You Be The Boss

Posted on January 25, 2011 by Sanjeev Kamra

It’s a sunny day and you are ready to get the yard work done. You stop for breakfast to enjoy the fresh eggs from the farm down the road. Going out the door, you notice the broken handle on the rake. A trip to Tom’s hardware store down the road is needed. Then the water pump breaks and a plumber is needed. We depend on others to help us through the day, the plumber, Tom and the farmer. They are small business owners, three of an estimated 3,000,000 small businesses in Canada.

A business owner may chose to operate as a sole proprietorship or a partnership if two or more owners are involved. Alternatively, you may incorporate. No legal structure is inherently better than the other. The best choice depends on various factors.

Proprietors have more issues to consider in preparing their tax returns than employees, investors or pensioners. The focus should be on family planning since business income is an easier type of income to split than income from other sources. In order to be able to claim expenses and not have it viewed as a “hobby”, the business must have the potential to generate profit. Keep a journal of your thoughts on advertising, opportunities in the market, pricing, financing, etc. Be able to show that you honestly feel that the business will generate a profit for you in case this is challenged down the road.

Set up a separate bank account for the business. If it is audited by CRA, you will be showing them your business transactions only and not a mix of personal affairs as well. Auditors are happier when the audit trail is clean and clear. It is important from day one to have a proper accounting system. Your business may be small enough that a manual ledger will suffice. However, as your business grows, you may find that a lot of your time is consumed with running the business and your time to record the transactions lessens. Many sole proprietors use computer based software such as Simply Accounting or QuickBooks to maintain a proper ledger. These programs are relatively inexpensive and will generate useful information for you to help monitor and plan your business, just as long as the input is done correctly. It is important to speak to a qualified accounting professional when planning your accounting system. In most cases hiring a professional bookkeeper is inexpensive and hassel free.

Sole proprietors report income on their personal returns each year. While taxpayers are scrambling to file by midnight on April 30, sole proprietors and their spouses have a June 15^th deadline, although they are still subject to interest on what they owe after April 30. Penalties are charged after that date.

Maybe you can turn your yard work expertise into a thriving business for yourself! Remember to support the businesses in your neighbourhood and they’ll be there when you need them.

For more info call 905-216-2445, click info@vnaccountingsolutions.com or visit www.vnaccountingsolutions.com .

Self-Employment and Employment Insurance

Posted on January 19, 2011 by Sanjeev Kamra

As owner-managers of your corporations or self-employed individuals, you recognize your exempt status for employment insurance. If you control more than 40% of the voting shares of your company, then you are automatically exempt and do not pay employment insurance premiums. Recent changes in the Employment Insurance Act now allow you to voluntarily opt into the Employment Insurance program to receive special benefits for certain prescribed reasons. These benefits include:

Maternity Leave – up to 15 weeks
Parental Leave – up to 35 weeks
Sickness Leave – up to 15 weeks
Compassionate Care – up to 6 weeks

In order to qualify, you would need to opt into the program for a period of at least one year prior to claiming any benefits. It should be noted that you will only need to pay the employee portion of the Employment Insurance premiums and not the employer portion. For 2011, this is $787. Under the new rules, you will be able to opt out of the program at the end of any tax year as long as you have never claimed benefits. If you have claimed benefits, then you will need to continue to contribute as long as you are self-employed.

So is it a good idea to voluntarily opt into the Employment Insurance program? For most of you, I would have to say no. The potential benefits to be received are small compared to the premium cost to be paid. As with everything though, there is always an exception to the rule and this new benefit may be very attractive to some self-employed individuals based on their particular circumstances.

For more info call 905-216-2445, click info@vnaccountingsolutions.com or visit http://www.vnaccountingsolutions.com/

Reporting Requirements of Charities & Non-Profit Organizations

Posted on January 11, 2011 by Sanjeev Kamra

The current reporting requirements for Charities & Non-Profit Organizations have left a lot of our clients wondering what exactly they are required to file. This article is intended to act as a general guideline for the reporting requirements of Charities & Non-Profit Organizations.

Charities:

Under the Income Tax Act, every registered charity has to file an Information Return each year. The return must be filed no later than six months after the end of the registered charity’s fiscal period.

The Information Return includes:

Registered Charity Information Return, Form T3010A
Registered Charity Basic Information Sheet, Form TF725
List of directors/trustees or like officials, Form T1235
List of qualified donees, Form T2136
Copy of the registered charity’s own financial statements

CRA will send a Registered Charity Information Return Summary to acknowledge that they have received and processed your return. A charity that does not file its return can lose its registered status and may be liable for a $500 penalty.

A registered charity must spend a specific amount each year on charitable programs or as gifts to qualified donees. This amount varies according to the registered charity’s designation and is called its “disbursement quota”. The purpose of the disbursement quota is:

To ensure that most of the registered charity’s funds are used to further its charitable purposes and activities;
To encourage registered charities not to accumulate excessive funds; and
To keep other expenses at a reasonable level.

Essentially the disbursement quota is in place to ensure that registered charities actively use their tax-assisted donations to help others according to their charitable purposes. To help registered charities plan their expenditures, the quota is largely based on what happened in the previous years. Consequently, at the end of one year, a registered charity should have a fair estimate of how much it will need to spend on its charitable programs the following year.

