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Now viewing: December 2017

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.