How Will The Changes To Income sprinkling Impact You

As soon as the government started talking about tax reforms for corporations who used income sprinkling as a tax saving strategy small business owners across Canada started to worry about the implications these impending changes would have on them.

Before we dive in and give you the full ins and outs of this tax law change, who it impacts, and what it means for small business owners we want to start by saying that majority of our small business clients will not be impacted by these changes. Those impacted the most are high-income earning professionals, such as Doctors and Lawyers, who have been income splitting with a spouse who is not actively working in their business.

What is income sprinkling?

Income sprinkling aka income splitting is a tax strategy commonly used by higher-income business owners or incorporated professionals to help them personally access more funds from their corporation without the high tax bill. To implement this strategy the corporation pays out company dividends to a lower earning family member of the business owner or incorporated professional, in most cases a spouse or child.  The family member receiving the funds is taxed at their tax rate, which is lower than the higher income earners tax rate.

 

The existing law

The original law around income sprinkling/splitting was the Tax on Split Income (TOSI) rule which applied the highest marginal tax rate to income that was split with a family member under the age of 18. Commonly known as the “Kiddie Tax” this law had not been extended to family members 18 or over.

The New Law

You can probably already see the writing on the wall and if you assumed the new law extends the principles of the “Kiddie Tax” to all family members 18 and over who receive dividend payments from the corporation without actually being an active member of the business, you would be correct.

Exclusions

It should be noted that there are some exceptions to the rule:

  • It doesn’t apply to salaries paid to family members.
  • If you are income splitting with your spouse and you are aged 65 years and over you are exempt.
  • If your family member works consistently in the business 20+ hours per week during its operations within the tax year or can show that they have consistently worked within the business over the past 5 years they will be exempt.
  • If you are 25 or over and you hold Excluded Shares in the corporation and the corporation is not a professional corporation or a business that provides services.

What it means for you

For a majority of small business owners, these changes don’t pose a significant impact. So long as your family member is actively working within the business and can provide documentation to prove that fact the high tax bracket won’t be applied.

For a lot of incorporated professionals that have been income splitting with a spouse who does not actively work in the business these changes will have a significant impact on their tax saving strategy.

To Expand Or Not To Expand? – Determining Your Cost : Benefit Ratio

Your mother clearly dropped you on your head as a child and as a result, you decided that you wanted to be an entrepreneur when you grew up. You took the leap and low and behold the crazy idea you had actually worked out and business is going great but you are at a tipping point where you either need to expand or start turning away business. Sound familiar?

While it’s always tempting to keep welcoming growth and leap into the opportunity to expand it’s not an easy black and white decision. You need to be strategic and know your cost to benefit ratio to ensure the decision to expand will actually be good for your business and not harm your bottom line long term.

Here are 5 things you need to consider when determining if taking the leap makes sense

Can you afford it?

This may seem like an obvious question that is easy to answer but it’s not as simple as it sounds. An expansion, whether it’s of a physical space (ie: retail location) or simply bringing on new team members to manage demand is a money sucker in the beginning.

You need to make sure you can afford any closures, renovation, and new inventory costs as well as any hiring and training costs in addition to your regular operational expenses.

Ideally, you want to have this money saved and only finance the expansion after discussing your numbers in detail with your accountant to confirm the additional costs make sense.

 

Know Your Break-Even Time Frame

How long will it take you to make back the money you spent on expanding? In most cases, expansions don’t happen overnight and increased profits aren’t guaranteed as soon as you open your new door. You need to know how long it will take for you to break even after an expansion so that you can ensure you have enough money saved to cover your increase in ongoing costs in advance.

Know Your Numbers

We say this in every post for a reason – because it’s essential if you want to grow a strong, profitable business and make smart, strategic decisions.  

Without knowing your numbers you can’t accurately and successfully plan an expansion. You need to understand your cash flow projections so that you can create a financial plan designed to help you survive your worst case scenario and a marketing plan to achieve your best case scenario.

Understand Your Target Audience

Don’t rush into an expansion simply because you experience a burst of requests and it feels like demand is there. Research your target audience thoroughly and ensure that the demand is real and ongoing. You may discover that demand is seasonal, much smaller than you anticipated or can be addressed with some extended hours or a few special order requests.  

Making the decision to expand isn’t going to be easy but completing a thorough analysis of the costs, benefits, and demand will ensure that when you make the decision it’s strategic and optimized for success.

If you need help understanding your numbers and determining if an expansion makes sense for you contact Homeroom today!

Tax Tips For BC Yoga Studios

It’s safe to assume that Vancouverites LOVE their Yoga. There is no shortage of studios in this city and a most of the time they are filled to the brim with people gaining strength and learning to control their breath. Even though we have a large community of Yoga lovers in the city you can’t ignore the fact that competition is fierce and if you want to remain in the game you have to stay innovative and manage your business well.

Here are our top tips for staying zen and remaining profitable

Outsource Your Payroll  

I know that it seems like we are trying to trick you because we are a bookkeeping company but we can confidently say even if we were in the jump rope industry this would be our advice.

Many studios make the mistake of getting the reception team to take care of duties such as payroll and bookkeeping. Your reception teams number one focus should be providing exceptional customer service so that your customers have a great experience.

