The Three “R”s of Taxes 1.Records. One must keep good records. Some like to keep receipts by month, some like to keep receipts by project ,others by supplier or client. It is up to you, but should be kept neatly. They are evidence that supports your financial statement assertions. Receipts could also be electronic, but one must back them up periodically. By back up, that means burn the file on a CD (separate from a computer that could crash), or on a RAID system (series of hard drives with redundant copies), or in the Cloud. Contracts should have a paper […]
In the normal course of business, bartering occurs. It is important to carefully approach this as the tax laws are strict. Basically, one should include the regular normal income as revenue and the cost of the barter as an expense. For example, let’s say John rents a basement apartment for $600 a month to Stuart. John and Stuart agree to cut the rent by $100 a month for snow removal, and lawn maintenance. It is a net of $500 income for John. The CRA wants to see the $600 and $100 figures in the income and expense areas, respectively. For […]
Taxation can be a big problem for small businesspeople. It helps to break it down into smaller more manageable challenges. How does one manage to plan for HST, corporate, and personal income tax? HST is straightforward. HST tax collected minus HST (input tax credits-ITCs) paid out, for a given time period. Good records are important. Find out how often your business must report and file, and that is taken care of. There are no predictions, just pay on time to avoid penalties. HST is very important, but not complex. Corporate/business taxes are more complicated. There are three ways to predict […]
Generally, corporate income is taxed at a lower rate than personal income. For many small proprietorships it may not matter. Corporate taxes may be more complicated sometimes, but generally that is out of an effort to be equitable and cut back on loopholes. Is incorporation for you? From a tax accounting perspective there are rules to follow: First if you walk like an employee, and act like an employee, you cannot claim your income as corporate. The rules are more complex than that, but generally the more one has creative control to get the job done and responsibility to bring […]
A corporation can pay out a salary, or a dividend to an owner. To retain the most cash, a combination of salary and dividend should be considered. It depends on a few factors such as corporate tax rate, personal tax rate, tax credits, and so on.
Corporations who are what I call ‘good corporate citizens’ can apply to pay taxes in installments, rather than monthly. This reduces the monthly hassles and allows the cash set aside for taxes to be kept in the bank for longer. To be eligible, the corporation must: -have a perfect compliance (reporting) history (recent 12 months). This means all forms of federal taxes: Income Tax, HST, payroll (CPP and EI) -earned under $500,000 per year (corporation and associated corporations) -has less than $10 million in taxable capital (i.e. assets) -claimed the small business deduction (for corporations under $500,000 in revenue) for this […]
Normally, companies with less than $30,000 in revenue do not have to register for HST. However, there is one benefit: Input Tax Credits (ITC). Basically Startups have to pay HST on purchases (‘Input Tax’). The CRA will give a refund (ITC) on those input taxes (HST on purchases) to any registered company. For more information: http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-12-10e.pdf HST Registration checklist: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/chcklst/menu-eng.html