Capstone LLP Chartered Professional Accountants https://www.capstonellp.ca Toronto Accounting Firm Tue, 11 Dec 2018 12:08:11 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.9 Understanding the 2018 Changes to RDTOH https://www.capstonellp.ca/2018/11/16/understanding-2018-changes-rdtoh/ https://www.capstonellp.ca/2018/11/16/understanding-2018-changes-rdtoh/#respond Fri, 16 Nov 2018 19:42:17 +0000 https://www.capstonellp.ca/?p=26146 Many small business owners are unfamiliar with the tax changes taking place in 2018, especially the changes related to the refundable dividend tax on hand (RDTOH). What is RDTOH? RDTOH is a tax mechanism used under the Canadian tax system that is built on the concept of “integration”. The purpose of the integration is for […]

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Small Business Accounting Mistakes

Many small business owners are unfamiliar with the tax changes taking place in 2018, especially the changes related to the refundable dividend tax on hand (RDTOH).

What is RDTOH?

RDTOH is a tax mechanism used under the Canadian tax system that is built on the concept of “integration”. The purpose of the integration is for investment income to be taxed at the same rate, whether the income is earned personally or initially by the corporation. Generally, passive investment income, such as interest, rental income, taxable capital gains and portfolio dividends from foreign companies, earned by a Canadian controlled private corporation (CCPC) is taxed at a higher rate than active business income, and a portion of the higher tax can be refunded to the corporation when it distributes taxable dividends to the shareholders.

How Does it Work Currently?

Passive income earned by CCPC is taxed at a high combined corporate tax rate, 50.17% in Ontario. A portion of the taxes (i.e. 30.67% of investment income) is refundable and added to the corporation’s RDTOH account. A tax refund is also allowed on the taxable dividends paid out, at the rate of 38.33%, up to the balance of the RDTOH account. The refund rate on taxable dividends is the same regardless of whether the dividends paid out are eligible or non-eligible.

What are the New Rules?

Effective taxation years that begin after 2018, the existing RDTOH will be divided to two pools: eligible and non-eligible.

The eligible RDTOH account will be deemed to be the lesser of the existing RDTOH balance and 38.33% of the balance of the general rate income pool (GRIP). Any remaining amount of the existing RDTOH balance will be allocated to the non-eligible RDTOH.

The “non-eligible RDTOH” pool will track the refundable Part I tax on investment income, and Part IV tax on non-eligible intercompany dividends. The “eligible RDTOH” account will be created to track only the refundable Part VI tax on eligible dividends.

Here are some points of note:

  • An RDTOH refund will only be available when the corporation pays out non-eligible dividends, with an exception for the RDTOH resulted from eligible portfolio dividends received by the corporation.
  • Ordering rule: a payment of non-eligible dividend will first generate a refund from the non-eligible RDTOH account, then the eligible RDTOH account.
  • Non-eligible dividend payment result in a refund from the eligible RDTOH account only when there is no balance left in the non-eligible RDTOH account.
  • No dividend refund is allowed when the corporation with only the non-eligible RDTOH pays eligible dividend.

Some Tax Planning Points

  • Maximize eligible dividends paid prior to changes to the highest extent possible
  • Pay by way of a promissory note if the company does not have sufficient cash flow to pay out eligible dividends
  • Increase investment in CCPCs to create ERDTOH
  • Generate more capital gains to pay out capital dividends

If you require any assistance with your corporate tax and accounting needs, contact your Accountants Toronto.

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Common GST / HST Filing Errors That Can Cost You https://www.capstonellp.ca/2018/07/06/common-gst-hst-filing-errors-can-cost/ https://www.capstonellp.ca/2018/07/06/common-gst-hst-filing-errors-can-cost/#respond Fri, 06 Jul 2018 15:23:33 +0000 https://www.capstonellp.ca/?p=25945 When running a small business in Canada, most entrepreneurs are savvy enough to know that when revenues (for taxable supplies) exceed $30,000 in any four consecutive quarters, it is time to register for and collect GST/HST. This also means that you’ll need to file GST/HST returns annually, quarterly or monthly, depending on your specific scenario […]

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Toronto CPA Accounting Firm

When running a small business in Canada, most entrepreneurs are savvy enough to know that when revenues (for taxable supplies) exceed $30,000 in any four consecutive quarters, it is time to register for and collect GST/HST. This also means that you’ll need to file GST/HST returns annually, quarterly or monthly, depending on your specific scenario and selection.

