When embarking on a new business venture one of the first decisions that has to be made is the type of legal structure best suits the needs of the new business. In Canada there are essentially two choices - business registration (sole proprietorship or partnership/unincorporated entity) or incorporation. Like many small business decisions, the answer in not necessarily straightforward and depends on the business owner’s specific set of circumstances:Read More
For the majority of income earners, employment status is pretty evident. If you are going to the same place every day, have an assigned cubicle with a computer and corporate stapler, and your boss tells you what you need to do, chances are that you are an employee. Conversely if you have several clients, use your own laptop, and are worried about where your next sale is going to come from, you are most likely, self employed.
The decision to incorporate is one that most small businesses face at some point in their lifetime. Incorporation, literally, represents the creation of a new person. Whereas a sole proprietorship is an extension of one's self, a corporation takes on a life of it's own; it can give birth to subsidiary, marry via a merger and die with a dissolution. It has to file it's own tax return, can be sued and has a set of rules that govern it's existence. Below are some of the points to consider when deciding whether to incorporate:Read More
“I want to create a rival to Twitter. So I want it exactly the same except where it says What’s Happening? I want it to say How are you feeling?”(From the very funny "Clients from Hell")
This pretty much sums up the type of client we don't want - ridiculous expectations, unimaginative and just plain clueless. Conversely, there are some clients that are a pleasure to deal with. Ones that ask great questions, and make us feel happy to have chosen the entrepreneurial route. The more important of these are listed below:
Many of us have clients who are annoying, cheap, stupid , high maintenance or some combination thereof. As a new business owner, we are often stuck with these clients because we need them. However, we look forward to the day when we will have the thriving business that we so deserve, and fantasize about the spectacular way in which are going to fire them (you can shove your business into your rear orifice etc.) This is actually a productive fantasy as can help to channel and concentrate anger. Of course, in the majority of cases, a firing should be conducted with slightly less vigour.
Whether you are an individual or a business in Canada, taxes are an inescapable part of your existence. All sources of income need to be calculated, tax returns needs to be filed and taxes owing must be paid. This is somewhat facilitated if you are an employee as your employer tends to take care of the majority of remittances. Self-employed individuals, sole proprietorships, partnerships and corporations on the other hand, must account for their income and expenses , determine taxes payable and remit the appropriate amounts. Additionally, businesses are also responsible for other filings including GST/HST and QST and payroll. A lack of knowledge, imperfect accounting systems and the business of running a business sometimes interfere with the timeliness of filings. The Canada Revenue Agency attempts to curb these tardy behaviours by imposing penalties and interest on late filings as follows:
One of the perks of being an employee, in many cases, is that your employer will provide health insurance benefits. Whether they pay for all of the premiums or only a portion, this can help to mitigate the costs significantly. Although, Canadians do have the luxury of Medicare, this is often inadequate and as anyone who has ever waited in an emergency ward can attest, may require you to take days off just to have your condition diagnosed (if one wants to look at this positively, it can be a great time to catch up on the classics). While the discussion of our Medicare system is a discussion for another time and another blog, the point is that having health insurance of some variety can help make the process a lot less painful. If you are self employed or a small business owner, however, the cost of health insurance can be prohibitive as you do not benefit from having a policy covering a group of people (thereby spreading the cost which is essentially how insurance companies work). On a personal level, Revenue Canada does provide for a tax credit, but this is only beneficial if your costs exceed 3% of your taxable income (up to approximately $2,000). Additionally the federal credit reduces your income taxes payable by 15% of the excess of medical expenses over the three year threshold. Eg. if your taxable income is $50,000 and your medical expenses are $2,000, your net federal reduction to your taxes payable is$2000 –( $50,000X3%) = $500X 15% = $75.00. This is very small relative to the actual expenses incurred.
So, how can a small business owner or self employed individual convert their medical expenses into business expenses? The answer is to use what is known as a Private Health Insurance Plan or a PHSP.
