Page 6 – Small bussiness accounting solutions

TRACKING OF OWNERSHIP INFORMATION CHANGES: Canada Business Corporations Act

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter;, Business October 28, 2019 By Xienan Shaw

Criterion for identifying individuals who have significant control over a corporation

TRACKING OWNERSHIP INFO CHANGES: Canada Business Corporations Act

Over the past few years there has been much discussion at both the federal and provincial levels in respect of increased disclosure and tracking requirements of beneficial owners (those who may be considered owners even if not on title) of various types of property.

Recent changes to the Canada Business Corporations Act , which came into force on June 13, 2019, incorporated these discussions. The legislation sets out a criterion for identifying individuals who have significant control over a corporation and also requires certain corporations to keep a register of these individuals.

For these purposes an individual may have significant control over a corporation if the individual has any of the following interests or rights, or any combination of them, in respect of a significant number of shares (more than 25% of voting rights or value) of the corporation:

the individual is the registered holder;
the individual is the beneficial owner; or
the individual has direct or indirect control or direction over.

A group of two or more individuals whose joint holdings meet these criteria are considered to be an individual with significant control.

Also, an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, would be considered to have significant control. The legislation also provides that other prescribed situations may result in an individual having significant control.

Directors, shareholders and creditors of the corporation may, on application, be able to access the register.

Failure to comply with the requirements to maintain a registry may be subject to a $5,000 penalty. A director or corporation who “knowingly authorizes, permits or acquiesces” in not fulfilling this requirement or who provides false or misleading information in the registry may be subject to a fine of up to $200,000 and/or imprisonment of up to six months.

Similar requirements are currently being considered or enacted in respect of corporations governed by various provincial corporations acts.

ACTION ITEM: Consider whether your corporation is subject to this new requirement. If so, ensure that a proper register is being maintained.

DEMAND FOR CLIENT INFORMATION: CRA’s Abilities

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter;, Tax October 21, 2019 By Xienan Shaw

Gathering information about taxpayers using third parties. CRA must first obtain the authorization of a judge.

DEMAND FOR CLIENT INFORMATION: CRA’s Abilities

CRA uses third parties to get information about other taxpayers to ensure they are complying with their tax responsibilities. This could include obtaining information from a business about its employees, customers or suppliers, without needing to list their specific names. CRA has recently announced that they intend to continue and increase the use of these information gathering methods. In order to obtain such information without providing specific names, CRA must first obtain the authorization of a judge.

In an April 24, 2019 Federal Court case, CRA applied for judicial authorization to require the taxpayer, a roofing material supplier, to provide information about residential and commercial construction contractors who had an account with them. Specifically, CRA requested:

the customers’ legal name, business or operating name, contact person, business address, postal code, and all telephone numbers on file;
the customers’ business numbers, if known;
the customers’ itemized transaction details including invoice date, invoice number, total sales amount, method of payment, and address of delivery; and
all bank account information for the customer from credit applications and/or otherwise maintained by the taxpayer.

The information was sought for customers whose total annual purchase and/or billed amount was $20,000 or greater for the period January 1, 2015 to June 30, 2018. For January 1, 2018 to June 30, 2018, information on customers whose total annual purchase and/or billed amount was $10,000 or greater was to be provided.

The Court authorized the CRA to impose the information request on the taxpayer.

ACTION ITEM: CRA has indicated that they will make increased use of this ability to obtain information from one taxpayer about their customers. Consultation should be sought immediately if such a request is received.

WORKERS COMPENSATION: Replacement Payouts by Employer

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter;, Individuals, Tax October 14, 2019 By Xienan Shaw

If receiving full salary even after being injured, consider whether some of it could be classified as Worker Compensation and therefore tax-free

WORKERS COMPENSATION: Replacement Payouts by Employer

In a March 29, 2019 Tax Court of Canada case, the taxpayer had been injured on the job and was held eligible for workers’ compensation (WC) payments by the relevant provincial authority. However, in accordance with the collective agreement setting out his terms of employment, he was paid 100% of his salary by his employer and, therefore, did not receive payments from the provincial WC authority. He argued that the maximum provincial WC should be included in income as WC and not as employment income. The distinction is important because an offsetting deduction is available for WC such that no tax must be paid.

Taxpayer wins

The taxpayer’s eligibility for the employer-paid compensation was determined under provincial law. As such, the Court found that the maximum WC benefits, 85% of his salary, were properly considered WC and, therefore, deductible from taxable income.

ACTION ITEM: If receiving full salary even after being injured, consider whether some of it could be classified as WC and therefore tax-free, even if not received directly from the provincial WC authority.