These are some common areas that we find small business owners who try to prepare or file their sales tax returns on their own make mistakes that can be costly:
 

Meals and Entertainment

A very common error that can occur is related to expenses and input tax credits (ITCs) related to meals and entertainment. For tax purposes, the allowable portion of the tax deduction for meals and entertainment expenses is 50% of the expense. Similarly, it is important to note that the ITC that can be claimed must follow suit, and only 50% of the GST/HST paid on meals and entertainment expenses are eligible to be claimed as ITCs.

Secondly, in relation to meals and entertainment expenses, when a tip is left for the server, there is no ITC related to the tip, and it is important to ensure that the ITC claim matches the actual allowable portion of the GST/HST paid.
 

Automobile Expenses

As many business owners know, when using a personal vehicle for business purposes, the prorated portion of any business-related expenses can be deducted against income. This would include items such as fuel and maintenance. However, a common oversight is that the ITC claim is not prorated by the respective business use portion as well. It is important to track this closely and ensure consistency between the prorated amount used for the tax deduction claim and the ITC claim.
 

Inter-Corporate Revenues and Expenses

There are often scenarios where a parent company or holding company will charge fees to a subsidiary (or operating company), for taxable supplies such as, for example, rent or management fees. It is common to forget that this is, after all, a commercial transaction, and there should be an agreement or invoice generated, and sales tax must be charged and paid (except for those companies that are eligible and have elected out of GST/HST in such transactions).
 

Summary and Recommendations

Software is available (such as QuickBooks Online and Xero) that can assist with calculating GST/HST collected and the ITCs to be claimed when filing. However, it is important to note that the software is not perfect and may not catch issues such as those noted above. It is always recommended to consult a professional prior to filing anything with the Canada Revenue Agency to ensure that your risk of errors is minimized as much as possible. If you need any assistance with corporate tax or GST/HST filings please contact us.

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Impact of TOSI Income Sprinkling Rules on Canadian Small Business https://www.capstonellp.ca/2018/06/19/impact-tosi-income-sprinkling-rules-canadian-small-business/ https://www.capstonellp.ca/2018/06/19/impact-tosi-income-sprinkling-rules-canadian-small-business/#respond Tue, 19 Jun 2018 12:10:39 +0000 https://www.capstonellp.ca/?p=25923 A common tax minimization strategy used by many incorporated small businesses and common among professionals with Professional Corporations, was to effectively reduce the overall tax burden by issuing shares and paying dividends to family members, who often had little involvement in business operations, and minimal investment in the business as well...

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Small Business Accounting Tips
A major concern for Canadian small business owners has been the talk and proposals regarding revised tax rules that the government brought forward in the middle of 2017. While there was a lot of confusion, opposition and unanswered questions at the time, there have been some developments that will impact small business accounting and tax planning.

Background and Overview

Due to significant opposition from the Canadian Small Business community, tax accountants, accounting firms, and other stakeholders, the original proposals from July 18, 2017 that the Department of Finance issued with regards to small business tax changes were subsequently revised and released on December 13, 2017.

The revised proposed rules were better accepted by the business community, but still represent a large shift in the existing tax planning methods, strategies and abilities to split income for private corporations in Canada. Nonetheless, the new rules took effect on January 1, 2018 and are applicable to the 2018 and subsequent taxation years.

A common tax minimization strategy used by many incorporated small businesses and common among professionals with Professional Corporations, was to effectively reduce the overall tax burden by issuing shares and paying dividends to family members, who often had little involvement in business operations, and minimal investment in the business as well. The new TOSI (tax on split income) rules were intended to effectively remove the ability for many small business owners to split income and thereby remove their advantage over Canadian employees who are not able to use these types of tax planning strategies.

Revised TOSI and Income Sprinkling Proposals

The revisions that were released in December provided more insight into how the government planned to police these new rules, and also included a number of potential exclusions from the new rules as well.

Some of the tests to determine when TOSI will apply are subjective; however, the overall idea of TOSI, the new definitions and the new tests all add to the complexity of tax planning and the ability of small business owners to understand what may apply to them and their small business.

The bright side for some small business corporations is that the TOSI rules will not apply in situations where payments (i.e. dividends, interest and certain capital gains) are within the specified exclusions, also known as an “Excluded Amount”.

