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Carl Bard

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Jackie Joyner-Kersee

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Audrey Hepburn

Business Advisory, Personal and Corporate Taxes, Business Start-Up, Bookkeeping

News You Need to Know

Why Should I Hire an Accounting Company?

Posted January 13, 2018

You can do your accounting yourself, but should you? What is your time worth? What is your hourly rate?

As noted on AccountingDepartment.com, there are a number of reasons why hiring a Chartered Accountant will save you money.

If, for example, it takes you 20 hours to do your annual taxes, but an accounting firm can do them in three hours—but the accountant charges you $1000—are you sure you’re saving money by doing them yourself? That doesn’t even address the idea that an accounting firm has experts on things like taxes, and can represent you with Revenue Canada should you ever get audited—their professional designation means that they stand behind the work they do.

Accounting principles applied correctly to your business will provide you with a clearer understanding of your past, present, and future financial situation. An accounting firm can apply these principles to your record-keeping, making your reports more accurate and adding value.

Another aspect of hiring an accounting company is delegation to experts in their field. Do you take your car to a mechanic? Do you hire a plumber when your sinks get plugged up? Do you cut your own hair? For the same reasons, you should hire an accounting firm to do day-to-day financial transactions as well as big ticket items like annual taxes.

It can be difficult for a business owner to delegate, and it seems like accounting and taxes are pretty easy, and you should be able to just do them yourself. But unless you are in the financial field, chances are good that you aren’t an expert in accounting or taxation. Don’t let your company’s accounting end up being a do-it-yourself haircut!

Another reason to hire a Chartered Accountant firm is accounting and financial advice. When creating a business plan or applying for a loan, an accountant can tell you what kind of loan you need, how much you need, if the terms being offered are favorable. If you are looking at expanding your business, buying a business, or selling your business, an accountant can examine financial records and give you advice to help you maximize your profits. Accountants can also give you advice periodically on how your existing business is doing, and areas where you might need to concentrate or reduce focus.

Accountants and accounting firms are not one-size-fits-all, either. An accountant can be someone you have hired in-house to work exclusively for you as an employee, or they can be a firm that you consult with for a couple of hours a month or quarterly. They can be as much or as little as you actually need to reach your goal of reliably tracking your finances and making good financial decisions.

Contact Shaw & Associates Chartered Accountants to help you out with your financial needs and tax planning and to give you the advice and services that will take you from where you are to where you want to be with your business. One complimentary meeting with them will put you and your business on a more profitable and positive path.


Seven Tips for Your Year End Checklist

Posted December 19, 2017

Out with the old, in with the new! We’re in mid-December (where has another year gone?), and year end is once again looming for many businesses.  No matter when your year-end is, keep reading below for some helpful year-end tips.

The end of one year and the start of the next is a time when most people reflect on the past year, and start thinking about and making plans for the next year, and your business is no exception. Your taxes aren’t due for another couple of months, but year’s end is a good time to start making preparations for another tax season.

Here are seven ideas for things to get caught up on for year-end:

  1. Year-end bonuses. Decide on who gets what, and make sure the appropriate taxes are withheld.
  2. Get your accounts receivable caught up (as much as you can). This is a good opportunity to get in touch with customers and request a cheque before year-end, to square things away on your end as well as theirs. You also want to get your invoicing for this year done in this year, as much as possible. This is also a good time to review customers—do you have customers who need to be moved to a cash basis? Customers who pay reliably, but longer than 30 days could be contacted and offered a small discount if they move to net 30.
  3. Get your accounts payable caught up. You can use this time to review your accounts payable procedures, too—are you keeping good track of your payables, and getting your payments out reliably and on time? Are you missing some steps, or in need of more help? It makes your balance sheets and profit/loss statements more meaningful when they have as much information as possible on them, and the information is as current as you can make it.
  4. Get your earned income and prepaid expenses in order. There will always be some income and expenses that are earned/incurred in one year and received/paid for in the next. These need to be handled carefully, to make sure you get the expense/income in the correct year.
  5. Don’t forget your fixed assets and capital costs! These will need to be updated in preparation for your income tax preparation as well.
  6. Prepare your payroll records. This can be a good time for clean-up in your employee database, too—review the information you have for your staff, remove staff who no longer work for you from the current payroll list, make sure your information for payroll is up-to-date with Revenue Canada.
  7. Get your records ready for your meetings with your accountant/tax preparer. The first step of doing your taxes each year is getting the information together—this can be done well before the April deadlines for Canadian income tax.

Your year-end accounting should not be left until the end of the year! Accounting is a critical, ongoing, living process that should be happening in your company on a daily basis. There are things that can only be done at the end of the year, once the totals for the year can be counted, but this should be a matter of running reports and gathering information. If you are running a professional business, you need to handle your daily accounting in a professional way.

