What Are the Consequences of Filing my Taxes Late?

For a business, it’s vital to know when taxes need to be filed and paid. Having said that, it’s possible that a late filing or a late payment might occur from time to time.  

While it’s best to avoid this at all costs, if it does happen, what are the consequences?

There are two situations here. First we have filing your taxes at the correct time, but missing the payment cut-off date. In this case you would have to pay the owed balance, and you would have to pay interest on that amount. If you file your taxes late, the situation gets more complicated. You would then have to pay a penalty for filing late, you would have to then file your taxes ASAP, and you would have to pay interest on the balance of tax you owe.

It’s worth avoiding both situations, but filing late is the more costly and difficult to sort out of the two.

Let’s explore a few examples, just to make it a bit clearer.

Filing Your Personal Income Tax & Corporate Income Tax Late

In this situation, you would pay a penalty for filing late of 5% of your tax amount, and you would have to pay 1% of your amount for each late month (up to 12 months maximum). So, if you are filing taxes of $100,000, and you’re late by just one month you’ll have a $600 penalty straight out of the gate, before the interest amount. For just one month, that would be around $44 extra, but remember that interest rates fluctuate.

If you happen to be late again, your penalty and charges will be more the next time.

Filing Your Sales Tax Late

It’s harder to calculate penalties for late sales tax filing, but you can get a general idea. A 1% penalty of your owed balance begins the process, and then an extra 25% of the penalty is paid for every single month you are late filing.

As you can see, it’s really not worth being late if you want to avoid unnecessary charges in an economy which is tight enough as it is!

Avoiding Late Filing Penalty Charges

Make sure that you know 100% when your filing needs to happen by and do not miss the deadline. It’s that simple.  

If you have special circumstances which you know about, i.e. you simply know you’re going to be late filing, estimate how much you think you’re going to need to pay and pay that amount before the final deadline.

If you’re strapped for cash, you could opt to file and estimate. This isn’t a good choice, but as a worst case scenario it is better than not filing at all. This means your return will be filed before the deadline, and then when you have sorted your finances out, you can submit an amended return. If you find that you owe extra, you may owe a little interest on top.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

How to Set up a Business in as Little as 24 Hours

With a flourishing economy, it’s no wonder that more and more people are opting to open their own businesses in Canada. The process can seem complicated at first, but a little research and know how will show you that it’s actually easier than you might think.

Let’s explore the process to setting up a business, in as little as just 24 hours.

Business Planning

First things first, you need to have a business plan in place. You need to know what your idea is, you need to have marketed it, and you need to have completed a plan which will help you secure financial backing to begin the setting up process. 

The process of creating a business plan includes:

• Market research and analyzing the results

• Ideas on how to market your brand and create sales

• Choosing the type of business you’re going to opt for

• Creating a name for your business

• Researching and understanding the rules and regulations which are attached to your type of business

Your business plan can then be created, using this information. Ensuring your business plan is as detailed as accurate as possible will help you with the next step.

Securing and Setting up Business Finances

If you require help setting up your business then you will be reliant upon your business plan to do the majority of the talking for you. Again, this is why your business plan needs to be bulletproof. You can then approach banks and other financial institutions for help.

From there, you need to organize your financial situation, to ensure that you have enough capital to start your business, as well as a list of the things you need, and their costs. Having a firm grip on the financial management of your business from the start will help you achieve success.  

Registering Your Business

Once you have completed the two steps above, you will now need to formally register your business. This means incorporating your business, which can be done online. For this step you will need to have a business name, and complete the various paperwork. You will also need to have an office address to register at and a Board of Directors in place.

Ensure the forms are completed correctly and pay the fee. Your application will then be processed.

Managing Your Business Activity

Whether your business is being carried out completely online, or it is in a bricks and mortar establishment, you need a website. This will help you to generate more business. You could look into e-commerce, such as having a Shopify site, for example. It’s also vital to make use of social media channels, to reach more people and therefore drive sales and profits. Businesses which don’t use websites and social media are doomed to failure in this technological day and age so make sure you stay in front of your target audience.

From there it is about marketing the life out of your business to get it off the ground and on the road towards success.  

Happy new year and I hope 2019 helps you chase your dream. Start your business today!

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Understanding Business Expense Claims in Canada

The end of the tax year is almost upon us, and that means filing of taxes is due. It’s not all doom and gloom however, as there are certain things you can use within your business to lower the amount of tax you need to pay. These are known as ‘write offs’, or tax deductions, and knowing what you can and can’t write off is vital at this time of year.

Of course, you can’t just write off anything, and with the Government checking everything with a fine tooth comb, you need to be sure that you’re claiming for the right things only. To help you figure it out, here is a quick guide to the things you should be able to use as a tax deduction.