Excluded Amount Explained

  1. For all adults in Canada, any amount received from an “excluded business” will not be subject to the TOSI rules. Excluded Business is defined as:

Amounts are derived from an excluded business where the individual was actively engaged on a regular, continuous and substantial basis (“Actively Engaged”) in the activities of the business in a taxation year or in any five prior year taxation years of the individual.

In order to be considered “Actively Engaged” an individual would need to work in the business a minimum of 20 hours per week during the portion of the year when the business is operating (i.e. seasonal businesses may not operate for a full year) or has met that requirement of 20 hours per week in any of the five prior years; they do not need to be consecutive. If this test is met, the individual would be exempt from TOSI permanently on a go-forward basis under the new proposal.

If the individual does not make the 20 hours per week test, the individual may still meet this exclusion test. This would vary on a case by case basis upon further investigation by the CRA, if applicable.

  1. For individuals age 25 and over, TOSI will not apply on income from (or taxable capital gains from) the disposition of Excluded Shares” or a payment that qualifies as a “Reasonable Return”.

Excluded Shares would be defined as:
Shares of a corporation owned by an individual are and all the following conditions are met:

  • Less than 90% of the corporation’s business income was from the provision of services;
  • The corporation is not a Professional Corporation, i.e. physician, dentist, lawyer, chiropractor, etc.;
  • The shares represent 10% or more of the votes and value of the corporation; and
  • All or substantially all, of the income of the corporation is not derived from another Related Business in respect of the individual.

The specific requirement of the shares to be held by an individual means that any shares held through a Family Trust structure for the benefit of the individual would not qualify as an Excluded Share.

Reasonable Return would be defined as (for individuals age 25 and over):

  • The work is performed in support of the Related Business;
  • The property contributed directly or indirectly in support of the Related Business;
  • The risks assumed, in respect of the Related Business;
  • The total amounts paid or payable by any person or partnership to, or for, the benefit of the individual, in respect of the Related Business; and
  • Any other such factors that may be relevant.

In assessing a Reasonable Return, the CRA has provided the following criteria to provide some clarity on how they will evaluate the payment:

  • Labour Contribution – the work performed (tasks, hours, wage in comparison to industry, education, knowledge of individual, etc.) by the individual in support of the Related Business before the amounts became paid;
  • Property Contribution – the property contributed (loans, capital, any collateral, opportunity costs, past contributions, etc..) by the individual in support of the Related Business;
  • Risks Incurred – the risks (exposure to the liabilities of the business, personal reputation or goodwill at risk, extent contributions made at risk, etc.) assumed by the individual in respect of the Related Business;
  • Historical Payments – the total amounts paid by any company or partnership to, or for, the benefit of the individual in respect of the Related Business; and
  • Such other factors that may be relevant.
  1. For individuals between the ages 18 and 24, TOSI will not be applied to a return on property contributed in support of a Related Business that is a “Safe Harbour Capital Return” or, a Reasonable Return having regard only to contributions of “Arm’s Length Capital” to the business.

The Safe Harbour Capital Return is defined as a return that does not exceed a prescribed capital rate of return based on the highest prescribed rate under the Income Tax Act for the particular year. Currently this rate is at 2%, which would be applied to the Arm’s Length Capital invested by the individual to determine the maximum Safe Harbour Capital Return.

Arm’s Length Capital is property of an individual, other than property that is derived from property in respect of a Related Business, that is borrowed under a loan, or that is transferred from a related person (other than inherited property).

  1. For all individuals the taxable capital gain realized on death, from the disposition of qualified farm, fishing property, or qualified small business corporation shares, will be excluded from TOSI.
  1. For individuals age 65 or over, all amounts received by the individual spouse will not be subject to TOSI if the amount would have been an Excluded Amount had it been included in the individual’s income. This means that as long as the individual was active in the company in the past, once they reach the age of 65 they will be allowed to split income to their spouse and do not have to worry about the TOSI rules.

Summary

Although this draft legislation narrows the focus, and addresses many of the issues and concerns brought up by the various stakeholders, the revisions remain quite complex. The changes will certainly result in additional compliance costs for many small businesses and may result in a significantly larger tax burden for small business owners who have previously been income splitting with family members.

If you need assistance with any small business accounting or TOSI related matters, please feel free to contact us.