Once you have your accounts in order for year end, another critical step that tends to be overlooked is reviewing them. It’s harder to know where you want to go if you aren’t looking carefully at where you are right now. This is a good time to sit down with your accountant and have a thorough look at your financial condition – balance sheet, profit/loss statement, cash flow statement - all these things need a review with a critical eye, and then move on to making your financial plans for next year, including updating your budget. 

Contact Shaw & Associates Chartered Accountants to help you out with your year-end needs and tax planning and to give you the advice and services that will take you from where you are to where you want to be with your business.


Money For Nothing And Your Rent For Free: Will Incorporating Reduce My Rental Income Taxes?

Posted December 4, 2017

You’re thinking seriously about buying a rental property–now what? The first, obvious thing seems to be to incorporate, because renting properties is a business, but that might not be the best step for you tax-wise. There are definitely pros and cons, as noted by Evelyn Jacks at MoneySense.com

Taxation laws in Canada are not set up to be particularly beneficial for people who own rental properties to see significant tax savings if they incorporate. 

There are also other considerations–incorporating has an expense associated with it up front, and it creates multiple levels of complexity with corporate reporting, more complicated income tax filing, and dividend structures. Unless you have five or more employees working in your rental business, incorporating may not be your best choice.

Smythe LLP in British Columbia has come up with some excellent examples to demonstrate the comparison between a rental property owned personally, or owned by a corporation.

In their first chart, the tax rate paid by the owner of a personally owned rental property is 25%. In the second chart, the tax rate paid by the owner of a corporation-owned property is 28%. The tax rates are comparable (but still a little higher for the corporation), but you have also introduced a corporation and dividends into the mix. This adds another layer of complexity to the problem, rather than you simply reporting your income from your rentals on your personal income tax return, which simply involves one form, and keeping track of and reporting the expenses you incurred to generate the rental income.

You also need to be aware that rolling over personally held property to a corporation may involve a land transfer tax–Alberta does not have one, but most other provinces and territories do, so if your property is out of province, this is probably something you’ll need to deal with.

But wait, you say, don’t I need to incorporate to protect myself and my bank accounts and properties from any potential insurance or legal exposure? That would likely be your most compelling reason to incorporate for rental properties, but these issues can also be addressed with a comprehensive insurance policy–that’s a discussion to have with your insurance representative. If you hold a mortgage on the rental property, the bank will most likely require a personal guarantee against default as well.

Now, let’s talk about what happens if you turn a primary residence into a revenue-generating property, or when you sell your rental property. You will most likely be looking at a capital gains tax at this point. Even if you don’t sell your primary residence, but change part of it to a rental property, you still may be looking at a capital gains tax–the government is interested in any change in the use of your property. 

 Canadians don’t incur a capital gains tax when they sell their primary residences, but changing a primary residence into a rental property would negate that exception.

As you can see, buying a rental property, operating a rental property for income, and selling a rental property can be a complicated undertaking. Our best advice–come talk to us at Shaw & Associates Chartered Accountants, and also talk to your lawyer and your insurance agent before you buy a rental property or start renting out part of your existing property. Pre-planning can save you a lot of headaches in the short and long term.


The 2018 Federal Tax Changes and How They Will Affect You

Posted November 9, 2017

The Federal Liberal Party unveiled the Fall Economic Update at the end of October, after much speculation, debate, and anger regarding their proposed changes to small business taxes over the summer. The package that has been officially released was significantly changed from the original proposal, with the Liberals backing down on several of their ideas after public outcry. But the changes will still have an impact on your personal taxes and your business.

Here is a summary of the key points and how they will affect you:

Decrease in the small business tax rate

The central piece to the tax changes is an announced reduction in the business tax rate for incorporated small businesses. The rate will drop to 10 percent from the current 10.5 percent at the start of 2018 and will further drop to nine percent in 2019. This change should result in a modest reduction in taxes paid by small business for the 2018 year and a more substantial reduction in 2019, both good news for small business.   

Income Sprinkling

When the original tax plan was announced in July, one of the "loopholes" the federal government said they were planning to close was income sprinkling. The intention was to prevent the wealthy from avoiding taxes by paying family members who haven't actually done any work. The overwhelming response, however, was that this was a move that would make a negligible impact on the rich, but which would do substantial harm to the middle class.

The plan has been changed since the outcry and the Trudeau government has instead decided to impose a ‘reasonableness’ test on the payment of wages and dividends to family members. This test will require family members to keep a log of their hours and the type of work they’re doing in order to avoid having to pay income tax at the highest rate possible. While this is an improvement from the July proposal, it also means that many family run businesses will need to be much more diligent in documenting their day-to-day activities, which means a substantial investment of time and effort.

Passive Income

Another key piece of the July proposal was to close a different "loophole" allowing small businesses to accumulate passive income, or investment income left in the company for future use that is not reinvested into the company. Again, the intention was to prevent wealthy business owners from hiding money. However, many small business owners rely on these investments to pay for things such as sick leave, parental leave or retirement. Consequently, the response from small business owners was loud and singular in protesting this plan.