ANXIETY DEPRESSION AND PHOBIAS Disability Tax Credit

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter;, Individuals, Tax October 7, 2019 By Xienan Shaw

If the impairment(s) represents a marked restriction in the ability to perform a basic activity of daily living

ANXIETY DEPRESSION AND PHOBIAS Disability Tax Credit

In an April 3, 2019 Tax Court of Canada case, at issue was whether the impact of an individual’s mental impairment entitled her to the disability tax credit (DTC). The taxpayer suffered from social anxiety, depression and phobias.

A taxpayer may be eligible for the DTC if the impairment(s) represents a marked restriction in the ability to perform a basic activity of daily living. In particular, the impairment must affect and permeate the individual’s life to the degree that they are unable to perform the mental functions that would enable them to function independently and with reasonable competence. This is to be examined in the context of:

memory;
adaptive functioning; and
problem-solving, goal-setting and judgment (taken together).

Each of the three elements are to be considered separately.

Taxpayer wins

The Court found that although the taxpayer did not have trouble with memory, she did have a marked restriction with respect to the other two elements, either of which would qualify her for the DTC.

The Court noted that adaptive functioning was described in the explanatory notes to the legislation as abilities relating to self-care, health and safety, social skills, and common simple transactions. Also, the Court referred to a provincial government publication which described it as how well a person handles common demands in life and how independent they are compared to others of similar age. While the taxpayer was able to dress, bathe, feed herself, do her own laundry, manage her medications, and live on her own, these were all primarily done in a controlled environment (her apartment). In respect of social skills and common simple transactions, the taxpayer could not work except to a limited extent in the family business, avoided social interactions with all but family and close friends, and remained in her apartment as much as possible. She was heavily reliant on her mother for almost all external daily life functions. The Court determined that she had a marked restriction in respect of adaptive functioning.

In respect of the third element (problem-solving, goal-setting and judgment), it was noted that her anxiety resulted in what might be considered poor judgment. It led to avoidance, procrastination and withdrawal which in turn lead to failing school, loss of employment, self-harm activities, reluctance to pursue therapy, and taking on too many projects. While the Court noted that there was more uncertainty as to whether there was a marked restriction in respect of this element, it noted that the taxpayer should be given the benefit of the doubt, especially since mental illness can be invisible.

Since there was a marked restriction in at least one of the three elements, the Court determined that the taxpayer was eligible for the DTC.

ACTION ITEM: To determine if eligible for the DTC due to a mental condition, form T2201 should be reviewed with, and completed by, a medical doctor or psychologist.

ZERO-EMISSION VEHICLES: Personal and Corporate Incentives

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter;, Individuals, Tax, Transport September 30, 2019 By Xienan Shaw

Transport Canada released details on the purchase incentive of up to $5,000 for zero-emission vehicles as originally proposed in the 2019 Budget

ZERO-EMISSION VEHICLES: Personal and Corporate Incentives

On April 17, 2019, Transport Canada released details on the purchase incentive of up to $5,000 for zero-emission vehicles as originally proposed in the 2019 Budget.

The incentive will apply to new purchases or leases on or after May 1, 2019. To receive the incentive, the manufacturer’s suggested retail price must be less than $45,000 for vehicles with six or fewer seats, while a vehicle with seven or more seats must have a suggested retail price of less than $55,000. Higher priced versions (trims) up to $55,000 (six or fewer seats) or $60,000 (seven or more seats) will also qualify. Delivery, freight and other fees, such as vehicle colour and add-on accessories, which push the actual purchase price over these limits will not result in the incentive being lost.

The full $5,000 incentive will be available for eligible battery electric, hydrogen fuel cell, or longer range plug-in hybrid vehicles (battery capacity of 15 kWh or more), while shorter range plug-in hybrid vehicles will be eligible for a $2,500 incentive.

Leases of 48 months or more qualify for the full incentive, with reduced amounts available for shorter leases. It will be reduced to 75% for a minimum 36-month lease, 50% for a minimum 24-month lease, or 25% for a minimum 12-month lease.

The purchase incentive will be applied at the point of sale (i.e. at dealerships or online) directly on the bill of sale or lease agreement of eligible vehicles.

The dealership is responsible for completing the documentation required to receive the incentive. Claims can be submitted through the Transport Canada online portal. Funding will be provided on a first-come, first-serve basis.

Individuals can only get one incentive per year. Businesses (including NPOs and provincial, territorial and municipal governments) can get up to ten incentives per year.

As an alternative to receiving the cash incentive, a temporary enhanced first-year capital cost allowance (CCA) rate of 100% may be claimed by those using the vehicle for income earning purposes. Specific restrictions and conditions apply. The deduction may be restricted to the first $55,000 in cost depending on the size, seating, and use of the vehicle.