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When To Have a Business Valuation https://www.capstonellp.ca/2017/05/23/when-to-have-business-valuation/ https://www.capstonellp.ca/2017/05/23/when-to-have-business-valuation/#respond Tue, 23 May 2017 17:16:22 +0000 https://www.capstonellp.ca/?p=25821 Having your business evaluated by a Chartered Accountant provides you with an accurate picture of what it is worth in the current market. A business valuation is important for business owners if you are looking to make any changes. Professional Chartered Business Valuators can give you an independent and fair valuation of your business to […]

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Small Business Valuation

Having your business evaluated by a Chartered Accountant provides you with an accurate picture of what it is worth in the current market. A business valuation is important for business owners if you are looking to make any changes. Professional Chartered Business Valuators can give you an independent and fair valuation of your business to help with the process. Here is when you should get your business valuated:

Selling
If you are looking to sell your business you want to make sure that you know how much it is worth. Getting a business valuation can help you determine what valuation you should sell it at. The option for what to sell it at is up to you then, either at the valuation, below it, or above it. Having a valuation done is also a good negotiating factor because you can physically show buyers what your business is worth rather than having them just go on your word.

Buying/Expanding
If you are considering expanding or buying another business, start off by getting a business valuation of what you already have. This could help with securing loans for expanding. It will also help determine if now is a good time for growing your business. If you are acquiring another business consider doing your own independent valuation of it. They may or may not have gotten one done but hiring someone you trust to evaluate on your behalf is always a good idea, especially for such a big decision.

Reorganization
Businesses, big or small, go through reorganization from time to time. If you are adding shareholders or new partners a valuation might be in order. When you know how much your business is worth you can judge what percentage to give to shareholders, partners, or investors based on how much they invest. If you think your business is worth $100,000 but your partner thinks it is worth $50,000, when they invest $5,000 you will end up arguing about what percentage they own. A valuation helps settle those disputes.

Estate Planning
Everyone at some point in their life will settle down to organize and plan their estate. This is usually done for the purposes of a will. As a business owner, you have the option to leave your ownership to someone else upon your death. It’s important to know how much your business is worth while you are planning this out especially if you are giving it to multiple people.

Matrimonial Separation
Unfortunately, marriage does not always work out. During a matrimonial separation, all assets are assessed and discussed. If you own a business, whether you own it together or separately, it will likely be up for discussion. Most likely you will get a business valuation done on it to determine how much it is worth. In most divorces assets are divided somewhat evenly, but that doesn’t mean everyone gets half of everything. If you want full ownership of your business you might exchange it for other assets of equal value.

Conclusion
Having an up to date and fair valuation of your business is never a bad idea. It gives you a good look at how much the business you spend your time running is worth. Contact us today if you would like to set up a business valuation.

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When Is the Right Time to Hire An Accountant For Your Small Business? https://www.capstonellp.ca/2017/05/15/right-time-hire-accountant-small-business/ https://www.capstonellp.ca/2017/05/15/right-time-hire-accountant-small-business/#respond Mon, 15 May 2017 21:49:12 +0000 https://www.capstonellp.ca/?p=25807 A Chartered Professional Accountant can help your business grow at various stages. They do a lot more than handle payroll, bookkeeping, and taxes. The financial advice they can provide can make or break whether a business survives or not. A big question small business owners have is “when is the right time to hire one?”. […]

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When to Hire a Small Business Accountant

A Chartered Professional Accountant can help your business grow at various stages. They do a lot more than handle payroll, bookkeeping, and taxes. The financial advice they can provide can make or break whether a business survives or not. A big question small business owners have is “when is the right time to hire one?”. However, there is a good reason for hiring an accountant at each stage of a company’s growth.

 

In The Beginning

There are multiple reasons to consider hiring a Chartered Accountant at the beginning of opening up your small business – they will be an incredibly useful resource, especially if you have never opened or operated a business before. An accountant can help you create a business plan that will include initial budgeting. If you have trouble figuring out financing they can also be of assistance by aiding you with your loan applications.

When opening a small business, a lot of people do not think about the legal structure of it. Not all businesses are built the same, especially in terms of legal organization. Each type of legal structuring has its advantages and disadvantages. A small business accountant will be able to advise you on what type of structure would work best for you. They can also help you figure out other legal aspects like how to pay yourself, how to set up business accounts, and how to hire employees.

Hiring a Chartered Professional Accountant during the early stages will help you in the long run. They have financial knowledge, experience, and advice that could end up saving you a lot of time and money.

 

After It Is Set Up

If you have already established your small business, or do not need help doing so, then consider hiring an accountant once you are settled. Small businesses take a lot of work to run, with owners usually taking on a lot of the responsibility themselves. Doing the finances for any business is a big job, especially if you are not trained in accounting.

