Financial Implications of the Digital Economy
Hello All,
I would like to preface this by saying that as I was going down the rabbit hole of the digital economy, I realized that the term has almost become synonymous with business. The number of business that do not participate in some kind of online activity (whether it is your entire business or some part of it) is increasingly shrinking:
According to Statistics Canada, in 2020,
Over 85% of Canadian households had internet access, and over 94% of Canadians aged 18 to 34 years old had internet access.
Almost 80% of Canadian households shopped online in 2020.
Nearly 8 in 10 small and medium-sized enterprises in Canada had a website in 2020.
In 2020, the digital economy contributed to 3.9% of Canada's GDP, and the number of jobs in the digital economy is growing faster than overall employment.
(It should be noted that these numbers do not take into account the full effects of the pandemic which, as we all know, significantly accelerated the size and reach of the digital economy.)
So, basically anyone with an internet connection, a computer or smart phone and some time on their hands can start a business. You can be a content creator, an Uber driver, sell your stuff on Ebay or Etsy, offer coaching services or one of the numerous other types of businesses that operate in the digital era. As a consumer, it is possible that you can have all your needs and wants met without ever having to leave your house (agoraphobics have never had it easier)
While the use of technology is pervasive and continues to accelerate and broaden its scope, the financial and tax mechanisms by which we keep on top of it are being outpaced. One of the more common questions I hear from clients is how to integrate their online activity into their accounting and ensure that they are accurately reflecting the tax implications. In the past you generally recorded sales via a cash register or through invoicing your customers which could then be systematically recorded in your accounting system. Now, you might have multiple streams of income that come through various processors, net of fees which are sold to customers in various jurisdictions and or countries. Each of these places might have different tax laws that you are expected to be aware of, or risk penalties. While, numerous tools are available to help you import and analyze your data (and reduce tedious data entry) it requires a bit more skill in understanding what type of information will be most meaningful. You might also have a false sense of security that these tools (which are in and of themselves part of the digital economy) are doing it correctly, but in fact might be creating a bigger mess.
Governments are furiously trying to keep on the different ways in which the digital economy manifest in the economy, and tax them. While income tax is (slightly) more straightforward in that it essentially total sales/revenues (regardless of source) less business related expenses, consumption tax is becoming increasingly complex. The issues with Consumption tax (eg. GST/HST and QST in Canada) relate to the jurisdiction of residence and what goods and/or services on which it applies. There is more uniformity on this Canada as it is largely federally regulated, but in the US there are more than 12,000 sales state and local tax jurisdictions with arcane rules that can be a nightmare for businesses. In Canada, the most recent challenge has been around non Canadian businesses operating in the digital space such as Netflix, Google, Facebook which have only recently been brought under the net.
So while the digital economy has vastly increased opportunities for anyone wanting to start or expand their business, it is important that any new or growing business owner contemplate the financial, accounting and tax implications of being part of the (impressively sounding) digital economy (or at least have access to expertise that can help).
Blog Post
Another edition of the tax deadlines for 2023 along with a free downloadable “calendar” (perhaps summary is a more appropriate description).
FRI, JAN 27
Know Your Small Business Tax Deadlines For 2023
Somehow we are almost one month into 2023 (!) and it is time for business owners (and individuals) to start thinking about one of their favourite subjects i.e. taxes. I have compiled a list of the
Small Business Articles/Tips
Low investment business ideas: Shopify has a list of business ideas (most of which relate to the digital economy) to start in 2023. I like this list as, in addition to starting a new business, it can also be used as inspiration to expand your existing one.
Financial planning guide: Retire Happy has a bunch of financial data for those of you who want to know all the numbers. Helpfully, it also includes amounts from previous years.
Tax Stuff:
GST/HST for the digital economy businesses: Straight from CRA, what you need to know about GST/HST on cross border services that had previously eluded classification.
More on Tax Changes for 2023: Includes work from home, tax brackets, TFSA and OAS amounts.
QuickBooks Tip:Accounts Receivable Review
If you collect money from your customers or clients after you invoice them, it is important to review your Accounts Receivable Aging Summary (available in QBO reports) to ensure that all amounts have been paid and are being recorded properly. If something looks wonky, your starting point should be to go the customer details and the discrepancy will often be apparent.
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 2023 Tax Deadline Calendar (New!)
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).
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Hope everyone has a snuggly weekend.
Ronika