●      Legal And Accounting Fees - If you outsourced any of your legal or accounting tasks, provided it was related to your business, these can be used as an expense

●      Advertising costs - If you used anything like brochures, business cards, catalogues, etc, which was used directly to market your goods and services

●      Transportation - Provided your car costs were related to your business, or public transport costs related to your business

●      Uncollected debts - Also known as ‘bad debts’

●      Banking charges - Service fees on your business account

●      Business licences and taxes - Fees which are due to maintaining or obtaining the above

●      Technological service provider costs - Any fees which are directly used for subscriptions to Cloud storage or digital services (ISP)

●      Conference and seminar fees - If you attended any conferences or seminars to network and develop your business

●      Expert business advice - E.g. consultants

●      Interest on any money you borrowed to run your daily business

●      Insurance on buildings, equipment, or machinery for your business

●      Entertainment and meals - If you have to take out a client for business, there might be some lee-way here to use as an expense

●      Office renting fees

●      Supplies - Software, stationery, these are all things you can use as an expense

●      Postage cost for mailing marketing content to your customers and clients

●      Taxes on property, as well as any property maintenance costs

●      Employee salaries

●      Telephone costs

●      Utility bills for your business property

These are the main things you can use as tax deductions. Of course, there are a few others which have grey areas attached to them, and you should research very carefully before you try and ‘write off’ any other item not on this list. 

Overall however, understanding what adds up to a business expense and what doesn’t, can help save you a large amount on your outstanding tax balance at the end of the year.

Remember, you will need to show evidence of anything you ‘write off’, so if you are claiming for entertainment expenses upon taking a client out for a working lunch, you’ll need to have receipts and proof that this was indeed a business event. You should also maintain receipts, either electronic or paper-based, of anything else on this list. You will be asked to prove, it and the easier you can get your hands on the papers, the better.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

What is an Annual Federal Return?

Running a business has several different pitfalls attached to it. One of the most dangerous, and unfortunately one of the most common, is not knowing what taxes to file, and when.

An annual return, known as ‘Annual Filing’ is something you need to do every year, and something you must not forget! If you fail to do so, you will receive an official letter from Corporations Canada which informs you that you have failed to file your return, and you are in default. If you do not file your outstanding return as a matter of urgency, your corporation may be subject to dissolution. This means they can close down your corporation.

The wording sounds harsh, and that is because it is. This is a serious issue and one in which you must ensure you a) adhere to on time, and b) address immediately if you do happen to receive that official-sounding letter.

CORPORATIONS CANADA VS SERVICE ONTARIO?

Corporations Canada is the agency in charge to maintain the federal incorporations to collect and keep all information updated. This task is also completed by service Ontario but for Ontario incorporations and all respective provinces have their own agencies that maintain this task. Think of this agency as a renewal of your health card or driver license except in the case for the federal corporations you need to renew each year. Sounds like a cash grab right?

WHAT IS AN ANNUAL RETURN?

If you have incorporated your business in Canada itself. At that point, you will have decided whether to incorporate provincially or federally. If you have opted for the federal route, you will need to complete an annual return.

This is a document which is legally binding and tells Corporations Canada that you are doing business actively. It also gives them important information on your address and anything else which might have changed, as well as the names of your current Board members. Again, this is about keeping their records up to date. If you fail to do this, you will receive the above described letter from Corporations Canada themselves, and you will need to take action immediately.

The ironic thing is, filing your annual return is very easy to do. It takes just a few minutes to do online and it will cost you just $12 to file your return. It’s that simple. It may be that you give the job to your legal team to complete, as the annual return is in fact a legal document.

If you fail to submit your return and you do nothing about the reminder letter, in theory, Corporations Canada can close your company, although it would take two years to do, as you would normally be given extra time to get the return filed.

ORGANIZATION IS KEY

The seriousness of not submitting key and legal documents to the appropriate governing bodies at the correct times is not to be ignored. In the worst case scenario, your business may be dissolved, and in the best case, you are put through a period of stress and worry until the matter is dealt with and closed.

Whether you deal with such matters as business owner, or you delegate the task to your legal team or other member of your organization, double checking that the correct documents have been filed at the correct time, is key. If you can do this earlier than the deadline, all the better, and the less you have to worry about. After all, your annual return is so quick and easy to do.

HOW TO AVOID THE ANNUAL RETURN?

If you don’t want to deal with an annual return every year than you might want to consider opening an Ontario corporation which does cost a bit more up front but there’s no extra compliance related to annual filings. However, if you would like to do business Canada wide it makes more sense to incorporate a Federal incorporation and deal with the $12/per fee per year.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Accounting for Amazon, Ebay, Etsy, Shopify, and Other E-commerce Businesses

Accounting Solutions For E-Commerce Businesses

If you run an Amazon Store, a Shopify business, or any other type of e-commerce investment, you will need to keep records and store them in a very organized manner. Accounting for an e-commerce business is no different to accounting for a brick and mortar business, but there are several more choices you can look into.