Hiring a small business accountant means they can keep track of your finances, catch bookkeeping errors, manage payroll, and set a budget. Do not worry about the cost of an accountant as most of them more than make up for their price due to the money they save you. When you hire an accountant you get to spend less time on bookkeeping and more time actually running your business.

 

During Tax Season

For experienced small business owners sometimes an accountant is only needed during tax season. Hiring an accountant for small business taxes can end up saving you a significant amount of money. They will be able to catch any bookkeeping or other financial errors you might have made. They can also find you tax breaks and deductions you might not have known about.

If the government ever audits your business the first things you should do is hire an accountant to get things on track. A Chartered Accountant is trained to deal with audits and can help you recalculate figures, budget for paying more money and prevent you from getting audited again. The best way to not get audited though is to always use a chartered accountant when filing your small business taxes.

 

Business Changes

Anytime your business is undergoing a major change it is a good idea to speak with an accountant. If your business is expanding that is a good sign, but it almost means there is more to handle. An accountant will be able to guide you through the process. They can also help you with financing new locations, hiring more staff, and expanding your service/products.

Hiring a Toronto Chartered Accountant is also a smart move if you are downsizing or selling. They can prepare any financial reports and records that will be needed for the government and buyers. A small business accountant will also help you get the best value for your business.

 

There is never a wrong time to hire an Accounting Firm Toronto to help you out. They can provide valuable advice and services that will only aid your small business. So whether you are just starting out or firmly established, consider hiring a Chartered Accountant. Contact us for any of your small business accounting needs.

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Outsourced CFO For Small Businesses https://www.capstonellp.ca/2017/05/09/outsourced-cfo-small-businesses/ https://www.capstonellp.ca/2017/05/09/outsourced-cfo-small-businesses/#respond Tue, 09 May 2017 21:48:48 +0000 https://www.capstonellp.ca/?p=25804 Many businesses could benefit from hiring a CFO (Chief Financial Officer), but unfortunately, most small businesses cannot afford to do so. In this instance, outsourcing a CFO might be the answer. Businesses outsource CFO services when they need a more in-depth understanding of their finances or need financial advice but do not have the funds […]

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outsourced cfo services

Many businesses could benefit from hiring a CFO (Chief Financial Officer), but unfortunately, most small businesses cannot afford to do so. In this instance, outsourcing a CFO might be the answer. Businesses outsource CFO services when they need a more in-depth understanding of their finances or need financial advice but do not have the funds for a full-time CFO.

CFO Responsibilities

A CFO handles most of the financial responsibilities that come with running a business. They report and interpret the financial information necessary to manage and grow. In order to get the benefits of a CFO without the hefty price tag, many small businesses hire a professional chartered accountant to act in the CFO position. Outsourced CFO’s tasks will depend on what you need them to do for your business. They might prepare scheduled reports, do financial analysis, advise you on business changes, develop budgets, manage cash flow, and provide guidance.

An outsourced CFO has many benefits. Here is how a CFO can benefit your small business:

Save Money

Getting financial advice and financial services can be expensive. Luckily, it is easy to fit an outsourced CFO into any budget. You start saving money right away when you outsource by not having to pay the high salary that most CFO’s require. This allows you to reinvest that money into other aspects of your business. An outsourced CFO is usually a chartered accountant. They are experienced and skilled so they will not only require a lower fee but they are also able to provide advice and guidance on how to save money in the running of your business.

Flexibility

A small business is dependent on flexibility. In order to run a small business, you need flexibility with cash flow and resources, taking money from some areas to invest in others as needed. An outsourced CFO provides that by taking the pressure off you to pay another salary. You can hire them as an on needed basis, adjusting the scope of services you require as needed.

Wider Skillset

The great thing about an outsourced CFO is that they are usually trained and experienced accountants. This means they have more external knowledge and experience than a regular CFO might have. They understand small business finances and can help you in whatever aspect you need them too. The knowledge they gained from working with other businesses, especially those similar to yours, will greatly benefit you.

Efficiency

An outsourced CFO generally works more efficiently than an in-house one. An outsourced CFO is used to working with new businesses so the learning curve will be conquered quicker. They tend to meet deadlines quicker and do things more efficiently. These are skills they learned and perfected while being a professional chartered accountant. Outsourcing a CFO also means that you can get back to focusing on managing your business, and not just stressing over the finances.

