What are the Advantages of Incorporating? 

By Randall Orser | Small Business

While there doesn’t seem to be statistics on how many small businesses are incorporated in Canada, in the US it’s something like 20%. As of June 2016, there were 1,143,630 small businesses in Canada (97.9% of all businesses are small businesses). In Canada, a small business is defined as businesses that have fewer than 100 paid employees. In Canada, when you incorporate, you can use Limited, Ltd., Incorporated, Inc., or Corporation after your company name. Why are small businesses choosing to incorporate their business at the start?

Legal Protection

With a sole proprietorship or partnership, you have unlimited liability, however, a corporation limits your liability to your investment in the company. The debts and other legal judgements against the company do not affect your personal assets.

You can also protect the name of your corporation, at least in the Province you’ve incorporated, or Canada if you do a Federal incorporation. Though if you have something good, it may be worth trademarking it.

Equity Investors

If you are a sole proprietorship, and family wish to invest, then you have to make them partners, which then dissolves the proprietorship, and creates a new entity. Otherwise, it’s just a loan that you pay back. For the corporation, you raise capital by selling shares, and you can have different share structures, such as non-voting or preferred shares where they get their investment back first.

Taxes

The corporate tax rate for small business, if it’s a Canadian Controlled Private Corporation, is 10.5% at the moment, and the provincial tax rates varies on your province. In BC as of January 2017, it’s 2.5% for a total rate of 13% on net income below $500,000. Over that amount it jumps to 11%, and a federally it’s 15% for a total of $26%.

The advantage to incorporation is you can play with your income. You can take all the net income out as wages, or divide it between wages and dividends, or leave some net income get taxed at 13% on that, and take some as salary and/or dividends. You need to keep in mind if you have a personal mortgage, the banks like to see a higher personal income. I have found the banks don’t like all dividends when it comes to income.

Continuity

The sole proprietorship dissolves once the owner dies, and the partnership may dissolve if there’s no agreement in place on the occurrence of a partner’s death, otherwise, it becomes a proprietorship or a new partnership. Corporations, on the other hand, continue until they are liquidated.

Ease of Ownership Transfer

As ownership in a corporation is through shares, this makes it much simpler to transfer said ownership. The purchase of shares allows the company to merge or be sold without having to start the business from scratch.

Legitimacy

To future investors or customers, having the suffix Limited, Incorporated, etc. after you name makes you seem more legitimate in their eyes. For some people, it just seems like your more invested in your business if you’re incorporated, especially to the banks.

Also, being incorporated allows foreign investors to invest in your company as there are not the limitations to invest like other forms.

There are Drawbacks to being Incorporated

Administrative Costs

Maintaining a corporation does have its additional costs over the sole proprietorship or partnership. Corporations have an annual filing fee with the province for provincial corporations and for federal corporations too. Federal incorporations may have two filings as they file federally as well as provincially depending in which province it operates. Of course, if you operate in more than one province, you have to register the corporation in each province, and then pay annual fees.

Also, many provinces work with the Canada Revenue Agency, and are informed when you incorporate, so you may be required to register for Workers’ Compensation depending on the province.

More Documentation

Since corporations are separate entities from the owners, there is increased documentation account setup, and filing demands, such as:

· Articles of Incorporation

· Bylaws

· Corporate Minutes

· Certificates of Good Standing

· Separate Bank Accounts

· Greater tax compliance

There are some requirements for corporations when they reach a certain revenue milestone or the number of shareholders that they need to register with the TSX. And, maybe the SEC in the US.

Double Taxation

The one advantage of incorporation is taxes; however, it can be a double-edge sword. The reason is that the corporation is taxed on its earnings, and the owners pay taxes on any earnings received from the corporation, such as dividends. Dividends though are taxed at a different rate than employment income.

When entrepreneurs consider starting a business, the corporation isn’t the first type of entity they think about. Corporations are a viable choice for a business startup, and have advantages over the other forms.

Are You Considered a Low-Income Worker?

By Randall Orser | Personal Income Tax

In 2007, the government at the time established a refundable tax credit for those Canadians who are working but have a low income, and not attending post-secondary education called the Working Income Tax Benefit (WITB). It was thought this would encourage Canadians to enter the workforce. A refundable tax credit is one that you actually get the money back rather than added to your other non-refundable credits. For some clients, this has meant going from a balance owing to getting a refund, which is always nice. Who qualifies and what do you get with the WITB?

Are you eligible for the WITB?

You are eligible for the WITB if:

  • You are 19 years of age or older on December 31st; and
  • You are a resident of Canada for income tax purposes throughout the year.

If you are under 19 years of age, you may still be eligible for the WITB, if you have a spouse or common-law partner or an eligible dependent on December 31st.

You are not eligible for the WITB if:

  • You do not have an eligible dependent and are enrolled as a full-time student at a designated educational institution for more than 13 weeks in the year;
  • You are confined to a prison or similar institution for a period of 90 days or more in the year; or
  • You do not have to pay tax in Canada because you are an officer or servant of another country, such as a diplomat, or a family member or employee of such person.

