Entrepreneurship & Small Business

Ask me about Small Business accounting

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  • May 4th, 2021 2:08 am
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes

Ask me about Small Business accounting

I'm a CPA specializing in working with Small Businesses on their bookkeeping, accounting, payroll and HST needs.

I'd like to give back to the RFD community by answering questions that some of my fellow small business owners may have. I've had many clients whose books were a complete mess when they came to me, which really could have benefited from some simple advice had they had someone to ask questions.

So feel free to ask me any accounting questions you may have or if you'd like to bounce some ideas off me. I'd like to try and stay away from getting into detailed Tax questions here if at all possible.

Thanks
64 replies
Newbie
Mar 16, 2019
5 posts
3 upvotes
Hi, thanks for doing this.

My business partner is doing the financing for equipment, personally under his name. Now, I'm paying the monthly terms, in terms of tax purposes, does the business get the tax reimbursement or does he file it?

Also, I am opening up a cafe in the next few months, is there any advice you have for me that could save me a headache?
Deal Addict
May 12, 2014
2923 posts
2684 upvotes
Montreal
Biggest Do's and Don'ts?
Mistakes you've seen others do?
General advice?

Just to get you started on a month's worth of posts.
:-)

Sincere thanks!
Sr. Member
Nov 12, 2014
918 posts
611 upvotes
Kingston, ON
99% of the questions you will get will be tax related, FYI....see your first question.
Newbie
Mar 16, 2019
5 posts
3 upvotes
QN5252 wrote: 99% of the questions you will get will be tax related, FYI....see your first question.
Hey FYI I think he knows
FYI
See your post.
FYI.
Get a life.
Member
Mar 5, 2018
244 posts
104 upvotes
Hello,

Thank you for offering service for RFD community. I have a question with no answer in other thread, please explain if possible:

For how long CCA could be claimed?
Please, advise for how long I could claim CCA. E.g., If I bought a computer that would be class 50 for $3,000. In the accounting straight-line depreciation it could be 3 years ($1,000 per year) with a $0 residual. For CCA however it would be 1/2 x 55% x $3,000 for the first year, then 55% for the second one. How many years I have to claim CCA, when should it be ended ? How to write off this?

What CCA would be in the last year?

Thanks

Example:

1st-year:
3000$ - 825$ CCA (1/2 of 55%) = 2175$

2nd-year:
2175$ - 1196.25$ (55%) = 978.75$

3rd-year:
978.75$ - 538.31$ (55%) = 440.44$

Can we stop here and put 440.44$ as capital lost ?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
MTE1111 wrote: Hi, thanks for doing this.

My business partner is doing the financing for equipment, personally under his name. Now, I'm paying the monthly terms, in terms of tax purposes, does the business get the tax reimbursement or does he file it?

Also, I am opening up a cafe in the next few months, is there any advice you have for me that could save me a headache?
This is where it gets a little tricky in terms of answering tax questions, often there are details missing. When you say business partner, are you operating as shareholders in a Corporation, or a Partnership? Is the equipment asset recorded in the business? When you say you are paying the monthly terms, are you paying it 100% out of your personal funds or do you mean that the business is paying it and therefore 50% of that payment could be considered yours?

In general, you can't write off a business expense on your personal taxes if you don't have any corresponding business income. In other words, if the business in incorporated, he wouldn't be able to write a business expense off on his personal taxes.
Sr. Member
Nov 12, 2014
918 posts
611 upvotes
Kingston, ON
MTE1111 wrote: Hey FYI I think he knows
FYI
See your post.
FYI.
Get a life.
Of course he knows - that's why he said he didnt want to deal with detailed tax questions....yet you still asked one?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
FrancisBacon wrote: Biggest Do's and Don'ts?
Mistakes you've seen others do?
General advice?

Just to get you started on a month's worth of posts.
:-)

Sincere thanks!
Thanks for the question. Here are some things I've noted that typically make it cleaner/easier for a small business owner.

1) Open a separate bank account for your business. Many small business start up and think they will just have a small number of business transactions to keep track of and it often ends up being a lot more than the anticipated. It then becomes difficult to sort through and separate your business vs personal transactions in your account and you lose the ability to do a bank reconciliation at the end of the month to ensure that you've captured all your transactions in your record keeping.

