Small Business Financials from a Tax Perspective
YWCA PowerUp Speaker Series
Presented by: Sarah Dow of SMD Finance Ltd
Agenda
Business Structure | Program Accounts | Fiscal Year
Chart of Accounts | Sales Tax | General Ledger
Who, What, When, Where, Why and How?
Sarah Dow
1(365)336-4185
Registration:
Where do you start?
Business Structure:
Proprietorship vs Corporation | Partnerships | Responsibilities
Proprietorship
You ARE your business.
Income declared on your tax return.
Business Number is not always required.
Corporation
You OWN your business
Corporation files its own tax return.
Business Number is issued upon incorporating.
Partnership
No paperwork required, but highly recommended.
Income shared, but not expenses.
You may need to close the business if a partner leaves.
Outlined during incorporation or through amendments.
Income and expenses shared.
Business carries on as usual if a partner leaves.
Responsibilities
Register your business name with the
Income shared, but not expenses.
You may need to close the business if a partner leaves.
Incorporate and file Organizing Resolutions, By laws,
and annual information return with Corporations
Canada through Online Filing Centre.
Banking must be done through business accounts.
You need to transfer your assets and document your investment.
Program Accounts:
Types of Accounts | Registration | Remittance
Types of Accounts
Corporate Income Tax (RC) GST/HST (RT) Payroll (RP)
How & When to Register
- Register for a BN or Program accounts with CRA through Business Registration Online, by phone, or by mail.
- Corporate Income Tax accounts are automatically created upon incorporation.
- GST/HST registrations need to be done BEFORE you start collecting sales tax.
- Payroll registration can be done any time before the first remittance due date.
How to Remit (Pay)
Payments of $ 10,000 or more MUST be made electronically.
Payment Options:
Third Party Services
In Person
Check
Fiscal Year:
Definition | Registration | Use
What’s that?
A fiscal year is the period that is used to report your financial transactions.
Proprietorships will always have a January 1st to December 31st Fiscal Year.
How to register it?
A corporation can set it’s own fiscal year while registering for program accounts or upon filing it’s first income tax return.
What do I do with it?
Set all of your bookkeeping and reporting to record transactions by fiscal year.
Determine a year end that will benefit your schedule and budget.
Bookkeeping:
What is it?
Chart of Accounts:
Assets & Liabilities | Equity | Income & Expenses
Assets & Liabilities
Fixed Asset: Anything with a lifespan over 1 year.
Deprecated every year according to CCA classes.
You do not have to claim the maximum deprecation.
Includes all debts, payables, and loans or credit cards;
Does not affect income tax balance.
Both are Balance Sheet account types.
Equity
Rarely tracked by proprietors.
Comprised of liabilities, owner withdrawals, and current capital.
Essential to keep up to date if you ever plan to sell your business.
Often confused for retained earnings.
Comprised of shares and retained earnings.
Equity is your worth.
Income & Expenses
If you receive money, it is income!
Cash is nothing but a method of payment.
The only exception is a loan.
If you spend money on something that is used in the business, it is an expense!
Can I claim ____________? Did you use it in the business? .....YES!
The only exception is an asset.
Sales Tax:
Registration | Place of Supply | Charging & Collecting
When to Register
Voluntary registration can be done any time.
Cannot register if you only provide exempt supplies.
MUST register within 29 days of ceasing to be a small supplier.
$30,000 REVENUE within 4 calendar quarters.
If you meet the threshold in a single quarter, you have to register as of the day that you exceed it.
If you meet the threshold between 2-4 quarters you have until the beginning of the second month in the next quarter to register.
Place of Supply
Sales Tax is charged based on where the product or service is delivered.
If products are mailed or delivered; the place of supply is the shipping address.
If the delivery is unsuccessful, you still use the shipping address.
Services (other than personal services) are performed; the place of supply is the address of the customer.
If the address is not provided, the place of supply is where the work is performed.
Charging and Collecting
You must start charging and collecting sales tax on the effective date of registration.
You cannot charge or collect sales tax before registering.