If you are eligible for the WITB and the disability amount, you may also be eligible to claim an annual disability supplement. To be eligible for the disability supplement, your working income must be over $1,150 and the Canada Revenue Agency (CRA) must have an approved Form T2201, Disability Tax Credit Certificate on file. If you have not already sent the CRA a completed Form T2201, you must do so to receive the disability supplement.

Some provinces/territories have exercised the option to reconfigure the WITB calculation based on specific social and economic realities. The CRA will determine the amount of WITB to pay based on the eligible individual's province or territory of residence at the end of the year.

For WITB purposes, you have an eligible dependent if you have a child who, at the end of the year:

  • lives with you;
  • is under 19 years of age; and
  • is not eligible for the WITB.

For WITB purposes, eligible dependents can be registered by completing Form RC66, Canada Child Benefits Application. However, if your dependents are already registered for the goods and services tax/harmonized sales tax (GST/HST) credit, the CRA will automatically take them into consideration when calculating your WITB amount.

For WITB purposes, an eligible spouse at the end of the year is a person who meets all of the following conditions:

  • is your spouse or common-law partner on December 31st;
  • is a resident of Canada throughout the year;
  • is not enrolled as a full-time student at a designated educational institution for a total of more than 13 weeks in the year, unless he/she has an eligible dependant at the end of the year;
  • is not confined to a prison or similar institution for a period of 90 days or more during the year; and
  • is not an officer or servant of another country, such as a diplomat, or a family member or employee of such person.

Family net income is an individual's net income added to the net income of their spouse or common-law partner, minus any amount reported for Universal Child Care Benefit (UCCB) (line 117 of the Income Tax and Benefit Return). Net income is the amount on line 236 of the Income Tax and Benefit Return.

Working income for a tax year is the total amount of an individual's or family's income for the year from employment and business (excluding losses).

How is the working income tax benefit (WITB) calculated?

The WITB is calculated using the following information:

  • marital status; province or territory of residence; working income; net income; eligible dependent; and eligibility for the WITB disability supplement.

To see how the WITB is calculated, please refer to the calculation sheet applicable to you, or you can use the Canada Revenue Agency (CRA) Child and family benefits calculator to get an estimate of your benefit.

What is the maximum amount of WITB you may receive?

WITB is intended for low-income individuals and families who have working income earned from employment or business.

For single individuals without children, the maximum amount of WITB is paid if working income is between $7,112 and $11,675 for 2016. The WITB payment is gradually reduced when net income is more than $11,675 (this is referred to as the base threshold). No WITB is paid when net income exceeds $18,529. These amounts vary slightly for residents of Alberta, Quebec, Nunavut and British Columbia.

For families, the maximum amount of WITB is paid if the family's working income is between $10,472 and $16,122 for 2016. The WITB payment is gradually reduced when family net income is more than $16,122 (this is referred to as the base threshold). The WITB payment is reduced to zero once family net income exceeds $28,576. These amounts vary slightly for residents of Alberta, Quebec, Nunavut and British Columbia.

For single individuals and families who are eligible and entitled to WITB disability supplement, the income thresholds will be a bit higher. See here.

Check here for the income levels.

The WITB can be quite beneficial to low-income, working Canadians, and was designed to give them a break on their taxes, as well as encourage those not yet in the workforce to do so.

How are Your Profit Margins? 

By Randall Orser | Small Business

Do you feel like your profit margins are being choked? You are probably finding that you are working harder and harder to make the same profit with the same capital. Or, maybe you’re finding you’re having to put more capital in to your business to stay afloat. You need to know where your profit margin is now, and find means to improve them.

Pricing

So, where do you start? Your pricing is one of the things to check out first. You may want to increase prices by a few percent as this grows your profit margins immediately; however, you need to find a percentage that won’t affect sales. This across the board increase on all prices is doable, but not always practical. A better approach is to look at those areas where a price increase can do the most improvement. This could be where your inexpensive items are marked up, while the more expensive items are not. A great example of this is inkjet cartridges, they cost more than the printer, however, you need them to run the printer and going and buy a new printer when the cartridges run out isn’t practical. Are you offering discounts or special offers? Discounts can give away too much, and don’t always get your recurring business, unless you keep giving the discount; and, special offers can be too charitable. If you’re offering discounts or have special offers, stop them or fine-tune them to increase your profit margins without increasing prices.

Mix It Up

Your sales that is. Have you analyzed the costs of your products? Do you know the margins on each? If you offer services, do you know the costs and margins on each? This is crucial to figure out a strategy you need. This could be looking at how to stimulate your customers to change their behavior by offering a loyalty scheme, or offering bundles (putting two products or two services together, or a product with a service).

Lower Your Costs

Looking at what it costs to produce your product, or service, and reducing them can definitely improve your margins. This isn’t going at your costs with a chainsaw, but doing an accurate study, and seeing the best areas to cut. Where are your orders coming from? A good way to lower advertising and marketing costs is cutting those that are not generating a good amount of sales, and moving your dollars to where they are generating good sales. Being purchasing savvy is another good way to lower costs, such as buying in bulk, or paying for a year and getting a lower rate per month or free months.