 

Contact us today to discuss how an outsourced CFO could benefit your Toronto small business. They will not only help with the day-to-day finances but also be there to guide you through larger business changes like expansion and investment. An outsourced CFO has all the benefits of a regular CFO just without that large price.

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What Happens If You File Your Taxes Late? https://www.capstonellp.ca/2017/05/01/filing-taxes-late/ https://www.capstonellp.ca/2017/05/01/filing-taxes-late/#respond Mon, 01 May 2017 21:17:57 +0000 https://www.capstonellp.ca/?p=25794 What happens if you missed the 2017 tax deadline? The Canada Revenue Agency (CRA) puts hefty penalties on those that file their taxes late. That is why Chartered Accountants always recommend filing and getting started on your taxes as early as you can. However, if you do file late, what exactly happens?   2017 Tax […]

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Filing Taxes Late 2017

What happens if you missed the 2017 tax deadline? The Canada Revenue Agency (CRA) puts hefty penalties on those that file their taxes late. That is why Chartered Accountants always recommend filing and getting started on your taxes as early as you can. However, if you do file late, what exactly happens?

 

2017 Tax Deadlines

Mark it on your calendar, April 30th. That is the deadline that income tax returns have to be filed by. Any balance owed to the CRA also has to be paid by that date too. Any payment sent in the mail needs to be postmarked on or before that date also. For self-employed individuals, there is a bit more room. You have until June 15th to file your taxes. There’s a catch, though. Any balance owed still has to be paid at the normal time, April 30th.

 

Penalties for Filing Taxes Late

There are penalties for filing late, and they can be pretty steep for those that owe a balance. The CRA will charge you a penalty of 5% of your owed balance plus an additional 1% for every month that your tax return is late. These penalties can go up too, doubling in fact, if you continuously file late. Even if you cannot afford to pay the entire balance owed to the CRA, Chartered Accountants recommend paying at least a portion to avoid late filing penalties. It is always a good idea to file your taxes on time even if you cannot pay on time to avoid some of the penalties.

 

Benefit Interruption

In additional to financial fees and penalties, people that file late may have their government benefits interrupted. To receive certain federal or provincial benefit payments one has to file an annual return. If you file late, or not at all, these payments may be interrupted. Taxes are used to assess eligibility for programs so if you file late your information won’t be processed in time meaning you will receive your benefits later.

Programs that are affected by this include:

•    Canada Child Tax Benefit
•    Universal Child Care Benefit
•    Working Income Tax Benefit
•    Guaranteed Income Supplement
•    GST/HST Benefit
•    Ontario Trillium Benefit

 

I Filed Late: Now What?

File your taxes as soon as possible once the deadline has passed. Your penalties get steeper each day past the deadline. Make sure that all of your information is correct to avoid causing even more trouble. There is something called voluntary disclosure. It means that if you did not file in the past or filed late and then submit the forms before the CRA audits you or asks for the documents, you will not get in as much trouble. In this case, you will only be required to pay the amount owed plus interest.

 

How to Avoid Being Late

The best thing is to avoid filing taxes late at all costs, as there are heavy penalties for those that do. Start getting all the information you need for taxes early to avoids stress and last minute scrambling. Do not wait for the deadline either – file your taxes as soon as you are ready and able. Hiring a Tax Accountant is always a good idea as well. They can help you find the right documents, make the calculations, and make sure you make the deadline.

 
Contact us today if you have any questions, concerns, or are interested in our tax filing services.

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Audit, Compilation, & Review Engagement: Understanding the Differences https://www.capstonellp.ca/2017/04/24/audit-compilation-and-review-engagement/ https://www.capstonellp.ca/2017/04/24/audit-compilation-and-review-engagement/#respond Mon, 24 Apr 2017 21:34:06 +0000 https://www.capstonellp.ca/?p=25787 An end of the year assessment is important for any company. It is the best way to give you an accurate and updated picture of your company’s finances. There are three types of end of year engagements: audit, compilation, and review engagement. Each differs in terms of scope of work performed and level of assurance […]

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Audit Compilation & Review Engagements

An end of the year assessment is important for any company. It is the best way to give you an accurate and updated picture of your company’s finances. There are three types of end of year engagements: audit, compilation, and review engagement. Each differs in terms of scope of work performed and level of assurance provided. Here are the differences between them.