When it comes to the financial side of a business, there are often several common questions that an e-commerce business has. These include the following: 

•   Should you think about incorporating?
•   Should you charge sales tax?
•   Should you charge provincial sales tax?
•   Should you register for sales tax in the US?

Let’s explore these in turn.

Should You Think About Incorporating?

If you have worries about liability then incorporating is a good option. The reason is because it gives you more protection over your assets (personal) from creditors. In addition, if you’re making good profits, you should also consider incorporating, from a tax point of view. 

If you are going to incorporate, you might not have a clue where you should start. E-commerce businesses are truly global, after all. Put simply, you should incorporate in Canada if you do most of your business from there, i.e. that is your location physically.

Should You Charge Sales Tax? 

This depends on the products you’re selling online, and how much money you’re earning. The golden figure is $30,000 per year, and in that case, yes you will need to register and charge sales tax. You could still decide to do so, if you earn less.

When setting up your platform (Amazon, Shopify, etc), you should ensure that your setup allows you to collect this tax from multiple areas.

Should You Charge Provincial Sales Tax?

This depends on the province you’re in. You should check ahead of time to find out the specific areas which demand this, and which don’t.

Should You Register For Sales Tax in The US?

This is a complicated area, and a personal decision unless you decide to incorporate in the US. If you have an office in the USA, whether you are personally there or not, you’ll need to register. If you don’t, then you need to think about the advantages and disadvantages of whether to register or not. 

E-commerce businesses fall into that grey area much of the time, and the US sales tax side of things, when not physically in the US is one of those areas. If you have a lot of customers from the US, this is something you might want to consider registering for.

Overall, ensuring that you cover the absolute basics when it comes to tax and accounting for your e-commerce business is vital. Just because you don’t have a static office and employees, doesn’t mean that you are exempt from the complicated nature of tax requirements, and it actually means you’re more likely to miss something important, if you don’t do your research.

We hope this post helps you cover all bases and helps you pick a platform which allows you to charge taxes whenever necessary.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Why do I have to make Tax Instalments?

Understanding Tax Instalments

Whether you’re a brand new business or you’re a freelancer, identifying how much tax you need to pay and when can be a difficult and time consuming process. You may worry that you haven’t accounted for everything and then when payment time arrives, you owe money. This is an unpleasant and unwanted occurrence, for sure.

The best way to avoid any unpleased tax-related surprises is to do your research into the tax system, and to understand when your tax instalments are due. You should also use effective tax planning services, to be on top of everything related to your business. If you opt for monthly or quarterly instalments, you can easily create a more balanced method of managing your taxes, and therefore you will have a greater idea of how much you will need to pay to the Canada Revenue Agency (CRA) on an annual basis.

 Remember, it’s all too easy to focus on the business at hand, including the daily running, which mean less focus on taxes. This all adds up to a higher chance of an unexpected tax bill when January comes around. 

About Monthly And Quarterly Tax Instalments

You will need to pay monthly tax instalments to the CRA if you or your business owes more $3000 or more in taxes in that current tax year, or in the two tax years previously.

There are many benefits to paying your taxes in instalments, not least the fact that there is far less stress as a result. You are effectively using tax budgeting across the entire tax year. 

Quarterly tax instalments are a good idea for businesses who start off slow and then build up to more revenue over time. This means you don’t have to pay a full lump sum of taxes at one time, which could be difficult if you are unsure about how well your business is going to do. Managing your budgets in this way ensures you do not get into a tax issue in the future, which could, in the worst case scenario, end your business.

Quarterly instalments are paid to the CRA at regular times throughout the year, and on the 15th day of that particular quarter. So, you will pay on:

•   15 March
•   15 June
•   15 September
•   15 December

Having set days give you a much better chance at ensuring you have what you need ready, when you need it. You can pay your instalments online, which cuts out on the stress of needing to head to an approved bank. This also eliminates reminders, emails, etc, which in themselves can be stressful.

Tax Management is Vital For The Smooth Running of a Business

Every single business has to pay taxes, whether small, medium, large, or freelancer. It’s an annoyance, but it’s something which we have to live with. Not budgeting effectively for taxes is a common pitfall that can land a business in very hot water indeed. Large lump sum payments aren’t always feasible, especially if a business is new and hasn’t yet built up its regular and reliable client base.

By opting for quarterly tax instalments, you know exactly what you need to pay and you’ll know when you need to pay it. If you have to make monthly instalments, the same rule applies. This leaves business owners and freelancers the time and free rein to focus on building up their business empire, without having to worry about what tax is due and when.

This is all the more important for a small business. As previously mentioned, an unexpected, large tax bill could be enough to end a business which hasn’t yet built up stability. It’s always a good idea to enlist the services of a Accountant to help keep on top of such payments, and this is a very positive step to make. It is also a step which will steer you towards business success in the future, without unforeseen payments coming your way.