ACTION ITEM: Review the Transport Canada website to determine if a future vehicle purchase would be eligible. The website includes a list of eligible vehicles and responses to frequently asked questions. https://www.tc.gc.ca/en/services/road/innovative-technologies/zero-emission-vehicles.html

REIMBURSEMENT FOR WORK CLOTHING: Taxable

/U;/U/Blog;/U/Finance/Tax;/U/Tax;/WklyNwsLttr;/Tax;/TaxTip_NewsLetter; September 23, 2019 By Xienan Shaw

REIMBURSEMENT FOR WORK CLOTHING: Taxable

In an April 17, 2019 Technical Interpretation, CRA was asked whether clothing reimbursements paid to maintenance employees were taxable benefits. Employees were not required to wear specific uniforms and were reimbursed based on receipts, to an annual maximum.

CRA referred to Guide T4130 Taxable Benefits and Allowances, which states that clothing is generally a personal expense, except where either of the following applies:

the employee is required to wear a distinctive uniform while carrying out their employment duties; or
by law, the employee has to wear protective clothing on the work site.

In the situation reviewed, CRA indicated that reimbursements for safety footwear would not be taxable; however, other reimbursements to compensate for increased wear and tear on clothing would be taxable.

Similar to clothing reimbursements, an employer’s direct provision of work clothing, that does not meet the criteria above, would be taxable.

According to CRA’s current guidance, a discount on merchandise provided to employees would not generally result in a taxable benefit unless the price is reduced to below the employer’s cost. In 2017, CRA had announced a change in its position such that discounts would be taxable as a result of a number of court decisions. However, due to public outcry, the Prime Minister subsequently announced that such discounts would not be taxable. CRA is currently reviewing their specific policy and has committed to provide guidance in light of the Prime Minister’s comments in the future.

ACTION ITEM: If providing work clothing, consider including distinctive visual markings such that it would be considered a uniform and therefore not subject to tax for the employee.

Workplace vs. New Generations

/Pricing/Accounting;/U/Blog;, Business, Employee September 23, 2019 By Xienan Shaw

We live in a dynamic world where the pace of change is
speeding up rapidly. It’s getting more complex and competitive. New strategies,
sharpened skills and tactics will be required.

Businesses have to do something to keep afloat, especially
in this period of recession.

Here’s what they have to do: to hire a new generation of
employees. There are no terrible businesses; just management through lack of
vision and leadership that fail to explore the opportunities that lie before
them.

Managers that are accustomed to using specific ways to
engage their old generations of workers are going to have to change their ways
if they hope to engage and retain their new cohorts; the millennials. They
bring an increased number of workers in the workforce and some remarkable
changes.

Given their consistent increase of workers in the office, it
is crucial to understand who these employees are and what they want from your
organization.

Millennials have a significantly different outlook on what
they expect from their employment experience. They are well-educated,
technology-skilled, very self-confident, can multi-task and have plenty of
energy.

They
prefer to work in teams rather than individually.

Some ways to engage the Millennials.

The millennials are very different from the old generation
of workers. This means that (and as stated earlier) creating engagement
strategies and techniques is one of management’s big goals. When trying to find
ways to engage new generation workers, consider these two thoughts; first, are
millennials, and the older generation needs different? Are they different
enough to demand different engagement strategies for each generation? Second,
identify which engagement drives were appropriate for each age. A
millennial-friendly office is not just about beauty; it is more about improving
the overall workplace experience for employees.

Here are some ways of making your office
millennial-friendly:

1. Have a simple home comfort in the workplace. Young
people don’t separate home life from work as much as the previous generation.
When they are at work, they need to be comfortable as they usually are at home.
Employers can accommodate simple home comforts like a kitchen with places that
stores food or snacks, areas with couches for collaborations with coworkers,
quiet spaces for independent work.

2. Creating
spaces for collaboration and creativity. This gives young employees
varieties in the workplace and supports their desire for social interaction
during the day. This means fewer cubicles and private offices and more open spaces
for communications. Now, these spaces are not just another boardroom; but
breakout spaces, lounges. Hallways, kitchens or areas with couches. This kind
of environment has been proven to increase productivity. Employees are likely
to be more productive and stay engaged when they have the freedom to move
around while working.

3. Alter your work environment to keep up with
modern needs. A modernized office environment can inspire and engage young
workers and increase retention. Put their mindset into consideration and create
a work environment in which they will succeed. This will show that you care and
they will work harder and stay longer.

Small Business making big financial decisions- here’s how!