Waste Not Want Not

There are so many things that can waste your dollars. Leaving lights on or computers on when no one is around, keeping too much inventory on products that aren’t selling, and using old lighting technology that uses too much energy. Investing in a more efficient plant, can quickly payoff. What products and/or services differentiate you from your competitors? Focus on those, not the ones that are the same or similar to the competition. Low quality can hurt your margins, so look at products that are broken or below par, get returned from customers frequently, and perishables that are beyond their best before date; get rid of these as soon as you can.

Time is Money

Time is money, as they say, and it was never more apropos than on a television show, where a minute is worth about $200! – Dirk Benedict, actor

What’s slowing down production? What’s causing delivery delays? Fix those things and you will vastly improve your margins. How often are customer details taken down? This takes time, the more times you do this the more time the customer is on the phone, but not buying something. Cutting the time wasted taking details more than once, benefits you, but the customer more. You can expedite the process by templating or automating email responses, keeping stock of parts that are ready to assemble rather than having to do a whole run to make the product, which will save you money.

Feel the Churn, well maybe not

Are you watching when customers drop out of the purchase, or stop ordering? When customers drop, this is called churn, and it can cost your business big time. What causes churn? It could be your website is not performing adequately, and customers leave before completing the sale. Maybe it’s that your recurring customers are no longer coming around, and you need some help getting them back; such as targeted offers, sales or discounts, maybe a call from you the owner.

Cut the Slack, Customer Slack

Where are your delivery areas? Are there any outer lying areas that you deliver to, such as rural areas; may be good to cut those unless it hurts your business image. Maybe they can be turned profitable for now by delivering only on certain days, or subcontracting out those deliveries. If you sell business to business, look at your customers and let go of the less profitable ones. Don’t just do this willy nilly, do a thorough study to determine if they need to be let go, and do so as tactfully as you can. Of course, don’t forget your more profitable customers, look at the top ten to twenty percent of those, and see how you can get more business out of them.

Your Business Model Sucks

Sometimes in the end it’s your business model that needs an overhaul. You may be doing customized software, or some other product that’s customized, however you may want to change that model to packaged software selling licenses and get royalties from bigger companies. You can improve your margins with a lower cost by selling a complementary, outside supplied product, which may turn you from a manufacturer into a retailer, but could make total sense.

In our current economic climate, it can be hard to boost revenues, however increasing profit margins may be easier, which in turn creates a noticeable bump in the bottom line.

What Happened to Casual Labour? 

By Randall Orser | Small Business

Once upon a time, the Canada Revenue Agency (CRA), would allow you to deduct small payments made to people that you hired to do a particular job, or maybe work a few hours to cover someone, a student to hand out fliers, etc., and it was called Casual Labour. Those days are long gone. Now, when you hire someone they are either an employee or a subcontractor.

If you’re continuing to pay cash for the odd job here and there, even window cleaning, you are losing out, and cannot claim the expense. And, if you are claiming such expenses, then you are waving a red flag at CRA, and could trigger an audit. CRA will look at your wages expense, compare that to your T4s, and then want to look at your payroll records. If you’ve paid a lot out as casual labour, then CRA will determine this as wages and calculate the deductions according, adjust your T4s, and penalize you for not claiming these individuals as employees. And, you will be on the hook for those casual labour people’s CPP and EI.

CRA is trying to stop the underground economy (any activity that is unreported or under-reported for tax and GST/HST purposes; including moonlighting or working under the table). Casual labour was one of those forces that encourages this underground economy. Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy. In most cases, when you pay someone as casual labour they are not reporting this as income, and, therefore you’re contributing to the underground economy. Maybe without even realizing it.

For the business owner, it can be a pain to have to take deductions off a one-off employee, however, that’s the rules and it’s best to follow them. I can certainly understand that, as you now have to calculate CPP, EI & Taxes on such a small amount of pay. Your best bet is to find someone who can work casual on days you need them, you can treat them as an employee, pay them every two weeks, and you’re good.

You can’t just pay someone as a subcontractor either to get away from not having to make deductions. They need to invoice you, provide a SIN (especially if you’re in construction as you have to do a T5018), have their own workers’ compensation coverage, and a GST/HST number is best. You probably would be better off having some kind of contract for anyone you use on a regular basis.

Remember, you can still pay people cash for those little bits and bobs that you need done. Just remember that you won’t be able to write it off as an expense, and if you’re incorporated and draw out company cash to pay them, that is now a shareholder draw and you could be taxed on it.

Casual labour is dead, and you need to decide what you’ll do with anyone going forward you need just on a few days a month or even a one-off. In the end, you’re better off treating them as an employee, even if they’re your kids.

Is the Home-Office Deduction Worth it?