So key take away is always make instalment payments if your tax bill is anticipated to be more than $3,000. This will keep stress off your budget and keep CRA from charging you unnecessary interest and penalties.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

5 Most Important Business Tips for Ultimate Growth and Success!

As Accountants we get to see a lot of small business leaders and small business bosses. The businesses that seem to thrive are the ones with the leaders. Here’s our compilation on the 5 most important business tips.

Running a successful business is not an easy job. It demands passion, time, attention, and most importantly planning. There might have been thousands of books written by authors about how you can become successful in business, and a few thousand about achieving success in life. #AudibleLife

You can find many articles, blogs, eBooks, and other content related to the subject, as content of this type is produced on a regular basis. Taking your business to the top is the ultimate goal of every businessperson, but not many live up to the potential.

So how can you become successful in today’s competitive business world? To begin with, it takes a lot of factors to transform a business into a success. You need to understand the market, study demographics, analyze what the consumers are demanding, and how efficiently you can price your products. And that’s just a start.

If your business is struggling in a specific area, now is the time to work and improve. Let us dive into some of the most useful business tips that you can apply today:

1. Stay Disciplined & Focused

Discipline and focus are two most important aspects for success in just about any field; however, working on distraction has become a challenging task for a majority of the disciplined people. This is something that is going to stay for a long time.

These days, in business, you need to understand the art of shutting yourself off when it matters. Though this process is by no means easy, if you are undisciplined and distracted from improving your business, you cannot reach to the top. And if you are unable to achieve these things, someone else will.

If it was easy someone else would be doing it.

2. Grow As a Leader

Once you tackle your fears and are ready to take the step of starting a business, you have already begun your journey to becoming a leader. Your entire success depends on the factor of how much you are planning to help others find their own. Businesses thrive when people work together, so if you are starting a new business, make sure that you are hiring like-minded people and work together as a team. That way, you will not only grow as a businessman but also as a leader.

A leader is not just about managing a successful business; it’s more than that. You should know the tricks to motivate others to join your team. Always believe in what you say or hear, be confident, and provide money for the services you are offering.

3. Get Competitive

Unless your business has an exclusive monopoly, you will experience a lot of competition in the market. Competition is everything, and the key to successful business growth is all about selling. You should know how to sell to excel and stay competitive in the market.

When running a business and competing with other players in the market, it’s all about having a unique selling proposition or USP. This is the factor that makes you better than your competitors. It can be anything related to your business; your product, price, location, but most importantly you.

4. Calculate Your Success

Everybody has a different concept for success. Some define success with passion, some with increasing wealth, etc. The best strategy to calculate success depends on a few key factors:

•      You should love your job
•      You should regularly achieve your target because It creates an impression that you are aware of your goals
•      You should like your product or service and reach out to the customers efficiently.

If you calculate your success by working on these three tips, you will not just become a successful businessman, but your product will also reach out to a broader group of people.

5. Know How to Get Things Done

Successful people in business understand the skills to motivate others and work towards a common goal. They have a unique personality with strong communication skills. They know how to talk and get things done. People that run a successful business are troubleshooters and problem solvers. They know the outcomes, the risks and obstacles involved in running a competitive business, and solutions to overcome problems.

Conclusion

All the tips mentioned above are successful for running a competitive business. You need to push yourself to the limits and remember it will all be worth it. Remember, everyone can start a business and become a entrepreneur, but not everyone can become a successful entrepreneur. There is a big difference the times are changing and new thought methodologies are now required to sustain your competitive advantage. You can’t expect to do business your grand-father’s way in hope’s of leaving a legacy for your grand-kids. Change is Constant let a Professional accountant help you navigate it!

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Do It Yourself Accounting…Should you?

Do It Yourself Accounting…Should you?

Many small business owners constrained by their budgets may question why they would need an accountant. The most common reasoning we hear is “It’s a simple record keeping job” which can be done by themselves in order to save on professional fee costs. Depending on the type of business setup the provisions for keeping track of your books becomes stricter. However, you can potentially do the record keeping yourself for your Sole Prop or Partnership with some basic knowledge of accounting (See link below for the Wave Accounting app to use), where you accurately reflect your business's income and expenses and the Canada Revenue Agency (CRA) may find them acceptable. Accounting is more than a simple data entry job. When you don’t have proper system and processes in place, unpleasant tax surprises can pop-up, goals can be missed and important paperwork misplaced. Generally, Entrepreneurs are not familiar with the constant changes to accounting and tax laws. This may result in punitive penalties or interests from the CRA. Chartered Professional Accountants are trained to analyze every transaction and record it in the manner that it provides most accuracy in reporting which generates great value to the small business owner. Do it yourself solutions do work for the short term but is never a great long term solution. When businesses scale up it becomes important to outsource the bookkeeping services to a professional CPA firm.  