As a result, the government has changed this piece of the tax puzzle. They now allow for $50,000 in passive investment income each year before the higher tax rate kicks in, with the intention of narrowing the focus onto only the top earners. The draft legislation that will implement this change will be released for consultation as part of Budget 2018 in the spring.     

Capital Gains

A final element of the tax reform plan announced over the summer was to eliminate the ability of small business owners to use the lifetime capital gains exemptions to reduce taxes when transferring assets between two small businesses in which they hold shares. This would have had major consequences for family owned and operated businesses—most particularly family farms—as it would have made it significantly more expensive to sell the farm to a family member compared to an unrelated third party. This is because the sons and daughters that are interested in taking over the family farm are often shareholders in their parents’ small business. 

Again, there was a massive outcry in opposition to this plan and the government responded by announcing that they are not going to move forward with this plan. Instead, they plan to consult over the next year with farmers before coming back with a new proposal.  

Conclusions  

The initial tax reform proposal rolled out in July has been regarded by most as being a bad idea, with several elements that would have put a significant tax burden on the middle class without really having much of an effect on the intended target, the rich. Thankfully, the Liberal government has chosen to soften the tax bill significantly. Nevertheless, it is still being criticised.

Jack Mintz, commenting in the Financial Post, thinks the changes will still make things worse. Says Mintz, "Taking into account the new surplus-stripping rules, small businesses with less than $10 million in assets would be more heavily taxed compared to now (45.4 versus 42.2 per cent). Larger small businesses will be taxed just above 50 per cent. So the tax wall gets higher: a firm doubling in size to $20 million in assets will see its effective tax rate on capital rise from 45.4 to 50.9 per cent."

Likewise, John Nicola feels that this tax reform doesn't make much sense, describing it as "wrong" on BNN.com.

It would seem that the experts are united in saying this tax reform plan will hurt middle class Canadians. So it is important, as a business owner, to seek the advice of your accountant to ensure that these changes have the least amount of negative impact on you. Contact Shaw & Associates Chartered Accountants where we work with you and our network of professionals to give you the advice and services that will take you from where you are to where you want to be.


Why Hire a Chartered Accountant?

Posted October 22, 2017

When is the absolute best time to enlist the services of a Chartered Accountant?

When you have a toothache, you go see the dentist. When your car isn't running properly, you call the mechanic. So when your business needs help with bookkeeping, filing your corporate taxes or preparing a budget, you need to call a Chartered Accountant!

There are a number of excellent reasons why you should hire a Chartered Accountant. As noted by The Globe and Mail, these reasons include:

  • Focus on why you started your business—When you try to handle everything yourself, you may start to lose focus on what got you started in the first place. Handing off critical tasks like accounting to a professional so you can keep your focus on managing the business will make you more successful.
  • Find work-life balance—By hiring a Chartered Accountant you can not only help free up time for other work tasks, you can also make more time for your personal life!
  • A professional reputation—a good accountant can help put your company in the best possible light in the eyes of banks and other key stakeholders.
  • It’s vital to a company’s success—Having an accountant to manage the finances is considered to be one of the top five most critical elements in the success of a business.
  • A new perspective—an accountant can provide a fresh set of eyes for the challenges of your company, which may present new opportunities and solutions.
  • They have reach—By bringing a wealth of experience to bear, an accountant can offer insight and best practices to you that you might not otherwise have access to.
  • Businesses need a plan—As Benjamin Franklin once said, "Benjamin Franklin: “If you fail to plan, you are planning to fail!” A Chartered Accountant can help you build a business plan that gives you the best chance to succeed.
  • Chartered Accountants understand tax—Tax laws are always changing and it is an accountant's job to stay on top of those changes, ensuring your business is properly protected at tax time.
  • Analyze data for growth and profitability opportunities—An accountant can analyze, track, and trend your financial picture, revealing opportunities for greater profit and reduced expenses.

At Shaw & Associates Chartered Accountants our designated professionals will help you with all aspects of your business—budgeting, cash flow, payroll, GST, personal and corporate taxes and any other business-related matters. Our accounting technicians will do your bookkeeping and then the Chartered Accountant will use that information to give you high-level advice, advice you cannot get from your average bookkeeper. Rather than going to one place to have your bookkeeping done and then taking that to another place for your financial statements and tax returns to be prepared, you can have it done all in one place at Shaw & Associates.

When you are starting up a new business, an accountant should be one of the first professionals you seek advice from for whether to incorporate or not, setting up your business number, determining the best software and finding out the best ways to pay the least amount of tax. The relationship you create at the start of your business will continue through the life of your business. You will meet with us on a monthly basis for a financial health check – to go through your reports and budget and ensure you are on the right track. We will celebrate the highs with you and be there for you to get through the lows. 

So what are you waiting for? Call Shaw & Associates Chartered Accountants today for your one-hour free consultation and find out what we can do for you and your business!


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