2) Keep yours books up to date at least on a monthly basis. The accounting side of the business is usually something small business owners don't like doing so they tend to put it off. They might only try and do the bookkeeping quarterly, every 6 months or even annually. It can become really hard to save all your receipts and try and think back 6 months ago "what was this transaction for again?"....happens all the time when catching up the books for someone and they don't have recollection of transactions I'm seeing from months back.

3) Save all your receipts. It's amazing how many business receipts some small business owners can lose in a month. I tell them all the time, treat your receipts like if it were cash. If the CRA ever asks you to produce a receipt and you can't, the expense can be disallowed resulting in you paying more tax. Therefore, a receipt is as good as cash in my opinion.
Sr. Member
Dec 17, 2009
830 posts
647 upvotes
Vancouver
Thanks for your offer.

Would like to know what type of company is qualifying for lifetime capital gains exemption?
Does the company need to meet special requirements?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
tofubb wrote: Thanks for your offer.

Would like to know what type of company is qualifying for lifetime capital gains exemption?
Does the company need to meet special requirements?
Thanks for the question. The Capital Gains Exemption is available to individuals selling share of a corporation that meets the following criteria:

- Small business corporation (SBC) test: All, or substantially all, of the company’s assets must be used in an active business carried on primarily in Canada. “All or substantially all” is generally considered to mean at least 90%, using fair market value. Only the company’s assets are considered in the criteria; debt and other liabilities have no impact. Assets not listed on the balance sheet are also included, such as goodwill and internally generated patents. The reference to “primarily in Canada” generally means at least 50%.

- Holding period test: The disposed share must have been owned by the shareholder or a related person throughout the 24-month period prior to the disposition. This is an attempt to limit the CGE to longer-term investments rather than rewarding quick flips.

- Basic asset test: Throughout the 24 months prior to the disposition, the corporation had to have been a Canadian-controlled private corporation and more than 50% of the company’s assets had to have been used in an active business carried on primarily in Canada.

Thanks
Perfect Balance Business Solutions
Sr. Member
Dec 17, 2009
830 posts
647 upvotes
Vancouver
- Small business corporation (SBC) test: All, or substantially all, of the company’s assets must be used in an active business carried on primarily in Canada. “All or substantially all” is generally considered to mean at least 90%, using fair market value. Only the company’s assets are considered in the criteria; debt and other liabilities have no impact. Assets not listed on the balance sheet are also included, such as goodwill and internally generated patents. The reference to “primarily in Canada” generally means at least 50%.



Thanks
Perfect Balance Business Solutions
[/quote]

Thanks for your quick response.

Is the money that lend to another company, a sister company with same set of shareholders., considerate as “use in active business”?
Also is Goodwill consider as part of active business asset?
Sr. Member
User avatar
Feb 9, 2009
516 posts
67 upvotes
N/A
Hey thanks for doing this.

I want to stop doing the bookkeeping myself since it's a lot of my time away from growing the business. However, bookkeeping services are so damn expensive. What are you recommendations in finding a decent one that doesn't cost an arm and a leg? Is the most cost effective way finding an accountant that can do both?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
pkpower wrote: Hey thanks for doing this.

I want to stop doing the bookkeeping myself since it's a lot of my time away from growing the business. However, bookkeeping services are so damn expensive. What are you recommendations in finding a decent one that doesn't cost an arm and a leg? Is the most cost effective way finding an accountant that can do both?
Funny that you mention that. Educating small business onwers that their time is better spent doing what they do best, which is normally their core business operations and not bookkeeping, is a big part of my business model. Many don't realize that if they paid someone to do the Bookkeeping that time they saved can be invested in growing their business which could greatly outweigh the cost.

That being said, I have a Virtual Accountant component to my business so I can service clients across the US and Canada. I'm not sure what you consider to be an arm and a leg but I think my rates are quite reasonable. PM me for details.
Banned
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Jul 17, 2008
11042 posts
3844 upvotes
Question for you.

If working for stuff like uber, ubereats, etc (person or food delivery), they consider you a contractor aka you are self employed right?

Can you claim this in this case?
https://www.canada.ca/en/revenue-agency ... rates.html

Or is the link above only if you are an actual employee (which you are not with uber, ubereats and the like)?
And I assume the 58c/km would replace any need of keeping receipts for gas, maintenance, repairs, insurance, etc right? (as in you can't claim both 58c/km and expenses via receipt).

Am I right in my research that as a contractor aka self-employed I could only claim the actual expenses with receipt? (gas, maintenance, repairs, insurance?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
Messerschmitt wrote: Question for you.