DIY or Hire a Professional?

Trying to save money by doing accounting on your own can often end up actually costing you more in the long run. Let’s think about the time you had a friend trying to cut their own hair, the end product never ends up being as expected. If you are not an accountant/bookkeeper, it is quite common to not understand the complexities associated with tax filing, preparing your balance sheet, managing cash flow on your own. A simple clerical error can be seen as tax evasion by the CRA. Missing CRA deadlines can create hidden tax liabilities for your business. Selecting and mastering the right accounting software is another problem that business owners have to decide on. In Canada, according to Innovation, Science & Economic Development statistics (March 2018), about 96% of new small businesses (with 1–99 employees) survive for one full year, 85% survive for three years and 70% survive for five years. Approximately 7000 businesses go bankrupt every year in Canada. Typically, from two main reasons for this are poor financial management and bad business ideas. As you can imagine a CPA professional can help you steer towards the right direction.

Many people and business owners benefit by using outsourced professional accounting services. CPAѕ have a requirement for соntinuоuѕ education that requires them to keep up to date with the еvеr сhаnging world of tax laws. CPA’s study for years to hone their craft so they can add immense value to small business owners.  Accounting and finance management is not just about recording transactions and categorizing expenses. It is about maintaining financial records in a way that allows your business to strategize better and move towards growth and profit. Hiring a reputable accounting firm can be high value for a growth businesses. The key is to delegate the right tasks and to the right people. Think back to why you started your business…was it to do your accounting or to grow your business with higher sales?

Why Cloud Accounting is Good for Business

If you want your business to work smarter and faster, a solid cloud accounting software could be a great investment. More and more businesses are switching to the cloud to generate the most value from the benefits of online accounting and to help streamline their core processes. The cloud is a platform to make data and software accessible online anytime, anywhere, from any device –including laptops, smartphones, and tablets. Your hard drive is no longer the central hub for all your data. You may actually be using the cloud without knowing you are, think back to when you first started using online banking. Every time you access your bank data, you’re using the cloud. Using any cloud accounting software , you will be able to access real time data and files from anywhere with an internet connection. Some studies have shown that small businesses are gradually moving for cloud adoption. The main benefits of Cloud Accounting can be summarized as follows:

• Safe cloud backup

• Multi user access

• Tiny monthly fee

• One ledger shared with your Accountant.

• 99.99% uptime

So the question you have to ask yourself is why are you not on the Cloud? You can do the accounting yourself but cloud adoption is critical to future proof your business.

Link to Wave Accounting for DIY Accounting:  
https://www.waveapps.com/

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

How Technology Has Modified an Accounting Firm

How Technology Has Modified an Accounting Firm

In recent times, technology has become an important element of the accounting and bookkeeping industry. Transformation in technology has changed the accounting profession, and it has certainly had a positive impact on many accounting firms.

The first remarkable change in accounting technology took place many years ago when firms started using software for accounting. Thus, the profession started progressing at considerable levels with significant improvements in modern technology.

These days, organizations use software for crunching complex numbers, analyzing data, and monitoring economic activity.

Effect of Technology in the Accounting Industry

Gone are the days when accountants used paper, pens, and calculators to verify ledgers and balance sheets. These days, advances in technology have changed the mindset of outdated financial processes, with remote control sessions and basic desktop software being a norm. This rapid change in technology has occurred to such extent that it has left our offices barren of a single file cabinet. #Hubdoc #ReceiptBank

Specialized Accounting Tools And Software

With a majority of word processing tools and software available in the market, technology has improved the accounting field and reduced margins of error that you would otherwise need to contend with. Even though some accounting firms still use the traditional Microsoft Excel for running ledgers and data entry, most organizations today purchase specialized software for accurate financial reports, simplified business ledgers, and data entry

This benefits the businesses and reduces the margin of error in financially secured firms that are better equipped to stay afloat.

Cloud-Based Systems

A noteworthy change in both bookkeeping and accounting practices is happening due to the introduction of cloud-based systems and software.

Cloud-based technologies allow small businesses and organizations to enter and edit financial information, and make decisions accurately. This technology is convenient for business owners and provides more access to accountants.

 A majority of accounting companies today are using cloud-based systems to streamline their processes. These systems provide firms with greater access to their data from anywhere. You just have to log in.

Mobile Accounting

With advances in technology, the usage of mobile phones has become more prevalent. There are now a number of mobile applications dedicated to accounting. These apps allow you to add receipts, send invoices, and prepare expense claims with just a few swipes on the screen.

These apps improve the connectivity between the clients and the accountants and give you access to your entire data, no matter where you are.

Demand For Strategic Training

By employing specialized software programs in the accounting firm, the need for basic accounting training has decreased. An accountant with access to a computer and accounting software can efficiently work on forecast modelling, statistical analysis and tax preparation services today without any particular training.