By Randall Orser | Small Business

There’s been much speculation about the Federal Liberals and their approach to home-based businesses with them possibly taxing you when you sell your home (principal residence), as your either ran a business out of it or rented part of it out. We’ll talk about the home-office deduction as it relates to business for now. It still could be worth taking.

If you’re working out of your home, it pays to look into the tax deductions available for home office expenses. Even though Canada Revenue Agency has recently tightened its rules regarding these expenses, you can still save significant tax dollars by taking advantage of home office deductions whenever they’re available to you.

If you have an office in your home, and it qualifies as a “home office” for income tax purposes, you can claim a portion of your ongoing home expenses. The portion will normally be based on the fraction of the home that is used for your office (you can usually exclude common areas, such as hallways, kitchen and washrooms, when making the calculation). The fraction of your home can be based on either square feet or the number of rooms.

Your home expenses can add up to quite a bit today, as mortgages are higher and you’re paying more interest (wait until rates go up), property tax and city utilities continue to climb, and insurance rates go up; so, it can add up to quite a bit. Some people can spend quite a bit on their home expenses in a year.

The expenses you can claim include:

· rent, if your home is rented

· mortgage interest (but not the principal portion of blended mortgage payments) for self-employed individuals only

· property taxes

· utilities: electricity, heat, water

· telephone (if you have a separate business telephone which is fully deductible, consider whether you also use your personal phone for business calls)

· outside maintenance: lawn care, snow plowing

· minor repairs and supplies

· home insurance.

These expenses can add up to $20,000 or more per year. Even if you’re only claiming 10%, that’s $2,000 off your net income, and $2,000 you’re not taxed on. Of course, the savings go higher, the more you use your home for business. However, be careful how much you use as depending on your business, too high and it could flag you with CRA.

Currently, you might convert a portion of a principal residence to an office or other work space to use for the purpose of earning income from a business. In such a case, a partial change in use of the principal residence will occur for income tax purposes. This will give rise to capital gains tax implications as described in Income Tax Folio S1-F3-C2, Principal Residence. However, it is the CRA’s practice not to apply the partial change in use rules and resulting capital gains tax implications if the following conditions are met:

  • the income-producing use is ancillary to the main use of the property as a residence;
  • there is no structural change to the property; and
  • no capital cost allowance is claimed on the property.

Whether the use of a work space in a home is secondary to the main use of a home as a residence in any particular case is a question of fact. For example, an individual may convert a portion of a principal residence to a bed and breakfast. In order to have no change in use, it must be determined that the bed and breakfast operation is secondary to the main use of the property as your principal residence.

Now if the government does change its mind and tax you on when you run a business out of your home, then sell that home, you will incur a capital gain based on the percentage of the home you used for business. How much is this going to cost you? Well, that depends on many factors. Here’s a quick example.

Joe Smith has been running a business out of his home for 10 years, and has owned the home for 20 years. He feels it’s time to sell as the home is worth so much more than what he paid for it, and doesn’t need as much space with the kids gone. Joe ends up selling for $1.5 million. He bought the place for $175,000 and put about $50,000 into over the years, for a total of $225,000; his costs to sell were $100,000 (including realty & lawyer fees). That gives him a total cost base of $325,000. His gain is $1.175 million. His business used 25% of the home, therefore, he will be taxed on that portion which equals $293,750. Since Joe is married and his wife is an owner they split this gain.

As you can see this could add up to a lot of taxes owing when you sell your home.

Anything with government can change at the drop of a hat, or a change in who’s running the country. The Federal Liberals haven’t at this moment put up plans to tax Canadians, however, that could change. I believe a change will come after the next election if the Liberals win, and you will be taxed if you ran a business out of your home and sell it. I believe, eventually, we’ll be taxed on the sale of our homes period; there’s just too much money at stake.

Our governments are broke and looking for money, why wouldn’t they when they spend like drunken sailors on leave.

Now’s the Time to Check Your RRSP

By Randall Orser | Personal Income Tax

I know, I know, it’s only July, I don’t want to think about tax stuff. However, now is the perfect time to check where you RRSP contributions have been for the year, and where they’ll be in 6 months. Do you have the room to put more in? Do you have some extra funds lying around? It’s not too late to think about a monthly RRSP contribution rather than that lump sum you do in January or February.

I’m going to assume you know what is an RRSP, and have hopefully checked what your contribution limit is for the year. Does your work have a pension plan? If so, how much have you contributed so far, as that comes your contribution limit. If you’ve reached your contribution limit, then what about your spouse? You can always put money into their RRSP, up to their contribution limit (they would need to be the contributor and annuitant).

Planning Opportunities

Contribute early in the year. This helps shelter income for a longer period and increases the compounding of the income in the plan. A monthly plan can also be used to help with cash flow.

Use the spousal plan (including common-law spouse) as much as possible to split the income tax upon withdrawal. Remember not to withdraw from any spousal plan until 3 years after the last contribution was made or it will be added to the income of the contributor. Note that it is the timing of the payment of contributions to a spousal RRSP that governs this recapture rule, not when (or whether) you claimed a deduction.