As the income tax filing deadline for the year approaches small business owners and their accountants are starting to feel the pressure. Receipts need to located, invoices entered, bank statements reconciled. Accountants’ offices are littered with shoeboxes and accordion folders while tax return checklists and missing info lists are being compiled and checked off. Google is starting to note an increase in tax related searches as business owners and accountants search for clarity on a variety of tax regulations, deductions and deadlines .
In an effort to assist business owners understand their obligations, gain a better understanding of the tax filing process and provide some structure to the chaos, I have prepared a list of some essential facts and resources that should help make the process a little more manageable:
On January 1st, 2010, Revenue Quebec will be in increasing the QST rate to 8.5% (yay!), bring the effective rate of QST to 8.925% and total sales taxes (GST and QST) to 13.925%, since the QST is actually charged on the net price + GST. This will affect anyone who charges QST including small businesses and self employed individuals. More info on the rate increase can be found at Revenue Quebec QST Rate Increase page.
For those of you using Quickbooks you will need to update the QST being charged on both sales and purchases. The goal is to make a copy of the already existing QST on Sales and QST on purchases items, which will maintain the old rate. Once this is done the existing "items" should be updated with the new rate. This will automatically feed into and update the sales tax codes, so that you do not have to re-create them. Keep in mind that this should be done on January 1st, 2011 or first day back after the holidays, so that transactions prior to 2011 are not affected. The following are the steps required to make the change:
Having a home based business has many advantages - there's no soul sucking commute to and from work, waking up hours are flexible and it allows us to work when we are at our most productive or creative. Also, it is tax deductible. It can, however, also present a unique set of challenges. Given the proximity of distractions including our beds, fridge and tv, even our primary work tool i.e. our computers, it requires a great deal of discipline and focus to actually get any work done. Below are three articles that provide guidance on having a home office:
Small Business owners should note that for electronic data processing equipment i.e. computer hardware and related software acquired between January 27, 2009 and January 31, 2011, the entire amount of the purchase can be deducted against income. This is a significant incentive for business owners to purchase computer equipment before February, 2011. The accelerated depreciation rate is 100%. and there is no half year rule. The usual CCA rate for computer hardware, which is subject to the half year rule (i..e 15% in the first year) is 30%. To qualify the hardware must be:
- situated in Canada
- new equipment
- used by a business that is conducted in Canada
The applicable CCA Class to select when preparing your tax return is 52.
More information can be found at the CRA website Classes of depreciable property:
About the author: Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest. You can also follow her on Facebook or Twitter.
As an accountant, I occasionally (literally) get shoeboxes of documents from my small business clients. Receipts are stuffed in and scrunched up and comprise everything from gas (good) to toilet paper (bad). As I contemplate the mind numbing exercise where I will have to sift through everything, identify missing information and worst of all, enter it all into an accounting software (usually Quickbooks), I often feel a sense of dread. I've often fantasized about a tool that could do it all for me (of course I could outsource, but since I only have a handful of these types of clients, it is not worth it, yet...). So, when I saw an ad for the Neatdesk scanner (shown ad nauseum on CNBC), I felt a little bit of glee as I perceived a potential solution to (at least part of ) the problem.Read More
Every small business should consider setting up a facebook business page. Except for your time (which is an opportunity cost), there are no explicit costs to setting up a page, and the rewards can be significant. Keep in mind that, after you have set up your page and have found 25 people to like it, you are entitled to a "vanity" url (mine is http://www.facebook.com/montrealfinancial) This, in addition to being kind of exciting, is akin to reserving a domain name for your business.
Below are three articles that provide essential guidance and resources to anyone looking to either setup a business page for the first time, or enhance their existing page. It is important to note that a facebook page does require regular updates, and interaction to act as an effective marketing tool.
When planning to start a new business, one of the first questions you ask yourself (and hopefully your accountant) is at what point are you going to start making money. One simple way to determine this is to calculate the breakeven point, which is the point at which your sales (revenues) equal your expenses.
How is it calculated?