/Pricing/Accounting;/U/Blog; September 23, 2019 By Xienan Shaw

The purpose of going into business is to earn a profit- and make some
cool cash. But then, the irony remains that to get money; you need money. In
other words, in business, you spend money to make money.

However, for most people- especially small business owners, it is not an
easy task deciding whether or not to pump money into projects like expansion or
acquiring new employees. If you are part of these people, this article is for
you!

Luckily for you, I would be sharing tips on how to make significant financial
decisions at crucial times in your business.

Here are some fantastic tips:

1. Don’t depend on the unpaid cash

As a new person in your industry, chances are you would have customers
who are getting your products/services on credit. But then, don’t forget you
have bills to settle. Depending on money that hasn’t been paid (as a source of
income) would be a massive mistake if you want to both take significant
financial steps and pay bills.

Managing your cash flow should be your first agenda while making big
financial decisions. If not, your business could have a record-breaking revenue
on paper, but then would go downhill if there is a lull between when the work
is done, and the cash received. Until these customers pay their invoices, don’t
think of the advances offered to customers as cash. In other words, don’t
consider it as cash until it gets to your hand.

2. Keep documentation

Don’t skip this. Don’t skip this! You’ve got to have a method of
approach- and you can only do this if you have a clear understanding of where
your money lies. Don’t try to keep all the info in your head- get a financial
assistant software. Perhaps, excel spreadsheet could do the job.

I want to reemphasize on not factoring in cash you don’t have at hand.
For instance, if you are going to get paid for a service rendered today in
three months, factor the forecast on your spreadsheet. Do not base your
assessment on cash, not in hand.

3. Do a review

Choose a date in the month where you would make a review of your
spreadsheet. This is important so you wouldn’t be caught unawares by the bank.
When making big financial decisions, you might incur some expenses you didn’t
budget for. Ensure you include these budgets in your review.

Go further by making a possible forecast of how much impact
these financial decisions might have on your finances- do not forget to put appropriate
measures to tackle these hits.

4. Model different scenarios

Things might not always go
as planned. Make adequate preparations for worst-case scenarios. Taking some
time out to ask the question, “what if?” would help you weigh the chances
accurately.

Wrapping
up

Nobody can act you more
than you! If you would be making huge financial decisions, you might have to
consider several factors- both personal and financial.

Remember, if your company
must grow, its financial health must come first in any decision you make.

Building a Business: Be your own customer.

/Pricing/Accounting;/U/Blog; September 23, 2019 By Xienan Shaw

Most entrepreneurs start by basically trying to meet every
consumer’s needs. This is very useful, but as your business grows, you tend to
lose sight of why you even started the company in the first place; your
customers.

The best way to stay in
tune with your customers is to understand your customer; a way to do that is by
being your own customer. For example; if you have a storefront or an
over-the-counter business, have a friend visit and report back to you. This
way, you have an idea of how your business is being run; how your customers are
being taken care of, and you’ll probably identify more ways to improve
services. You might see these as more work, but your customers are a top
priority. Regardless of how busy you are, regularly check in with your customer
experience.

Most people would agree
that the main reason why startup businesses fail or can’t seem to start on the
product or service they are trying to build is the lack of understanding about
the actual customer they want to buy their product. It is a fundamental
necessity to understand the target customers; their needs and motivations.

Ways at
which being your own customer helps your business

1. You will save more on
research.

A way to understand your customers is through a
series of interviews, questionnaires and surveys. All these can be very
important and valuable but very costly. However, it can’t beat knowing what
your customer needs because you are your own customer.

2. You become a better salesperson.

You need
excellent sales skills for your business to have any chance of success. Being
able to sell your ideas to investors, partners and customers give you that
confidence and genuineness about your product. Your founder story is more
genuine because it’s your story.

3. You will need passion to go with that
confidence to sell your ideas to different people.

But you will need resilience
to fuel your determination. In any startup business, you will encounter
challenges along the way – your resilience pushes through those challenges.

4. You are more invested in your business’
future success.

You need to put some money into your business, but then you
also need to put in time and effort.

An example of a
great business builder is Steve Jobs. He built the iPod and its digital music
store, iTunes, for himself. He relied on his own instincts which were built on
his own experiences. He was in many ways, his own customer.

Look at
businesses like solving a problem. Many times, the inspiration for your
products can be brought out of your personal experience with that product.
Sometimes the solution to that problem might be expensive or occasionally the
answers you think of might not work, but then as you think of solutions, you
are levelling up in the skill of problem-solving. Sometimes solving a problem
without having to worry about how you are going to advertise it to the public
can enable you to make something more significant than what you expected the
solution to be.

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Some ways to engage the Millennials.

Ways at which being your own customer helps your business

Ways at
which being your own customer helps your business