Make your money work for you. Consider other investments within your RRSP, such as mutual funds. Carefully consider what you invest in to maximize your return. (See schedule on page 3)

Utilize “rollovers” (special RRSP contributions). You may find yourself in a situation where you receive a payment which qualifies for special contribution treatment.

These special situations include:

· Special payments you receive on leaving employment, either in recognition of long service or as damages for loss of office. Note that years of service after 1995 no longer qualify;

· Lump-sum payments received from foreign pension plans for services performed outside Canada;

· Lump-sum payments received from a United States IRA and taxable in Canada;

· Amounts received from the RRSP or RRIF of a spouse, or in some cases, a parent or grandparent, who has died; and • The “cost amount” of shares you receive, directly or through a trust, in a special lump-sum distribution from a DPSP.

The magic of compound interest! Annual contributions of $13,500 at an average interest rate of 8% per annum made at the beginning of each year accumulate over $15,000 more interest in the first 10 years than contributions made at the end of the year. After 25 years, the difference is over $75,000!

The compounding effect of interest earned on the RRSP is clearly demonstrated above by the difference in interest rates. An investment of $13,500 per year at 6% interest per annum grows to $785,111 at the end of 25 years, while the same amount invested at 8% grows to $1,065,885.

Should You Borrow to Finance an RRSP

Interest on money borrowed to make RRSP contributions is not a deductible expense for tax purposes. If you have a choice between borrowing to make an RRSP contribution or borrowing to make another investment, you should always borrow to make the other investment. The interest paid on the investment loan may well qualify for tax deduction and thus offset the cost of borrowing.

Spousal RRSP

A spousal RRSP is an RRSP which names your spouse rather than yourself as the “annuitant” but you have made the contribution. Any amount, which you could have contributed to your own plan under your current contribution limit, can instead be contributed to your spouse’s plan. Contributions made by you to your spouse’s RRSP can be deducted from your income. Your spouse will be taxed when the funds are withdrawn subject to the 3-year rule described in Planning Opportunities above.

Once a cohabitation relationship achieves the status of a common-law marriage under the 12-month or child rule, that marriage is considered to continue until there is a marital breakdown marked by a separation of at least 90 days.

Common-law spouses are included in the definition of spouse and are, therefore, eligible for the spousal plan, although there are still some questions as to how Canada Customs and Revenue Agency will monitor the common-law relationships.

The special rules on spousal RRSPs are very beneficial. Ideally, you and your spouse should have the same amount in your RRSPs at retirement. However, when using a spousal RRSP, you should note that the contributing spouse would be taxed on any withdrawals within 3 years of the last contribution to any spousal plan.

Are You Leaving Canada?

If you leave Canada for an extended period, you must determine whether you are going to become a non-resident for income tax purposes.

If you have withdrawn funds from an RRSP under the Home Buyers’ Plan (you qualify as “first-time home buyers” could borrow up to $20,000 from an RRSP to purchase a “principal place of residence”), and become a non-resident before acquiring your Canadian home, your withdrawals will be disqualified and added to your income in the year of withdrawal. You may cure the disqualification by refunding the withdrawal and cancelling your participation in the plan.

If you have withdrawn funds from an RRSP under the Home Buyers’ Plan and become a non-resident after acquiring your Canadian home, you must repay the entire withdrawal within 60 days of becoming a non-resident. To the extent that you do not repay the amount within 60 days, the unrepaid balance will be included in your income for the period of the year in which you were still a resident of Canada and taxed accordingly.

Now is a great time to review your RRSP, and what you want to accomplish with it this year. Think about all that money you’re missing out on by not investing now, and waiting until January or February of next year. That’s a missed opportunity, and that’s just sad.

Save Your Small Business with Five Money Measures

By Randall Orser | Small Business

Your business needs money in order to thrive. If capital is insufficient, your business goes under. If your business is not able to make money, then it ceases operations. The fact is that you need to handle your money accordingly for your business to flourish. Cash is king, and the practices below will allow you to take good care of it.

Monitor Accounts Receivables and Accounts Payable

At its essence, a successful business hinges on it making more than it spends. As long as your income is greater than your expenses, you’re making a profit. Your Accounts Receivable are those customers that owe you money, and your Accounts Payable are the suppliers that you owe money, and you need to watch these two very carefully. By not watching the money owed to you and that owed by you, you’re ignoring the essence of business, and you could fail.

Margins are low for most small businesses, so you need to give yourself breathing room as well as take risks to outsmart your competition. That means you need to watch your cash flow so you’re never put yourself out on a limb, and can’t meet payroll or produce your product or service. Always collect your receivables on time, and never let anyone get over your terms, and you’ll have a better picture of what monies are available.

Multiple Streams of Income

Your small business has a collection of devoted customers, which feels awesome, and means a steady income stream, so you can support your plans. Counting on just this small group of devoted customers could end up disappointing you in the end. It’s like a sand castle at the beach, the water eventually comes up and brings it down. Your clients could change their mind at any time and not renew their business with you.