A disbursement excess is created when a charity spends more on charitable activities or by way of gifts to qualified donees than it is required to by its disbursement quota for that year. A charity can apply a disbursement excess from one year against a disbursement shortfall occurring in the immediately preceding fiscal period. If necessary, a charity can also draw on a disbursement excess for up to five of its following fiscal periods to help it meet its disbursement quota.

If a charity spends less on charitable activities or by way of gifts to qualified donees than its disbursement quota for that year, it has a disbursement shortfall. A charity can draw on previous years’ disbursement excesses to cover a shortfall. If no excesses are available to draw on, the charity can try to spend enough the following year to create an excess that will make up for the shortfall. Continuous shortfalls can lead to revocation of the charity’s registration.

Non-Profit Organizations (NPOs)

A non-profit organization must file a Non-Profit Organization Information Return (Form T1044) if:

It received or was entitled to receive taxable dividends, interest, rentals or royalties totalling more than $10,000 in the fiscal period,
The total assets of the organization were more than $200,000 at the end of the immediately preceding fiscal period (the amount of the organization’s total assets is the book value of these assets calculated using generally accepted accounting principles); or
An NPO information return had to be filed for a previous fiscal period

Once an organization has filed an NPO information return for a fiscal period, it must file an information return for all subsequent fiscal periods, as long as it remains an NPO and regardless of the dollar value of its revenues or the book value of its assets in those later years.

An organization has to file its NPO information return no later than six months after the end of its fiscal period. If the organization fails to do so on time, the basic penalty is $25 a day. There is a minimum penalty of $100 and a maximum of $2,500 for each failure to file. An NPO is not required to include financial statements with the NPO information return.

Unlike charities, there is currently no disbursement quota that regulates where an NPO must spend their revenues.

Ultimately it is the responsibility of the Board of Directors to ensure that their organization is in compliance with the aforementioned reporting requirements. If you have any questions relating to the reporting requirements of your organization,

Call 905-216-2445 or click info@vnaccountingsolutions.com or visit www.vnaccountingsolutions.com

Ten financial steps to take before you die

Posted on January 2, 2011 by Sanjeev Kamra

First of all Happy New Year and hope 2011 brings joy, peace and prosperity to you. Now I don’t want to ruin your day, so forgive me for talking about your demise. You see, I have known a few people in the past year who have passed away. I’m often one of the people who receive a phone call from a widow or widower looking for helps three or four weeks after the funeral. Do yourself a favour and get your own financial house in order so that things are easier on your family after you’ve gone. Here are the top 10 things to consider.

1. Your will

When you pass away, your family should look after the funeral or memorial first, but then they’ll have to focus attention on finding a copy of your will. Make sure your will is up to date and make sure your executor knows where to find the executed copy, and knows which lawyer prepared it for you.

2. Your assets

Your executor will have to gather information on what assets you owned at the time of your death. Make sure you prepare a complete list today and update it annually. Make sure your family knows who your financial advisers are since they may look to those advisers for help in dealing with your assets after you’re gone.

3. Funeral costs

Your family will be in a fragile state emotionally when you pass away. It may be difficult for them to negotiate funeral costs at that time. Solve this issue by planning your funeral today. You can even prepay for your funeral if you want. Visit a local funeral home to discuss it.

4. Bank accounts

If your spouse shares a bank account jointly with you, he’ll be able to access the cash immediately after you pass away. Joint bank accounts make sense for this reason. Consider making the bank account(s) used for day-to-day expenses joint accounts. Also, ensure that any corporation bank accounts have more than one signing officer so that those accounts can be dealt with efficiently upon your death.

5. Life insurance

If you own any insurance policies, make sure your family knows the name of your insurance adviser. Further, make sure at least one insurance adviser knows about every policy you might own, whether he sold it to you or not; ask him to keep a record of this information for you. This will make it easier to ensure all policies are paid out upon your death.

6. Government benefits

Three types of benefits may be available to your surviving family members. If you’ve contributed to the Canada Pension Plan, there will be a death benefit (a one-time payment, to a maximum $2,500), a survivor’s pension (a monthly pension paid to your surviving spouse, averaging about $300, but which can be as high as about $560), and a children’s benefit paid to a surviving child (a monthly benefit of about $215 a month per child under age 18 or up to age 25 while still a student). Your family must apply for these benefits after you’ve gone.

7. Registered plans

Any registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs) owned by you at the time of your death can generally be transferred on a tax-free basis to a registered plan in your spouse’s name (or to a dependent who is a minor or has a disability). Simplify things for your heirs by reviewing your named beneficiaries today to ensure the right people will receive these assets when you’re gone.

8. Employment matters

Your family should call your employer to determine whether there are any amounts owing, such as salary, vacation pay or bonuses. They should also enquire as to whether the employer can pay any amounts as a tax-free death benefit (up to $10,000 can be received tax-free where it is considered a death benefit in recognition of an employee’s service). Let your family know this, and let them know who they should contact at your office in the event of your passing.

9. Your debt

Have you purchased insurance to pay off your debts in the event of your death? If you’re insurable, make life easier for your family by doing this. Term insurance (the cheapest) is just fine if the debt has a term to it and is expected to be paid off in the future.

10. Summary of information

Much of the information you’ll want to provide about assets, contact names, and so on, should be summarized in one document. Ask your lawyer or funeral home if they can provide a document for gathering this information.

Monthly Archives: January 2011

Top 5 ways to get ready to file your 2010 tax return

You Be The Boss

Self-Employment and Employment Insurance

Reporting Requirements of Charities & Non-Profit Organizations

Ten financial steps to take before you die

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