to the market value at the time. That is what tax geeks like us refer to as "deemed disposition" and it would trigger a capital gain on the asset which directly translates into a tax liability despite there was no cash that traded hands. However, there will likely be no tax to pay because you'll receive an official tax receipt to claim the charitable donation equal to the market value. This can be beneficial where you would like to help out the charity with musical equipment which generally holds their respective market values.

A common tax scam is charity scam. It's sad that some people misuse the tax system where charities are targeted as tax shelters. The reasoning for the rise of tax shelters is because you can legally donate 75% of your gross income to a charity. A number of organizations give out receipts for your donation that are not really "official" receipts. The amounts you give to these charities can't be claimed. The question to ask isn't if you will receive a receipt but if you will receive an official receipt being the charity's registration number is noted on the receipt. You can do your due diligence by checking the following link to see if the charity is registered on the CRA website --> http://www.cra-arc.gc.ca/charities/

The CRA requires the following to be noted on an official receipt:

  • Your name and address.

  • The charity’s business number (BN), which is also known as its charitable registration number. This is a 9-digit number followed by “RR.”

  • The amount of the cash donated or the market value of a noncash donation.

  • The date of the donation. If the donation was in cash, then simply the year needs to be noted.

  • The statement “official receipt for income tax purposes.”

  • A notation of the CRA’s name and Web site (www.cra.gc.ca/charities).

  • A unique serial number.

P.s. Don't fall for those charity scams offering you $10,000 donation official receipts when you pay these scam artists $1,000. All it takes for the CRA is to find one person who fell for this and everyone who took part of the scam will be hit with penalties and interest at the bare minimum. It's not worth it! Keep your tax returns #clean.

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- Written by: Jag Bath

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Shareholder Loan - Don't get Burned!

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Shareholder Loan - Don't get Burned!

In a ideal world, it would be great to keep "borrowing" the cash from your business without ever paying personal tax on it #iWish. However the CRA have rules/regulations to ensure this does not happen and they collect the personal tax element by having you declare it as a dividend, bonus or salary. With some planning, you can minimize the personal tax hit on this. Generally speaking you as the director/shareholder can borrow funds from your company and when you do not repay it back within one year, the CRA will assess the loan balance as "ordinary income" which is a similar tax rate as salary. Unlike salary, however you can not expense the shareholder loans leading to no real benefit being realized. Confused yet? Let's run through an example

For example, John borrows from the business ($50,000) throughout the year which was tracked by his accountant in an account called "Shareholder loan" at the end of the year the proceeds of the loan were not declared as a salary or dividend. The CRA can assess this to be income carrying with it a tax payment of $9,000 personal taxation and $7,500 in taxes to your Corporate tax, roughly $6,000 more than had you declared this income to be a dividend or salary.

To avoid the double taxation hit you have a few options. You can repay the total loan amount of $50,000 back to the corporation within the year and not trigger any taxes. Borrowing more money from the corporation to offset the original loan won't work the CRA are smarter than this and have rules placed for this too. The CRA will call this out to be a continuation of the original loan leading to a bigger tax problem. #TaxProblems

Let's assume that you declared this loan as a dividend. You can now write off the entire $50,000 against your corporation as a Dividend expense. You can additionally claim the small business deduction and pay 15.5% on the income that is left over in the corporation after paying the Dividend. The shareholder can effectively take the non-eligible dividend amount of $35,000 tax-free and then pay the taxes on the left over $15,000 which would roughly be $2000 taxes on this dividend.

Being able to draw funds from your company is a great benefit rather than taking a salary because your cash needs changes on a year to year basis. Paying tax on money that you do not need does not make sense. It's important to figure out what your total budget is and withdraw the funds required. Remember to declare your dividends before Feb of the next year if your year-end is Dec 31st.

Bookkeeping helps to keep track of this. Don't be caught in a homegrown tax problem. Let your Accountant handle it!

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- Written by: Jag Bath

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Life as a Realtor

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Life as a Realtor

Realtors are amongst the top earners in Canada and with record high commissions for the year 2015, being a realtor was very profitable. The property prices are so expensive in the GTA that it reminds one of #SanFrancisco. With the rise of property prices followed higher commission income which pushed many realtors into higher personal tax brackets leading to higher tax liabilities. Since RECO does not allow Realtors to incorporate their real estate business they are forced to collect cheques under their own names from their respective brokerages being hit with the highest personal tax brackets (46%+) #Yikes

There are many strategies that exist to counter these higher tax hits. Consider the strategy of incorporating a management company which would pay for all the advertising, gas, promotions and other eligible realtor expenses. This management company can turn around and upcharge the realtor from 5% to 15%. Since the management company will be eligible for the small business deduction the corporate tax rate will be 15.5% on all active income. The Realtor pays the management company for all the expenses incurred, this can effectively help reduce the Realtor's tax liabilities with an expense lift and shift #Strategy. There are certain details that must be followed in order to make such a strategy work and we can help you with that.

If you have a spouse or family member who manages your management company which is paying the bills and managing your overall business affairs you can pay them a management salary which would shift some income from your personal tax bracket to them. If the spouse has no other income for the year they can take out $35,000 of non-eligible dividends tax-free from the management company.

Vehicle mileage needs to be recorded on a daily basis. This is an audit area that is consistently checked by all CRA auditors to ensure that the mileage being deducted is being recorded correctly. Realtors tend to drive more during the year so the percentage of business kilometers driven in a year is quite high comparatively to other professionals. The management company can help adhere to these regulations by helping support the realtor with a correct recording of mileage. As a reminder, it is important to keep the date, time, the purpose of the trip, starting and ending mileage on a daily basis.

Realtors are also responsible for HST collection and remittance on a quarterly/annual basis. It is important to check if your accountant is not using the simple method of HST calculation which does not usually work well with realtor incomes. It is important to check if you accountant is taking the right ITC (Income tax credits) against your HST collection so that the correct amount of HST remittance can be calculated. 

The Canadian taxation system is designed to give every Canadian the right to strategically do tax planning. Why not use the systems in place to help save you some coin? #TaxStrategies 

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- Written by: Jag Bath

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