Small business owners have the added responsibility of ensuring that they are aware of, and comply with, a variety of tax obligations. For some, this can be somewhat overwhelming, resulting in an accumulation of government notices, assessments, requests for information etc. that just add to stress levels. While ignoring the problem, hoping that it will go away, may seem like an attractive option, it is important to note that the revenue agencies never forget. They are also both able and willing to take extreme measures to collect upon what they perceive to be unpaid debts eg. Freeze your bank accounts.
The Canadian real estate market has been a good place to invest in recent years, although comparisons to the US real estate bubble, which finally culminated in 2008, are continuing to intensify. Potential homeowners often find themselves seduced by their vision of the perfect home in the perfect neighbourhood and end up in a difficult situation, referred to as “house poor”, where the majority of their disposable income goes to paying down their mortgages. This can be avoided by ensuring that you realistically assess what you can afford and being financially responsible.
What Small Business Owners Should Know about Leasing vs Buying their Car, Corporate Ownership of Vehicles and Deducting Car Expenses
Small business owners who require a vehicle to carry on their businesses are happily able to benefit from a tax deduction relating to the business use of their cars. Given the potential for abuse, the tax rules for deducting these expenses are fairly specific and extend to the definition of business use, types of expenses that may be claimed, methods of calculating the deduction and whether you buy or lease your car. While the decision to buy or lease a car can be difficult enough for individuals (a Porsche is so much more affordable when you lease!), small business owners have an even harder time as the tax implications of the transaction have to be taken into consideration.
Accountants and tax preparers all over Canada are waiting with bated breath for the end of April and dreaded busy season, when sleep will no longer be a luxury and dreams cease to be tax reconciliation exercises. At this point in the month, most tax filers have submitted their info and efiled (or mailed in) their tax returns. Of course, there are always a few stragglers (accountants among them) who have either have not had the time to prepare their tax files or simply tend towards the easy yet stressful path of procrastination. For those that are in the straggler category, below is some guidance to help facilitate the process:
While the Federal 2013 budget or the (more interestingly named) Economic Action Plan delivered on March 21, 2013 was not earth shattering in any way, it is interesting to note how well Canada is performing relative to other countries in the G7. According to the EAP, The Canadian economy has experienced the best performance among the Group of Seven (G-7) countries over the recovery, with the strongest record of economic growth and job creation. 950,000 jobs have been created since July 2009, the majority of which are full time positions in high wage industries. Additonally, Canada is only G-7 country to also have more than fully recovered business investment loss during the recession. And although the recovery has been broad based, investment in the manufacturing sector has been particularly strong.
The EAP also notes that while GDP growth over the next five years remains unchanged, expected growth for 2013 has been revised to 1.6% down from 2.0%. This will be offset by higher estimated growth between 2015 and 2017. Consequently, economists expect lower inflation in 2013. The CPI inflation in January 2013, compared with the prior year, was 0.5% while inflation for all of 2013 is expected to be lower than average at 1.3%. They also expect that the Canadian dollar will remain at par with the US dollar.
The 2013 budget introduces and extends certain initiatives for small business, while also impacting taxes payable for small business owners:
Tax Tidbits for Small Business Owners: Hiring Credit, NAICS Code and EI Contributions for Corporate Owners
It can be difficult for small business owners to keep on top of the myriad of tax rules, interpretations and changes. Whether you depend on your accountant or take a more active role in the administration of your business, being aware of the rules can help save you money, time and the displeasure of the revenue agencies . Below are some tax issues that have come up recently for my clients.
There are many employees out there to whom the promise of self-employment aka freelancing aka independent consulting (all of whom are ultimately small business owners) seems extremely appealing (particularly with a comfortable pair of pajamas). You might crave the feeling of accomplishment that is no longer possible at your current place of employment; you might want greater flexibility or feel that you are not being compensated enough for your skills or perseverance. Or you simply might want a change of pace.
While being self-employed can accomplish all of these goals, the transition itself is not as simple as it might seem nor is it the right decision for everybody. There are many factors that need to be considered and many mental and financial preparations that should be made prior to taking this potentially life altering decision.
When I was employee I never really gave much thought to the T4 (and the Quebec equivalent RL-1) process . I suppose I expected that someone, somewhere pressed a button and they would magically appear as an envelope on my desk. As I transitioned to being an independent small business accountant, who was now responsible for preparing this information and providing guidance to my clients, I realized that the process was somewhat more complicated. Luckily there is software and a variety of resources to help you with the process.
Every year Revenue Canada and Quebec increase the thresholds for tax and benefit amounts to reflect annual inflation rates which is based on the consumer price index data compiled by Statistics Canada. The information is communicated via a neatly organized table on their website, to which links are provided below, for those of you who can’t get enough financial data. For everyone else I have highlighted some of the more interesting changes
For the third year in a row, the Quebec Sales Tax (QST) will be changing. Fortunately, the change is not to the rate, which effectively remains the same, but rather an effort to harmonize the QST with the GST. Consequently, the most significant change is the method by which the rate is calculated.
In the past, the QST used to be calculated on the total sale plus GST. As a result the published rate was 9.5% while the effective rate was actually 9.975%. The harmonization of the GST and the QST requires that the QST be charged on the sale amount only, without the GST. As such the published rate and the effective rate will both be 9.975%. This is illustrated below: