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Aug 26 2015

Best Practice record keeping

gms final logo

  1. What documents and information should a business provide to its accountant in order to file its business taxes, specifically payroll, HST and income tax?

 

  1. If you do your bookkeeping yourself, provide a softcopy of your records (eg., Quickbooks or Simply Accounting file)
  2. A copy of all your Bank statements for the year. Note: if you do your own bookkeeping, then ensure you provide a copy of your year-end bank reconciliation
  3. A copy of all your business credit card statements for the year. Note: if you do your own bookkeeping, then ensure you provide a copy of your year-end credit card statement bank reconciliation
  4. Cancelled cheques, cheque stubs and bank deposit book for the year
  5. Copies of all invoices issued
  6. List of Accounts Receivables
  7. List of Bad debts
  8. List of year-end inventory (including the cost)
  9. Invoices for capital assets purchased during the year (eg computers, furniture etc)
  10. Details of assets disposed of during the year (even if you got no money when the asset was disposed of)
  11. Copies of all expense receipts
  12. List of Accounts Payable
  13. Details of all bank loans
  14. List of all payroll payments during the year showing gross amount, withholdings and net amount paid. You should also indicate how paid (cheque, cash or direct deposit)
  15. Your accountant should have access to your CRA account data , so it will n ot be necessary to provide CRA correspondence, unless it is of a non-routine nature, and one which your accountant would not have access to
  16. Mileage log detailing business kilometers driven
  17. Record of any expenses you paid for the business (out of your personal funds)
  1. Tips on recordkeeping
  • It is very important to have a record keeping system in place from the first day of business operations. It is best practice to consult with your accountant on what records to maintain. The accountant should have readily available, a checklist of record required. This makes the first year of filing much easier, and you are less likely to make mistakes which have to be fixed in later years due to lack of knowledge
  • After your tax filing deadline, consider filing your income and expense receipts in “tax” folders, as opposed to putting them in categories. If you are audited, then all the data used in the tax return is in one place. You simply pick up the folder, and hand it to the auditor. You can use tabs to separate the docs in the categories on the tax return
  • Manual record keeping – this can be as simple as an accordion folder where you drop all invoices, expenses, bank statements and other required documents, in the separate sections. Then give this folder to the accountant to summarise and use to prepare taxes.
  • To reduce accounting bill, you can summarize the receipts for your accountant. This is most applicable to a Sole Proprietor, where the basis of the tax return is your income and expenses, as a full financial statement is not required. However, for a corporation, expense summarization doesn’t help too much, as the basis of your corporate tax return is your Bank statement.
  • Electronic recordkeeping is strongly suggested for a corporation. Simply because of the details required to be reported, as well, CRA requires a full financial statement – Income Statement and Balance Sheet (which is not required for Sole Proprietors)
  • Stay on top of your recordkeeping

Green Meikle & Smith Chartered Professional Accountants

Authorized to practice public accounting by the Chartered Professional Accountants of Ontario

1020 Matheson Blvd. E. Unit 10

Mississauga, ON L4W 4J9

905-919-3543 Ext 101

647-338-5306 (cell)

greenmeiklesmith.com

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Written by Dwania Peele · Categorized: Green Meikle & Smith · Tagged: accountant, assets, Bank statement, Bank Statements, best practice, bookkeeping, business, business development, business plan, Canadian Small Business Women, cash, cheque, CRA, credit card, debt, direct deposit, documents, expense receipts, Green Meikle and Smith, HST, income tax, inventory, invoices, loans, payroll, Quickbooks, reconciliation, record keeping, Simply Accounting, tax filing, tax return, taxes

Jun 26 2015

Top tax tips for business owners

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  • Sole Proprietors should ensure that funds set aside aside for taxes include an amount for CPP, everyone has to pay CPP . Sole Proprietors pay their CPP at tax time, as opposed to salaried persons who pay theirs each pay period. A good estimate in year 1 is to set aside 25 to 30% of gross revenue to cover income taxes and CPP. After that the payments to be set aside will be determined based on your previous year’s filing
  • File on time, and pay installments on time. This saves on interest and penalties. Penalty is 5% of taxes owing. Ensure you discuss with your accountant your filing deadlines and the implications.
  • Keep business bank account separate from personal bank account.
  • Provide invoices for all work done and keep record of actual receipts for expenses incurred
  • Remember to maintain a mileage log – for shareholders, you can be paid mileage tax free from the corporation, as opposed to sole proprietors where the total mileage travelled is apportioned and then used as a deduction in calculating your taxes. In either case, a mileage log is important
  • HST input tax credit can be claimed on home office expenses and mileage reimbursements
  • Designate one credit card for business expenses (even if it is one you got in your name). That way the interest can be claimed easily
  • Wait until you have are just about to reach $30,000 in sales before you get a HST number. Once you have the HST number , you must start collecting taxes, and if your register too early, this might push forward a lot of administration that you didn’t bargin for
  • When signing up for HST, please ensure that the reporting period lines up with your business fiscal year. This makes record keeping much easier. So if your fiscal year end is Dec 31, then your HST should be Dec 31 st as well, or if quarterly, it should be calendar quarters, so that it will line up with the fiscal year end and recordkeeping
  • Ask your accountant if you qualify for using the Quick method to prepare your HST returns
  • Stay on top of your recordkeeping
  • Ensure you discuss the various compensation structure options (and implications) available to you as the business owner, with your accountant
  • Compensation via dividend is treated as investment income (as opposed to earned income), as such no CPP, EI, or health tax is payable on these. This compensation method can therefore result in good tax savings, however, the taxpayer will have no contributions to the CPP.

CRA Audit triggers (personal and business taxes)

 

  • Small business losses for more than 3 years
  • Specific targeted industries, which change from time to time – CRA is currently focussing on cash based businesses (eg., restaurants and tradespersons) and the underground economy, where money is passed “under the table”.
  • Certain personal tax deductions are often scrutinized – Moving expenses, tuition transfers, large medical expense claims, childcare expenses and donation receipts

Green Meikle & Smith Chartered Professional Accountants

Authorized to practice public accounting by the Chartered Professional Accountants of Ontario

 

1020 Matheson Blvd. E. Unit 10

Mississauga, ON L4W 4J9

905-919-3543 Ext 101

647-338-5306 (cell)

www.greenmeiklesmith.com

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Written by Dwania Peele · Categorized: Green Meikle & Smith · Tagged: bank account, business expenses, business owner, Canadian Small Business Women, compensation, CPP, CRA, credit card, deductions, economy, EI, Green Meikle and Smith, gross revenue, HST, income taxes, Investment, invoices, penalty, personal bank account, salary, Sole Proprietors, tax, tax credit, tax deductions, tax tips

Nov 19 2014

HOW TO REBUILD YOUR CREDIT AFTER IT HAS BEEN DAMAGED!

Amina

For the last few months I have been working with numerous other Rent-to-Own companies to help them qualify either potential tenant/buyers and/or potential investors.

One problem I have been coming across specifically is the lack of credit.  Too much credit can cause just as many problems as no credit or lack of credit.

Some people are in the enviable position of paying for every purchase with cash.  This is great – except for when it comes to establishing credit. The strength of your credit history determines if you qualify for a car loan, mortgage or even credit card and also at what interest rate you will pay.

Lenders will use credit reports and credit scores to quickly assess an applicant’s creditworthiness and to check their credit history.

For new or young borrowers or even borrowers who suffered damage to their credit and are now scared to have any credit, however, this poses a serious catch-22: How do you qualify for credit without a credit history, and how do you rebuild a credit history after it has been damaged.

Step 1 – CHECK YOUR CREDIT RATING
Credit bureaus will open a legitimate credit file in your name when a creditor (bank, credit card company or other lender) reports that you’ve had an active credit account for at least six months. All borrowers, not just first-timers, are encouraged to check their credit reports at least once a year and scan them for errors.  Mistakes can damage your credit score for years — up to 5 years for negative information like late loan payments and 7 years for a serious default like bankruptcy. If you find a mistake, contact the credit reporting agencies immediately and have the mistakes corrected.

Step 2 – PAY YOUR BILLS ON TIME
Whether it is a credit card, utility bill or any other type of bill, get into the habit of paying your bills on time. While your utility bills are not recorded on your credit bureau, lack of payment that goes to collections, is recorded and that can affect your credit score and your ability to get a good interest rate on a credit card.

Step 3 – GET A CO-SIGNER
Most lenders will allow someone with an established credit history to co-sign the credit application with you.  This can include your parents, older siblings or family friend. As with any financial transaction, you should be careful when co-signing for credit. First of all, make sure that your co-signer actually has a good credit history. If your older brother tends to exaggerate, don’t take his word for it. In the eyes of the lender, you are only as good as your brother’s credit score, so ensure that you see it in writing and you can only get that through their credit bureau report.

The most important thing to understand is that co-signing for credit means that both parties are now responsible for its timely repayment. If your dad co-signs your credit card application and you run up hundreds of dollars in late payment fees, both of your credit scores are going to take a hit.

Step 4 – START WITH A SECURED CREDIT CARD
Secured credit cards are a great way to establish credit or even rebuild your credit, when it has taken a hit.  Unlike regular credit cards, secured credit cards are tied to collateral in your bank account.  In other words, your credit limit equals your checking account balance or another amount required by the card company — although payments for purchases made with this card won’t be drawn from your bank account. If you have $500 in the bank, then your credit limit for the card is $500. If you try to charge more than $500 on the secured card, the transaction simply won’t go through.

Be careful of the distinction between secured credit cards and prepaid credit cards. Prepaid cards are not really credit cards. They’re actually debit cards in disguise. Because it’s not real credit, your activity on your prepaid card won’t be reported to the credit bureaus.

In addition, some secured credit cards carry higher interest rates and fees but with good history, most lenders will let you graduate to an unsecured credit card, which will increase your credit limit and help you establish a better credit rating.

Step 5 – APPLY FOR A SMALL LOAN
A loan is also known as installment credit, since you pay back the loan, with interest, in set monthly installments. A mortgage or a car loan is a good example of installment credit. If you want to make one of these major purchases someday, it’s a good idea to show lenders that you have some positive experience with installment credit.

Student loans are just one type of installment loan. Banks and other lenders allow you to take out small loans for just about anything: a used car, an appliance, a vacation or even a personal loan.

Where most people get in trouble is when they cannot make their monthly installment repayments, which in some cases leads to bankruptcy.  It is important to remember to only borrow what you can repay.

Step 6 – GET A GOOD JOB!
If you apply for a mortgage, salary history is one of the most important considerations that lenders will make. Usually, you’ll be asked to supply income tax forms for the past two years and current pay stubs as proof of your earnings.

When lenders examine a borrower’s employment history, they’re looking for stability. If you’ve been at the same job for years and your salary has continually risen, then you’re a good prospect for credit. If you constantly jump from job to job and your salary has been erratic, that puts you in a less desirable position for lenders.

Your employment history is also a good indication of your capacity to repay credit. A person with a low average annual salary wouldn’t have the same capacity to repay a large credit card balance than someone with a higher salary.

Step 7 – DON’T MESS UP!
One of the best ways to build good credit over the long term is to avoid the small and large mistakes that can stain your credit report for years.

Pay all of your bills, loan installments and credit card payments on time. Not only will you pay a fortune in late fees, as most credit cards charge over $30 for late payments – but lenders will raise your interest rates for future credit.

Avoid bankruptcy at all costs; it’s the credit equivalent of death. Bankruptcies will mar your credit report for 7 years. Keep in mind that letting a debt go into collections is just as damaging as it also stays on your credit report for 7 years.

Establishing your credit can be done with due diligence and also making regular payments on time.  Rebuilding your credit can also be done after it has been damaged – make sure to take great care and seek advice if you are unsure about the necessary steps.  It will be time well spent!

The following links will assist you with establishing your credit.
There are two Credit Reporting Agencies:
-Equifax Canada – www.equifax.ca
-TransUnion – http://www.transunion.ca

You can read more about it here at Office of Consumer Affairs – Government Agency http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02178.html

Amina Mohamed is a Mortgage Agent and Real Estate Investor who believes in helping other investors look at all of their options when it comes to finding a mortgage.  She writes a weekly blog on her own website and for other investors as well and is keen on helping people fix their credit issues so that they too can become homeowners and possible real estate investors.  Amina can be reached through her website at https://www.aminasmortgageservices.ca  or on Facebook here or on Twitter here

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Written by Dwania Peele · Categorized: Amina Mohamed · Tagged: account, Amina Mohamed, bank, bankruptcies, bills, business development, Business Woman, buyers, Canadian Small Business Women, co-signer, credit, credit application, credit card, credit cards, credit history, credit rating, credit report, equifax, Government Agency, installment, investors, lender, loan, mortgage, office of consumer affairs, pay, Real Estate, rebuild credit, Rent-to-Own, salary, secured credit card, small business development, tenants, transunion

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