Accountants are no longer portrayed as number crunchers like they used to in the past, but instead, they are now considered as professionals working alongside strategic teams. These days, a majority of accountants are creating new processes, giving advice and executing future forecasts that a computer cannot do.

Effective Client Transactions

Digitizing operations and data is not just important for your organization but also for your clients. By digitizing your operations, there will no longer be a demand for on-site consultations, and both your clients and accountants can access the data remotely.

They will also be able to monitor, edit, and comment on their statements, discuss and plan out the operations through video conferencing.

Moreover, applications with customer functionality have authorized non-accounting professionals to understand what is going on with their finances more easily.

Accountants With IT Skills

As an accountant in today’s world, it is important to stay updated with the most current advances in technology to enhance your productivity.

There is a wide range of skills that an accountant should learn before applying at any reputable organization. Besides learning the common accounting practices, and communications, accountants should know how to apply these processes with IT programs.

While there are many professionals out there not capable of using modern Enterprise Resource Planning systems, all the professionals in the field should know how to integrate accounting with IT.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Back to Basics...What's a Balance sheet?

Back to Basics...What's a Balance sheet?

A Balance Sheet is a financial statement which shows what you own in the business and where the funding for that came from #FollowTheMoney. This statement is easily confused with the profit and loss statement which is like a picture of the business, think of the balance sheet as a video it captures more than just one time period. The balance sheet shows how the total amount of your assets and liabilities is distributed among various line items like plant, machinery, land, building, cash, bank balances, investors’ fund, your own fund and bank overdrafts, etc. A Balance Sheet has two sides Assets and Liabilities , which show the total of all the business assets (what you own) is equal to the claims or liabilities (what you owe) against those assets.  The report is called Balance sheet because its total on both sides always has to match. It just has to match or it drives accountants nuts. Honestly, the quickest way to get a passionate reply from your accountant is to ask them this question…Why does the balance sheet have to match?

Classified into groups - Divide and understand

Assets and liabilities listed in all Balance Sheets are classified into groups based on their common characteristics like frequency, liquidity and intangibility. Assets are recorded on your right hand side of the Balance Sheet in two main groups, such as, current assets and non-current or fixed assets. Similarly, on your left side of the Balance Sheet, liabilities are grouped under three main headings like current liabilities, non-current liabilities, and Equity. The accurate classification of assets and liabilities are very important to craft accurate balance sheets. So please don’t miscategorize your balance sheet it’s quite painful to fix.

What Are the Main Types of Assets & Liabilities?

• Current Assets are based on liquidity which is based on how quickly the business can convert the asset back to cash. The quicker the time period the more liquid the asset. Examples of current asset include cash, bank balance, accounts receivables from customers, stock-in-trade.  

• Fixed Assets are purchased for long-term use and the assets are not likely to be converted quickly into cash. Some examples of fixed assets are, land, buildings, furniture, and equipment.

• Current liabilities are short-term liabilities which are due and payable within one year. Some examples of current liabilities are bills payable, income tax payable, bank overdraft, short term loans.

• Non-current liabilities are those liabilities which are due after a year or more. Examples include capital lease, long term loans, due to shareholder balances, etc.

• Shareholders Equity is the total investment made by the owners. This includes the money they have invested in the business and any retained earnings from multiple years of operations.   

Knowing the above categorizations would provide a great handle on how to read the balance sheet. You might even impress your accountant at year-end.

Remember the Golden Rule:

Assets must always, i repeat always equal liabilities…Assets + Liabilities = Equity (A+L=E). That’s it. That’s the formula, the golden rule that keeps the sanity of Accountants. One rule to rule them all.

Reading a Balance Sheet…like a Boss.

Balance Sheets provide valuable information to the reader because they provide a better deep dive into a business. A seasoned reader would be able to pick up the total assets of the company, the assets that have been financed through debt or equity. Whipping out some fancy financial ratios can really spice things up. Understanding the performance ratios and the liquidity ratios can help you gauge the performance of your business.

• Performance Ratios: Net profit ratio (it is calculated by Net Profit, divided by Sales)

• Liquidity Ratios: Current ratio (Current Assets divided by Current Liabilities)

• Solvency Ratios: Cash flow return on assets (Net Profit plus Non-cash Expenses, divided by Total Assets)

• Profitability Ratios: Return on assets (net income, divided by total assets)

Remember Accounting is the business language and learning to read this can only help propel your business forward.

 Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Reasons Why Bookkeeping Is So Crucial For Your Business

Reasons Why Bookkeeping Is So Crucial For Your Business

There is no denying the fact that bookkeeping is the heart of any business. Sadly, bookkeeping is still neglected, and that can have an adverse effect on the organization’s prospects and functions eventually.

The fact remains that organizations with poor bookkeeping have to suffer the consequences of financial mismanagement, cash flow oversight, payroll complications and a slew of other discrepancies

Since bookkeeping can play a positive role in your business, it is best to understand why it is so vital for, and what measures you can take to ensure that adequate bookkeeping practices are followed.