If working for stuff like uber, ubereats, etc (person or food delivery), they consider you a contractor aka you are self employed right?

Can you claim this in this case?
https://www.canada.ca/en/revenue-agency ... rates.html

Or is the link above only if you are an actual employee (which you are not with uber, ubereats and the like)?
And I assume the 58c/km would replace any need of keeping receipts for gas, maintenance, repairs, insurance, etc right? (as in you can't claim both 58c/km and expenses via receipt).

Am I right in my research that as a contractor aka self-employed I could only claim the actual expenses with receipt? (gas, maintenance, repairs, insurance?
Those rates in the link you noted are the maximum prescribed reimbursement for employees using their personal vehicle for employment purposes. Example, if you are employed by a company and you need to drive 200KM to a meeting using your personal vehicle. The company can reimburse you 200 x $0.58 = $116 for using your personal vehicle without it being a taxable benefit to you. If they reimbursed you more than 58c/KM it would be deemed to be a taxable benefit on your personal tax return.

Those rates aren't intended to be the amounts deducible for a self-employed person in lieu of tracking KM's and saving receipts.

Thanks
Banned
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Jul 17, 2008
11042 posts
3844 upvotes
PerfectBalance wrote: Those rates in the link you noted are the maximum prescribed reimbursement for employees using their personal vehicle for employment purposes. Example, if you are employed by a company and you need to drive 200KM to a meeting using your personal vehicle. The company can reimburse you 200 x $0.58 = $116 for using your personal vehicle without it being a taxable benefit to you. If they reimbursed you more than 58c/KM it would be deemed to be a taxable benefit on your personal tax return.

Those rates aren't intended to be the amounts deducible for a self-employed person in lieu of tracking KM's and saving receipts.

Thanks
That's what my understanding was, that because with uber/ubereats etc, you aren't an employee, but contractor aka self employed so you can't claim directly that mileage, instead you need receipts for all expenses.
Deal Fanatic
May 23, 2003
9760 posts
1259 upvotes
GTA
Thanks for offering to answer questions. For our small business we have been putting extra cash into a high interest savings account or laddering GICs. I am thinking of starting to invest in ETF (ie. index ETFs replicating SP500 or other indexs) as we won't need a large portion of the cash for a while.

I am wondering how this should be accounted for accounting wise. Our accountant just said to keep it in one account but I don't know how the purchases are accounted for then? We setup a seperate account a while back for GIC puchases so everytime bought a GIC we had it come out of the investment account and into the "GIC" account and then when it was sold it would go back into the investment account.

Maybe better to just keep a spreadsheet for all of the purchases/sales and just show the "gains" and losses when there is a sale or dividends are received?

Any suggestions on setting this up would be appreciated. We use Simply Accounting (older version). Also if you have any other tips related to investing via corporation account would be appreciated.
Deal Addict
Jul 1, 2006
1089 posts
44 upvotes
What are your thoughts on digital receipts. Do we need to keep the hard copies? Does keeping things digital help small business run better? Also is there a method to book keeping that an average person can learn that you would suggest?
[OP]
Newbie
User avatar
Jun 7, 2019
13 posts
8 upvotes
YLSF wrote: Thanks for offering to answer questions. For our small business we have been putting extra cash into a high interest savings account or laddering GICs. I am thinking of starting to invest in ETF (ie. index ETFs replicating SP500 or other indexs) as we won't need a large portion of the cash for a while.

I am wondering how this should be accounted for accounting wise. Our accountant just said to keep it in one account but I don't know how the purchases are accounted for then? We setup a seperate account a while back for GIC puchases so everytime bought a GIC we had it come out of the investment account and into the "GIC" account and then when it was sold it would go back into the investment account.

Maybe better to just keep a spreadsheet for all of the purchases/sales and just show the "gains" and losses when there is a sale or dividends are received?

Any suggestions on setting this up would be appreciated. We use Simply Accounting (older version). Also if you have any other tips related to investing via corporation account would be appreciated.
I'm not sure if your accountant discussed with you the implications of investment income such as this through a corporation, however in short, it's not always advisable to do so as investment income in a corporation is taxed at the highest rate. If you have TFSA or RRSP room you will be better off to remove the cash from the corporation through a dividend and invest it personally in your TFSA or RRSP.

Nevertheless, if you invest through the corporation then all of your purchases and sales would need to be tracked on a spreadsheet and any gains/losses reported on the tax return in the year that the sale occurred.

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