Your best bet is to always be marketing. Don’t just sit back and rest, you need to keep marketing and finding new clients. This doesn’t mean a new product, however, revising your product or service or adding value to what you’re doing now may help. You could look at product or services you could add that are compatible with your existing ones. In the online marketing world, it’s all about the upsell (to try to persuade a customer to buy a more expensive item or to buy a related additional product at a discount), and that’s something you may want to do too. Your safety net is always looking for new clients, that way if your current client base wavers, it won’t bring the entire business down.

Always Be Bootstrapping

When you start out you’re usually not buying things, or paying more than you have to for the items you need in your business. This shouldn’t really stop, though don’t become what I call ‘stupid cheap’. That’s where you are so cheap it hurts the business. That said, spending more than you have to on materials or staff, gives you less to spend in other areas, such as marketing. This wrong spending will ultimately have you questioning what happened.

One area you are probably paying too much is income taxes. Are you keeping all your business receipts? For any expense you claim, you must have a receipt, no exceptions. To learn about what you can and cannot deduct, talk to your bookkeeper or accountant, and if you don’t have one then you need to get one. If you put the effort in now, you won’t end up paying over again for the things you bought for the company. Your bookkeeper/accountant should understand your company, and how it works.

Another thing you probably spend on is office equipment, and this turn into a money waster fast, especially technology. Do you really need that expensive desk? Or that advanced computer? Probably not. Standing desks are great, and I do have one. However, does everyone in the company need one? That can get expensive. As I said before, don’t be ‘stupid cheap’, however, don’t go crazy either and spend on things you don’t need.

Know Your Cost of Goods Sold and Profit Margins

Your products cost money to make, deliver, and store them. This is your cost of goods sold or COGs. Your COGs are all the expenses vital to make your product that you sell. COGs aren’t just how it’s produced, but include labour, customer conversion costs, and more. The goal is to keep this number low, so when you sell you make a profit.

You don’t want to go too low on your costs, as your product quality will suffer. Your COGs are a mix of art and science. The art is in determining what people will want, and what they’re willing to pay. The science is in determining where to price it. Your pricing needs to be fair and steady. In order to compete, you must know all facets of your product’s cost, and if you do then you’ll better manage your money.

Time is Money

You can actually save, or even make, money by outsourcing work, projects, even hiring cleaners. Successful businesses outsource what they can, and as a business owner you should too; look at your weaknesses and hire for those. As they say, time is money, and wasted time is money gone. You’re not bringing in cleaners just to keep the office clean, but to lessen your employees’ stress of having to do it. If you’re employees are having to clean, then they can’t spend their time and energy on the work that needs to be done.

This works for allocating tasks, too. A sick employee is not as productive as a healthy one, so they end up costing you money. Burnout is a major cause of many employees getting sick, or worse, leaving a company. Share the load and save yourself money in sickness and turnovers. The Japanese even have a word for death from overwork called 過労死 (Karō shi). Your business is important, but don’t let it kill you or your employees.

Is this everything to keep in mind about managing your businesses money? No, but it is a step in the right direction. Always be proactive when it comes to keeping your numbers high, being reactive just gets you into trouble, especially when it comes to money. Don’t wait for the problem to be big enough to grab your attention, as you may be too late. Take control now, and these headaches won’t happen to begin with.

Why a Large Refund is Not Necessarily a Good Thing

By Randall Orser | Personal Income Tax

Another tax year’s been filed, and you’re excited as you’re getting a huge refund again this year. That’s great! Or, is it? A large refund is really saying you’re not managing your money as well as you probably could. Financially, getting a refund every year may be doing more harm than good. Wouldn’t you rather get that money on each pay cheque, rather than in one lump sum? Hopefully, after you read this you’ll talk to your human resources department, tax preparer, and your financial planner.

What Does That Large Refund Mean?

What you’ve basically done when you get a large refund is loan the government your funds for a whole year without any interest. Why would you do that? You probably wouldn’t loan a friend or family member money without interest, but you give it to the government. Just think of the ways you could use that large refund, even if it’s only $2,000, you could put that money into an RRSP, or TFSA. Or, invest it into non-registered investments to make some additional cash.

What Should You Do Instead?

If you’re finding that large refunds are a way of life, then you need to figure out what to do so you don’t get those large refunds. The first thing to do is talk to whomever is in charge of payroll at your work: boss, payroll preparer, human resources, etc.

Get a copy of Form TD1, Personal Tax Credits Return, and go through each section and fill in amounts that apply to you. The TD1 form used to determine the amount of tax to be deducted from your employment income or other income, such as pension income. The payroll person, or your tax preparer, can help you figure out the amount of tax exemptions for which you qualify, and fill out the form. You should do a new TD1 each year.

If you find that your tax situation has changed during the year, you can update the TD1 at any time. Many things could change during the year, such as a marriage, divorce, children aging out of credits or going off to college, which could cause either a balance owing or a large refund.

Now What?