What Happens In Bookkeeping?

Bookkeeping is regarded as the process of registering financial transactions of a business and is the basis of another important sector, the accounting process. This includes some vital factors such as:

•       Reporting

•       The classification

•       A complete analysis of all the registered financial data

One can clearly understand that all the tasks mentioned above have no value and can never perform well without precise and organized bookkeeping.

Even though many people would think that the above-mentioned elements are enough to persuade executives about the importance of bookkeeping practices, let us evaluate some reasons and shed some light on the subject.

Management and Financial Analysis

The most important thing to remember: your business needs money to stay in the market, and cash flow management is not an easy job.

No matter how tough and challenging your schedule is, when invoices don’t reach on time, your customers are unable to pay, you can never pay your suppliers, your orders are delayed, and you get a bad reputation.

With precise bookkeeping services, you can easily manage your invoicing and follow-ups while making timely payments to your suppliers.

Time For Taxes

 Managing yearly taxes for your company is not an easy job. You must have a bird’s eye view on all your records including profit and loss, an organized balance sheet, and cash flow to make things convenient when you have to file everything.

By arranging everything accordingly, you will not be able to search for information or receipts at the last minute, but instead, will be able to access everything you need at a moment’s notice.

Convenient Reporting To Your Investors

Another advantage of bookkeeping is informing your investors about what is going on. This creates an impact on your performance and gives you an opportunity to collect more funding when you need to procure equipment or make heavy payments.

Adequate bookkeeping suggests that you are able to show your investors charts, graphs, and any other information that they may demand and that too at a moment’s notice.

Stay Informed and Updated

It is vital for any business to have all the information available, especially when meeting with the board members or higher executives.

Without having adequate knowledge, you will not be able to make informed business decisions, allowing your CFO to prepare an analysis on the reports.

Proper Business Planning

With up to date profit and loss statements and balance sheets, you can monitor if your organization is heading in the right direction financially. Based on your financial status, you can easily make efficient business solutions.

Maintain Records As Directed By The Law

With bookkeeping, you can record and monitor your entire financial dealings and keep everything in order, this also include your tax documents. By doing this, retrieving data becomes easier when it is time for an audit.

Bottom Line

There is no question that bookkeeping helps keep the business afloat. This is especially true when you talk about your working capital and cash flow. However, in-house bookkeeping may lead to increased expenses, which is why it is always wise to outsource the task to reputable accounting firms.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Startups need online accounting software...Here's why!

Startups need online accounting software...Here's why!

You might have heard about this before – an entrepreneur during the initial stages of his business has to become the jack-of-all-trades.

For many years, accounting has transformed and established itself as an official language of business for a reason and without it; no organization on the planet would stay on course.

Some small organizations, particularly the ones that are establishing themselves on the ground believe that accounting helps you a lot in managing your day-to-day business, and is something that is to be used on a regular basis once the business starts shaping with a purpose of monitoring down entire expenses and revenues.

However, this can be a big mistake and no matter how much you are earning and spending in your business, understanding the ins and outs of your finances is vital for the success of your business.

There are many accounting-based softwares out there helping startup firms and entrepreneurs with streamlining and automating tasks; and whether you use them or not depends on the type of process you are running.

With that being said, one efficient tool that can play a crucial role in helping startup firms and organizations is online accounting software.

Accounting Is Not Complicated

Whether you are good at accounting or not, have experience in the discipline or not, it doesn’t matter since most accounting-based software help by managing your entire data, facilitating you with an updated and trustable information to evaluate how your business is functioning.

Back in the day, accounting-based software were used by experienced and knowledgeable accountants and bookkeepers. Now, online accounting tools have transformed in a manner that anyone can use it. With some guidance, and training, the software will help entrepreneurs in the most efficient manner.

The most renowned accounting tools download your credit card and business transactions automatically. You need to categorize them in an appropriate manner and their respective categories.

Streamline, Automate And Go Digital

The most advanced online accounting tools understand that entrepreneurs and business owners have a tight schedule. Due to this fact, new and improved features introduced in the tools help significantly save time. Some of the most widely used features are as follows:

•       Repeated invoices are generated automatically and are directly sent to the customers.

•       The software combines third-party applications and attach pictures of different receipts and bills - reducing paper usage.

•       Establishes general rules around recurring and basic transactions so that the process of bookkeeping is completed on time.

Access Your Data Anywhere

A majority of the entrepreneurs are busy people and spend a significant part of their time planning how they can reel in more customers, communicating with the vendors, establishing storefront spaces, networking and managing the inventory, etc. These online accounting tools facilitate business owners and entrepreneurs with a way to stay ahead on their books while managing other day-to-day operational tasks ensuring that no other part of their business is disrupted.