Audit

People always panic when they hear the word audit. This is thanks to the fear surrounding CRA audits that can sometimes lead to people needing to pay large amounts of money or facing criminal charges. An audit engagement is not that though, so rest assured. In this instance, an audit is done so that an independent accountant can take an honest look at company finances and give a fair opinion on them.

A Chartered Accountant will look through financial data to make sure that it fits with government standards and is free from errors and misstatements. An audit is the most intense and thorough end of year assessment. It also provides the most assurance. An accountant will look through documents, assets, and make inquiries. The purpose of an audit is simply to make sure that everything is as it should be.

Review Engagement

An audit is meant to look for misstatements in a thorough manner, but a review engagement is only meant to assess whether a company’s financial statements are believable or plausible. Unlike an audit, a review engagement does not offer as much assurance about whether a company is fully complying. Instead, they offer what is called negative assurance. This just means that the Chartered Accountant is providing assurance that nothing is jumping out as wrong. This differs from an audit, which provides a positive assurance by stating that everything is right. Review engagements tend to be more popular since they are easier, cheaper, and most companies do not require a thorough look.

Compilation

A compilation, also known as a notice to reader, involves an accountant compiling information into financial statements. There is no assurance provided in this instance since the client provides all of the information. A compilation would only be used if a company does not need assurance about their financial data. In this instance an accountant will not be giving an assessment or opinion about the financial data nor do they modify it, they simply compile it into the necessary reports.

Which Do You Need?

Certain industries, businesses, and companies require different end of year assessments. In some instances, these are specified in the legal by-laws. If it is up to you to decide, consult a Chartered Accountant. They will be able to advise you on which would be best for your situation. Contact us today to discuss the end of year assessment options available.

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Common Myths About CRA Audits https://www.capstonellp.ca/2017/04/17/common-myths-about-cra-audits/ https://www.capstonellp.ca/2017/04/17/common-myths-about-cra-audits/#respond Mon, 17 Apr 2017 19:56:44 +0000 https://www.capstonellp.ca/?p=25772 Tax season is upon us and that means that everyone is focused on gathering their financial data. Filing taxes can be stressful, but the thought of a financial audit by the Canadian Revenue Agency (CRA) can be worse – mostly due to the myths about them out there. However, with a Chartered Accountants to accurately […]

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CRA Tax Audit Myths

Tax season is upon us and that means that everyone is focused on gathering their financial data. Filing taxes can be stressful, but the thought of a financial audit by the Canadian Revenue Agency (CRA) can be worse – mostly due to the myths about them out there. However, with a Chartered Accountants to accurately prepare and submit your taxes, if an audit does occur, you will not have much to worry about.

 

Myth 1: Filing Online Increases Your Chance Of Being Audited

This is not true. When you file your taxes online, you cannot file paper receipts or tax slips as you could when you file on paper. Instead, the CRA will send a request for certain supporting documents for people who file online. People often mistake this document request as an audit. In fact, this is just a simple routine verification for claims you have made.

It is up the individual whether or not they want to file their taxes online or not, but there are many benefits. You get your returns quicker and it is easier to catch mistakes, which lowers your chance of being audited.

 

Myth 2: Amending Your Taxes Means Getting Audited

If you have already filed but realized you made an error, put something in wrong, or forgot to add something, your best bet is to file an amendment to your taxes. Many people do not do this because they are worried it will trigger an audit.

Any amendment or second return you submit will get screened, just like the first one, but at most it will get looked at only slightly harder. It is always better to file an amendment with a detailed explanation why you are, rather than just letting the error go. You are more likely going to get an audit for not amending your error than you are if you do.

 

Myth 3: The CRA Will Show Up At Your Door

This myth is only a little bit true. The CRA will sometimes schedule appointments to examine your workplace or home. However, they will never show up unannounced knocking on your door. Most audits take place entirely through the mail. Do not trust anyone that shows up at your home, workplace, or even through email, claiming to be a CRA agent if you have not received a written letter in the mail. This is a common sign of a CRA scam. Contact your Chartered Accountant immediately if you are not sure if something is legitimate before proceeding.

 

Myth 4: Getting Audited Means You Did Something Illegal

Most tax audits happen because of simple, honest mistakes. To avoid getting audited over avoidable mistakes, consider hiring a Chartered Accountant to file your taxes.

There are many other reasons people get audited besides errors. An audit is just your chance to defend why you claimed what you did. The CRA also does secondary audits to confirm information on the main audit of someone in your life like a spouse, family member, or employer. If your business made more than the industry average it could also trigger an audit, and sometimes the CRA conducts audits at random.

