Be Reasonable: August 19th, 2022:
Hello All,
Over the years, I have given advice to numerous business owners. Each of you has a unique set of circumstances and I endeavour to customize my guidance to the specific situation. There are however a number of commonalities and the one piece of advice that I find myself giving to almost everyone in a professional (and often personal) context (and this might be obvious) is to be reasonable.
When you run a business, you are regularly faced with financial decisions. You might have an accountant, a financial advisor or someone else that you can turn to for guidance but ultimately, it is up to you to determine the best course of action. Often there is specific guidance for your issue, much of which can be found with a simple search. Some issues are a little more gray and clear answers are not readily available. Worse, you might receive conflicting advice from different sources (the downside of a resource that returns millions of results for most queries). In this situation, we sometimes have to turn to our intuition (which is basically our collective experience that has been distilled into a “gut feeling”). Tapping into intuition is an art, that must be practiced regularly. The more you have to reach for it, the better it becomes.
So, being reasonable in a sense is tapping into your intuition. If you receive an offer for a million dollars from a Nigerian prince who simply needs your bank account details to initiate the transfer, your intuition will likely tell you to be skeptical. Similarly, if you are told you can expense the cost of your child’s birthday party to your business, it should raise some alarm bells, even your brother’s friend is a “finance expert” and told you it was totally legit. Of course, the answer might be a bit more nuanced (perhaps if business is discussed maybe you can deduct a part of it). The question though is does it make sense? Would a reasonable person do this? Would Revenue Canada (CRA) potentially look at this expense and immediately audit it. If they do decide to audit you, is it worth the hassle of saving a few dollars in taxes?
The goal of being reasonable from a tax perspective is to ensure that, while you should claim everything that you are entitled to, you try to avoiding raising the eyebrows of the tax agencies. This largely applies to soft expenses such as home office, travel, utilities, meals and entertainment etc. What percentage reasonably pertains to business use vs personal? Sometimes it it better to be more conservative when you are claiming something that is essentially an estimate. When CRA receives a tax filing it is passed through certain parameters. If it exceeds them, a red flag will be raised which then results in the dreaded audit letter. Once you have been red flagged the chances of it happening again are higher. All of this, of course can be somewhat avoided, by being prudent and reasonable.
Blog Post
A new blog post! This week, I discuss Personal Services Businesses and what everyone who is an independent contractor, or planning to become one, needs to know
What Independent Contractors Should Know About Personal Service Businesses
Small Business Articles/Tips
Different names for Money, depending on context, from this Instagram post from the Language Nerds
Apparently business bankruptcies are on the rise (not a huge surprise given the impact of COVID and the economy). CFIB estimates that only 1 in 10 businesses would file for bankruptcy if they became insolvent. Many of the rest would simply dissolve their corporations.
A little more on Personal Services Businesses directly from the source (CRA). They highlight 5 industries where the practice is more prevalent: Trucking, IT Consultants, Accountants, Construction, Catering.
An interesting proposed expansion of GAAR (General Anti Avoidance Rule) which is a provision in place to
deny a tax benefit where there has been a tax avoidance transaction and the taxman views the idea as being a misuse or abuse of the Income Tax Act.
CRA is proposing that the rule, which only applied to transactions, to be expanded to include choices. Read more here.
QuickBooks Tip: Matching Transactions in Banking Download
If you have entered at transaction such as invoice, bill or expense, QBO will often automatically create a match. You should then review the transaction to ensure that it has matched correctly after which you can simply click on match. One of the issues that you might encounter is that a transaction, that you know has been entered, is not matching. This might be because it is an older transaction, and QBO (for some reason) doesn’t automatically match transactions that are over a few months old. The other reason might be the amounts might be different (even if they are off by $0.01 it won’t match). In either of these cases click on “find match” within the downloaded transactions and the invoice/bill etc. should appear where you can match it. At the bottom of the transaction, you can “resolve” any small amount differences by selecting a bank charges account to which you can allocate the difference.
Books and Resources
Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed Workers)
This book helps you have a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.
FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.
QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.
FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.
Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).
Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.
Please note that all books on my website are in PDF format.
If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.
Free Resources
Business 2022 Tax Deadline Calendar
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters.
Consultations
I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here.
Note that I no longer provide ongoing accounting or tax preparation services.
Reviews/Feedback
I would love to hear your comments on my current blog posts, topic ideas for new blogs, book feedback or anything else that you want to talk to me about. You can use my feedback form or email me directly at ronika@montrealfinancial.ca.
For anyone who has purchased my books through Amazon or directly and found them useful, I would be very grateful for a review on Amazon (to leave a review you only need to have an account with Amazon even if you did not purchase the book from there).
Finally, if you think anyone would benefit from this newsletter, you can send them to my subscribe link.
May all of you have a relaxing and/or fun weekend!
Ronika