However, entrepreneurs need to understand that online accounting software is not your everyday computer software. It is cloud-based technology, providing you with access anywhere, any place, and any time.

You can easily monitor or enter your records on your tablet, smartphone, and laptop, desktop from anywhere in the world. All you need is an internet connection.

Online Accounting Softwares Help You Make Uniformed Decisions

The points mentioned above will provide you with a clue why entrepreneurs and startups shift their accounting systems online. Ideally, you can amalgamate your decision by employing an accountant online who knows his way around these tools.

Besides that, there are many other advantages of online accounting software, and while it is critical for your business, it provides you with a general idea of how your business is performing.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

What is Working Capital?

What is working Capital?

Capital is another word for money. All businesses in order to purchase assets and maintain their operations or to produce goods and services must have capital. In the most basic terms, ‘Capital’ is the money invested in a business to generate income. Instead of simply spending it like cash, capital is a more durable concept and it is used to generate wealth through investment. The term ‘Working Capital’ is a part of total capital used (or more technically capital employed) in the business, but it comprises of short term assets and short term liabilities only. ‘Working Capital’ is often defined as the difference between short-term assets and short-term liabilities. In simple words, working capital denotes a ready amount of fund available for carrying out the day-to-day activities of a business enterprise. Capital is the means of investments of an enterprise with long term consequences, whereas working capital is that part of capital used for short term financing like routine operations or for a term not exceeding one accounting period.

Importance of Working Capital in Your Business

Without working capital, you wouldn’t be able to stay in business. A business uses working capital in its daily operations. Any business should have adequate funds to continue its operations and it should have sufficient funds to satisfy both maturing short-term liabilities and upcoming operational expenses. Working capital is a common measure of a company's liquidity, efficiency, and overall health. It is actually a yardstick that measures whether or not the company has enough assets to turn into cash to pay upcoming expenses or debts. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts. A company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers.

How Working Capital is Calculated

Thus, ‘working capital’ is the difference amount between short-term assets and short-term liabilities. To understand this clearly we must have an idea on what are the ‘short term assets’ and ‘short term liabilities. Assets are a company's resources— a useful or valuable things that the company or person owns and which give some economic benefit to a business. Examples of assets (both long term and short term) include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, plant and equipment, and goodwill, etc.

Current assets are short term assets only either in the form of cash or a cash equivalent which can be liquidated immediately or within an accounting period. Examples of current assets are cash in hand and bank, debtors, bills receivable, short-term investments, etc.

Liabilities (both long term and short term) are the obligations or what a business owes to the outsiders. It results from purchasing of goods on credit, bank loan, payable accounts like salary payable, taxes due, etc. Current liabilities are short-term liabilities only of a business which are expected to be settled within 12 months or within an accounting period or a normal operating cycle. Examples of current liabilities are bank overdraft, creditors, bills payable, short term loan, etc.

Working capital is calculated by subtracting current liabilities from current assets. Working capital is the easiest of all the balance sheet calculations to calculate. Here's the formula you'll need:

Working capital = Current assets - Current liabilities

It's that simple. If current assets are greater than current liabilities, the company has a positive working capital, meaning it has extra cash on hand to fund growth projects. It also means the company has a nice safety net in place.

Say, from a company's balance sheet we find that a company has $1000 in the bank, $500 as cash in hand, $5000 as inventory and & $500 receivable from customers. Then its total of current asset is $7000. Now similarly, its balance sheet shows that the company owes $2000 to its suppliers, and it has short term loan amounting $1500. So the total current liability of the company is $3500. Therefore, the Working Capital of the company is $ (7000-- 3500) or $3500.

Why Working Capital Management Matters

If we divide the current assets of a company by its current liabilities, we get a figure which is called ‘Current Ratio’ (or working capital ratio). This ratio attempts to measure the ability of a firm to meet its current obligations. It can be used to make a rough estimate of a company’s financial health. Normally, a ratio much higher than 2 (i.e., current assets double the current liabilities) is a sign that you’re not properly using your funds – either you are carrying too much inventory or not capitalizing on extra cash by investing in growing your business. On the other hand, a Current Ratio below 1 suggests that the company may not be able to meet its obligations in the short run. Each business or industry might have its own ideal current ratio depending upon its practice. Acceptable current ratios vary from industry to industry and are generally considered between 1.5 and 3 for healthy businesses.

Hope this Blog post will help you to understand the importance of working capital and guide you to manage it effectively in your business. However, if you are overburdened with other responsibilities, or need some real professional assistance, we can help demystify and help navigate constant change.

We help our clients looking to get working capital loans to help finance their future growth. Have a question on your growth needs? let’s have a quick chat!

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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 an 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 lets 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, then 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 then 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.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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? 

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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!

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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! 

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

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

Contact your Accountants today click on this link —> https://capexcpa.com/contact

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! 

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team