 

Myth 5: Audits Are Horrible Experiences

This is a myth that stems from history. In the past, government tax agencies were ruthless and harsh. The fear around getting audited was legitimate. Today, after years of complaints about over the top actions, the CRA is more focused on working with taxpayers rather than against them. Not only do most people who are audited never even see a CRA agent in person, but it’s in everyone’s best interest to work together cooperatively.

Audits can be stressful, but a lot of the fear surrounding them comes from myths. To reduce the likelihood of being audited or to make the process of being audited smoother, consider working with a Chartered Accountant Toronto. Having an accountant by your side will make collecting the requested documents, recalculating data, and building an argument for claims easier.

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Xero vs. QuickBooks Online https://www.capstonellp.ca/2017/04/06/xero-vs-quickbooks-online/ https://www.capstonellp.ca/2017/04/06/xero-vs-quickbooks-online/#respond Thu, 06 Apr 2017 17:45:12 +0000 https://www.capstonellp.ca/?p=25763 For the past couple of years, Intuit’s QuickBooks Online has been dominating the accounting software market and have also become a household name with a reputation for reliability. It has only been recently that competition has started to arise. Xero has quickly become QuickBooks Online’s biggest competitor. Within the last year, both have been growing […]

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Xero Vs Quickbooks Cloud Accounting

For the past couple of years, Intuit’s QuickBooks Online has been dominating the accounting software market and have also become a household name with a reputation for reliability. It has only been recently that competition has started to arise. Xero has quickly become QuickBooks Online’s biggest competitor. Within the last year, both have been growing at the same rate. While QuickBooks still has the market share advantage, Xero has presented itself as a top competitor and contender in a way that no other company has before.

Small businesses are left with a question about which cloud accounting software to choose. Upon the first inspection both seem to offer the same things. To help make it easier for you, we have explained all the differences and similarities between Xero and QuickBooks Online.

Cloud Accounting
Both Xero and QuickBooks Online are cloud accounting software. Cloud accounting is the latest progression in accounting. Cloud-based programs are when your financial data is stored in a remote cloud server. This has multiple benefits, including but not limited to, increased security, remote access, and real-time updates.

Users
One of the biggest differences between QuickBooks Online and Xero is the number of users allowed for an account. With Xero cloud accounting, there is an unlimited amount of users allowed, no matter what subscription plan you have. With QuickBooks Online, the user limit is one, three, or five depending on the size of the package. So if you have a small business in which multiple people need to access the accounting software, Xero might be the option for you as adding additional users to QuickBooks Online can become pricey.

Use
It would be hard to make it in the accounting software industry if your product was not easy to use. Both Xero and QuickBooks Online provide a relative ease of use, which is great for small businesses as many owners are not trained accountants. However, Xero stands out as the one with better ease of use. The layout and navigation are easy and the tools are comprehensive and well organized. QuickBooks Online has a nice layout as well, but some users complain about unnecessary navigation steps and minor bugs.

Pricing
A big factor when it comes to determining which software to use for your small business accounting is the price. Comparing the two is a little difficult, as their packages don’t always offer the same thing. If all you need is the bare minimum for company bookkeeping, then QuickBooks Online is the best option. For more comprehensive packages, Xero is the clear winner. They offer more features at a lower rate than QuickBooks Online.

Customer Service
A company’s customer service and support team say a lot about how much they care about their clients. Both QuickBooks Online and Xero do a lot to prove that they care about the small businesses that use them. Many people had some problems with QuickBooks Online’s customer service in the past but Intuit has listened and made a real effort to fix it. Both do a great job when it comes to answering minor questions or issues. Xero tends to do better with more serious problems, having quicker response times, and representatives that understand and can fix issues better.

Security
One of the biggest worries small businesses have about cloud accounting software is security. As accountants, we always tell people that cloud accounting is actually safer than traditional software. Both QuickBooks Online and Xero excel at making sure your financial data stays safe. Data is heavily protected both physically in secure data centers and remotely with encrypted passwords and authorization.

Verdict
The truth is that you cannot go wrong with either program. Xero pulls ahead in many categories but QuickBooks Online has more experience, clients, and a better reputation. If you are still struggling to pick between Xero and QuickBooks Online, talk to one of our Chartered Accountants to determine which accounting software would be better for your business.

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