You’ve talked to your payroll department, and made the changes to your TD1. You will start to see an increase in your pay cheque as less tax is coming off. The amount won’t be huge; however, you need to look at the overall view. This is where things can get interesting. Figure out how much extra you’re getting on each pay cheque, and setup a new direct deposit with work for that much to go into a savings account (or even a TFSA). If you can’t do that through work, then an automatic transfer into a savings (or TFSA) account will work too. Whether the amount is $20 or $100, do this each pay, and watch your savings grow.

Getting that large refund at tax time, is not necessarily a good thing, especially if you’re using to pay certain bills that come due at that time, such as property taxes. You’re much better off taking that money for yourself each pay cheque, rather than giving it to the government interest free.

Increase your Net Promoter Score and Create Brand Advocates 

By Randall Orser | Small Business

A big thing for larger companies is the Net Promoter Score (NPS). What is this Net Promoter Score? The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of your customers to recommend your products or services to others. It is used as a proxy for gauging the customer's overall satisfaction with your product or service and the customer's loyalty to your brand. A consulting firm out of Toronto, Bain and Company, says the NPS of companies that attain long lasting, profitable growth are twice that of their competitors.

According to Bain and Company, two beloved brands Apple and American Express, which claim ardent brand advocates, also have high Net Promoter Scores. The inevitable result is that both companies are high valued businesses with profitable organic growth.

Your company if it delivers a higher quality customer experience may get a greater NPS and therefore long-lasting profitable growth. The following three tips can help you do just that.

One approach is to learn where and how to invest in order to boost your customers’ experience and determine the possible outcome.

A favourable customer experience can transform them into a brand advocate; becoming a long-term customer as well as someone who promotes you to others. One way these brand advocates get others to purchase your product or service is to post on websites or blogs a glowing review.

One way to improve your customers’ experience and increase the possibility of them becoming a brand advocate is through ‘loyalty economics’. Improving the customer experience through investment, when done correctly, will achieve direct and quantitative monetary rewards thanks to increasing sales and profits.

Looking at how you can increase your sales is one thing to determine how you should invest to improve the customer experience. Your website is one such place to invest; this could include: load time, minimizing the time and or steps the customer must make before doing an online purchase. You may also want to look at ways to improve the customers’ favour by improving product/service quality, and even making a return or exchange of the purchase much easier.

Another approach to take is look at your company from your customers’ eyes.

The customer experience is the act of interacting with your brand through marketing (ads, flyers, etc.); the attributes of your products and/or services; and customer touch-points, such as your website, storefront or office.

Feedback from your customers is the best way to gauge your customers’ experience from a typical purchase. This feedback will improve your understanding of customers’ expectations and your businesses procedures that don’t positively impact your customers’ experiences. Feedback can also be used to revise processes, such as your marketing or service practices, to improve your customers’ experience.

Create and employ processes that achieve an extraordinary customer experience.

Armed with this customer feedback, you can create a website, and process enhancements that boost the chances of your customer becoming a brand advocate. A restaurant might, for example, focus on diners’ needs, and change check-in processes so reservations are seated in less time with less effort. The experience you provide will ideally be superior to that of your competitors.

Revising your business processes, systems, products and/or services, can be challenging and tedious; however, it’s the best way to accommodate your customers’ needs who are in your profitable customer segments. This process is well worth the effort, as it increases the possibility that doing so increases the number of your businesses brand advocates. You must be customer-focused to create these brand advocates, and this requires you to commit time and effort to your customers’ experience, and aware of their expectations.

Your Notice of Assessment (NOA)

By Randall Orser | Personal Income Tax

You’ve filed your taxes for the year, and now just wait for the notice of assessment to arrive. Many people just ignore this notice until the next tax year, or their mortgage comes due. Your Notice of Assessment has a lot of information in it that could help you to understand your tax filing, your carry forwards for the next year, and any issues that may have turned up with your tax filing. You should keep your notice of assessment for at least 6 years, along with your other tax filing records for that year.

The picture above of the revised notice of assessment that the Canada Revenue Agency will start sending out in February 2016. It includes four notes explaining how the notice’s contact information, account details, key information, and account summary are simplified and easy to understand. The four notes read:

  • “1. Contact info – Appears in the top left corner”
  • “2. Notice Details – Organized so you can easily identify your notice details”
  • “3. Key info – Provides your most important information and if any actions are required”
  • “4. Account summary – Provides you with a status of your account and useful tips”

The Sections of the Notice Explained

Account Summary

The account summary section on your notice shows you the result of the assessed or reassessed return. The result may be a refund, a zero balance, or a balance owing. The amount shown in the account summary also includes any outstanding balances you owe from previous returns.

The account summary may also show the result from concurrent assessments or reassessments.

When you file several consecutive-year returns at the same time, we do a concurrent assessment. For example, you file your 2011, 2012, and 2013 returns together to claim some credits that you didn’t know about before.

When you send us new information that changes your returns for several consecutive years, we do a concurrent reassessment. We reassess all your affected returns at the same time. The result appears in the account summary on the last notice of the series.