Subtotal x o. Tax Rate =
Sales Tax + Subtotal=
TOTAL
$100 x 0.13=
$13 + $100=
$113
Total/I. Tax Rate=
Subtotal
$113/1.13=
$100
Payroll:
Paying Yourself | Paying Employees | Remitting
Paying Yourself
PROPRIETORS DO NOT PUT THEMSELVES ON PAYROLL!
All of the income in yours.
Owners with 40% control of the company or more are not eligible for EI.
Corporate owners can pay themselves on payroll and/or with dividends.
You can determine a pay rate that suits your business and personal needs.
Dividends can be issued if the company has excess funds..
Paying Employees
TD1 forms must be completed by every new employee and at the beginning of every year.
Contribute the same amount of CPP and 1.4 times the amount of EI.
Payroll Deductions Online Calculator is free but you must also issue a paystub.
Remitting
- Most employers are regular remitters with a due date on the 15th of the following month.
- Periods are a calendar month.
- To calculate your remittance, use the cash method.
- PD7A is required for in person payments.
General Ledger:
Double Entry Accounting | Income & Expenses | Assets & Liabilities
Double Entry Accounting
Method of accounting that tracks both sides of a transaction to balance Assets with Liabilities and Equity.
PURCHASE: Debit expense account, Credit bank account.
SALE: Debit bank account, Credit sales account.
Income & Expenses
Income Statement accounts. (P & L)
Used to calculate your income tax balance.
You can set income accounts to track however you see fit.
Expense accounts must be categorized according to the CRA standards.
Assets & Liabilities
Balance Sheet accounts.
Used to gauge financial performance.
Corporations must categorize them based on CRA standards.
Filing
The final step...hopefully.
Deadlines
Income Tax | Sales Tax | Payroll
Income Tax
File by June 15th
Pay by April 30th
File within 6 month of your Fiscal Year End
Pay within two months of your Fiscal Year End.
Monthly & Quarterly
File & Pay one month after period end.
Annually w/Dec. 31st FYE
Filed by June 15th, Pay by April 30th
Annually w/o Dec. 31st FYE
File & Pay 3 months after FYE
PAYROLL
LAST DAY OF THE FOLLOWING FEBRUARY.
Year End:
Reconciliation | Deprecation | Categorization
Reconciliation
Review your bank and credit statements after every period.
Ensure all transactions in your books and records match the corresponding statements.
Add anything that is missing or edit anything that is in the wrong account.
Deprecation
Check the undeprecated capital cost (UCC) for the previous year.
Account for any additions or dispositions in the year.
Check the current CCA rates.
Deprecate the appropriate amount and record it in your books.
Note the UCC at the end of the year.
Must be done for each fixed asset individually.
Categorization
Cost of Goods, Cost of Labour or Operating Expenses, Prepaid Expenses.
T2125 Categories.
Business use of Home and Vehicle must be calculated and tracked.
Cost of Googles, Cost of Labour, or Operating Expenses, Prepaid Expenses.
GIFI Codes.
Mileage can be paid for use of a personal vehicle at $0.70/km up to 5,000 km & $0.64/km after.
You can pay yourself, rent for you home & office.
Preparation:
Reporting | Returns | Forms
Reporting
- Income Statement (P & L): Check for any exceedingly high or low amount that may indicate duplicate or missing transactions and correct.
- Balance Sheet: Make adjustments for payables, receivables, or deprecation as needed.
Forms
T 2125
Schedule 100 Balance Sheet Information.
Schedule 101 Opening Balance Sheet Information.
Schedule 125 Income Statement Information
Schedule 50 Shareholder Information
File:
Software | Paper | NETFILE
SOFTWARE
GST/HST and Payroll Software may track your transactions or remit a payment, but there are no options for filing.
Income Taxes can be filed using any EFILE certified software.
PAPER
Income Tax returns can be found online to fill out and print or at any Canada Post and Service Canada location.
Sales Tax and Payroll returns will be mailed to you at your request.
NETFILE
Personal Income Taxes can be filed through NETFILE with certified tax software.
Sales Tax can be filed with NETFILE or through My Business Account.
Payroll can be filed through my Business Account.
Thank you!
Sarah Dow | smdow@smdfinance.ca | 1.365.4185
Come visit me at my Grand Opening
64 Hatt Street, Dundas
4:00pm to 8:00pm Wednesday, February 1st