Tax assessment summary

The tax assessment summary on your notice lists the main lines on your assessed or reassessed tax return. Beside each line, you can see the amounts CRA used to calculate your balance on this return. You can compare these amounts to the ones on your return to see where CRA made changes, if any.

The summary also shows any penalty and interest we calculated on your refund or amount owing. If you have a balance owing from a previous assessment or reassessment, it will also appear here. If the amounts on any of the main lines differ from yours, see the Explanation of changes and important information section for more details about our changes.

Explanation of changes and other important information

The explanation of changes section on your notice explains in detail the changes or corrections made to your tax return. These changes are based on the information sent with your return and the information CRA has on file.

If, after reviewing your notice, you realize you have new or additional information you want to send in to change your return, see How to change your return.

If you disagree with your assessment or reassessment and want to register a formal dispute, see Complaints and disputes; you have 90 days from the date of the notice to register your dispute.

RRSP/PRPP deduction limit statement

This statement shows your deduction limit for your registered retirement savings plan (RRSP) and your pooled retirement pension plan (PRPP).

Deduction limit

Your deduction limit is the amount of RRSP/PRPP contributions you can deduct for the next year. Your deduction limit will appear on line (A) of your statement. Your statement also shows how CRA calculated your deduction limit. The calculation is based on your:

  • earned income in the previous year;
  • pension adjustments (PAs);
  • past service pension adjustments (PSPAs);
  • pension adjustment reversals (PARs); and
  • unused RRSP deduction room at the end of the previous year

When calculating your deduction limit, CRA takes into account the information you sent with your previous tax returns and the information they have on file.

Available Contribution Room

The last line of the statement gives you your available contribution room for the next year. Your available contribution room is your deduction limit minus any unused RRSP/PRPP contributions you reported in past years that you can deduct for next year. Your unused contributions appear on line (B) of your statement.

If the total RRSP/PRPP contributions, including your current and unused contributions, you claim on your return are less than your deduction limit, you have available contribution room to carry forward to the next year.

Excess Contribution

If your RRSP/PRPP contributions are more than your deduction limit, you have an excess of contributions. You may have to pay tax on this excess amount. For more information on RRSP/PRPP contribution and deduction rules, see How much can I contribute and deduct?

Other Sections You May Find on Your Notice

Home Buyers’ Plan (HBP) statement

If you participate in the Home Buyers’ Plan (HBP), you will see your HBP statement on your notice of assessment or notice of reassessment. The HBP lets you withdraw up to $25,000 in a calendar year from your RRSPs to buy or build a qualifying home for yourself or for a related person with a disability. Your statement shows your remaining balance to repay, and your minimum required repayment for the next year.

CRA calculates your balance by subtracting the following amounts from the total you withdrew from your RRSP: total repayments, cancellations, differences included in income

Your minimum required repayment is a portion of the balance you have left to repay. If you pay less than the minimum amount, you will have to include the difference as RRSP income on your return.

Lifelong Learning Plan (LLP) Statement

If you participated in the Lifelong Learning Plan (LLP), you will see a Lifelong Learning Plan Statement on your notice of assessment or notice of reassessment. The LLP lets you withdraw amounts from your RRSPs to pay for full-time training or education for you or your spouse or common-law partner. This statement shows the balance left to repay, and the minimum required repayment for the next year.

CRA calculates your balance by subtracting the following amounts from the total you withdrew from your RRSP: total repayments, cancellations, differences included in income

Your minimum required repayment is a portion of the balance you have left to repay. If you pay less than the minimum amount, you will have to include the difference as RRSP income on your return.

If your notice included a cheque

If you think the amount is correct, you can cash your cheque at any time. If you believe that the amount of your cheque is incorrect, review the information on your notice to see if there are any changes or errors. If you find a mistake in the calculation of your refund or benefits, go to How to change your return to find out how to ask for an adjustment.

The Government of Canada is switching to direct deposit. For information about direct deposit and how to sign up, see Direct deposit.

If your notice indicates you need to make a payment, you can pay via your online banking using Pay Bills; send a cheque along with the remittance portion to CRA, you may be able to make a payment at your local branch; however, many banks are no longer taking government payments.

Your notice did not include a cheque or a remittance voucher

If you received a notice with no cheque or remittance voucher, it could be because:

  • CRA calculated a zero balance on your return, so you don’t have a refund and you don’t owe any money on this return. CRA sent you the notice for your information only. Keep it for your records; or
  • you paid the amount owing at the time you filed your return, so your return should show the amount due and the amount already paid. CRA sent you the notice for your information only. Keep it for your records; or
  • CRA deposited your refund directly into your bank account. Your notice should show the amount that was deposited. Keep your notice or statement for your records

Your notice of assessment can come in pretty handy, and gives you information on your tax filing. If you are using a tax preparer, it is important to ensure they get a copy of this notice, especially if the assessment is different than what was filed. Today, CRA has instituted a way for preparers to get copies of NOAs without you having to directly give consent, but by ticking a box on the T183 Electronic Filer form.

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