Constant distractions and inexperience can lead to costly mistakes by creating the ideal environment for data entry errors. By outsourcing your payroll to a reputable provider you can ensure that you are deducting the correct amounts from your employees AND remitting the correct amounts to the government.

Reputable providers take responsibility for any errors and therefore are much more thorough with their entries. They also know the tax laws inside and out, protecting you from unnecessary penalties.

 

Ensure Your Sales Are Recorded Correctly

This may seem like an obvious simple step but you would be surprised how often businesses set up their sales software and tax amounts incorrectly. Ensure that all your sales (from all sources) are recorded in Mindbody (or whatever software you are using) correctly. Have a professional double check your set up to ensure that you are charging the correct taxes and that the money that goes into your bank is properly recorded as income.

The last thing you want to do is discover after several months of taking payments that you aren’t charging your clients correctly or recording your payments effectively. This can lead to significant losses, especially if you end up having to pay additional taxes from your own pocket.

Pay Your Taxes On Time

One of the easiest ways to avoid unnecessary expenses is to pay your bills on time, taxes included. Ensure that all your PST/GST returns and payroll taxes are filed and paid on time to avoid late filing penalties. If you find deadlines difficult to manage in-house then hire a professional bookkeeper to manage this element of your business. The CRA won’t tell you if you’re early or have overpaid but they will be quick to seriously penalize you for being late.

Save Your Pennies

Businesses tend to ebb and flow. Make sure you have a clear understanding of your fixed costs and create and maintain a monthly cash flow budget so that you can avoid stress during slower periods.

In addition to offering your services create passive income when possible, rent out your space to other professionals and community groups during your down times to maintain your income.

During our time offering bookkeeping services to Yoga studios around Vancouver, we have seen all the common mistakes that Yoga studios make and the great ideas that work. If you have a yoga business and need help with your bookkeeping don’t hesitate to contact us today.

What Can Vancouver Retailer Do About Rising Land Taxes?

If you are a Vancouver based business with a retail location then you are no stranger to the unpredictable and seemingly unfair taxation system that is forcing many businesses, some iconic staples in our community, to close down. With land taxes in some areas doubling annually to reflect soaring residential property valuations the mom and pop shops that are loved across the city risk being phased out and replaced by chains.

Unlike residential properties, commercial properties in Vancouver are taxed at a rate that is 5 times higher, are assessed based on the potential use of the property and not the actual use/business revenue of the property and the taxes are not paid by the property owner and instead, are passed onto the tenant. This puts a huge burden on small business owners and can limit growth opportunities and cost people jobs.

So the golden question is – what can be done?

While there isn’t a huge amount that can be done from a tax and bookkeeping perspective, here are some avenues that small business owners can take to voice their concerns about this growing issue.

 

Contact Your Local Councillor

Small businesses account for roughly 95 percent of Vancouver’s enterprises. With such a significant amount of revenue, jobs, and services at stake city council members are starting to take the issue of land tax seriously.

Here is the list of Vancouver’s city councilors and their contact details. George Affleck has been calling for a review of the cities current policies in an attempt to protect small businesses.

Appeal Your Bill

According to Chris Jobe, manager of the property tax division at the real-estate consulting firm Turner Drake & Partners Ltd. in Halifax, small business owners can appeal their tax bill if they can prove that the property has been overvalued during the assessment.

While the City of Vancouver website states that successful appeals are rare if you want to try your luck you can find more information here!

Band Together

As we mentioned earlier small business owners make up roughly 95 percent of enterprises in Vancouver and there is strength in numbers. Trying to change the current situation is not going to be easy but by coming together and drawing attention to the issues small business owners are facing is one option that will give our retailers a fighting chance. Join your local business association and work to make this issue a focus. Educate your community and talk to the press.

If the city doesn’t do something about this growing crisis more and more small business are going to close, sell or move. This will dramatically impact the level of choice available to residents and the overall appeal of our city.

Let’s hope that the increased attention on this issue can help create some change.

small business bookkeeping, career, quickbooks, career search

How Construction Trades can keep the CRA happy

As a tradesperson, you may think the taxation department is out to get you and to be honest you might be right. Construction is a red flag industry due to the number of small suppliers and short-term workers who do cash jobs. So we can’t stress enough how important it is to declare your income honestly if you want to avoid penalties!

Here are our 4 top Tips on how to ensure you keep the CRA Happy

Create Accurate Invoices

If you want to be able to sleep at night knowing that you have nothing to hide then you need to ensure you are creating accurate invoices for all of your jobs. This way if the CRA comes knocking at your door you have everything you need to prove you aren’t hiding income.

Use a software like Quickbooks Online to create your invoices. This will help you ensure all invoices are accurate and stored in the one place. It will also save you a lot of time and money when bookkeeping.

Sub Vs Employee? Know the Difference

The most costly mistake a lot of construction business make is to pay people who should be categorized as an employee as a sub. A quick test to ensure your sub should not be paid as an employee is to ask yourself these two questions.

Does your sub have their own GST and WCB numbers?

Do they own their own tools and take on other jobs besides yours?

If the answer to both is YES then you can pay them as a sub. If they answer NO then you MUST pay them as an employee.

The government doesn’t like missing out on employment taxes so the penalty for incorrect categorization includes back paying payroll taxes INCLUDING the employee’s portion as well as paying penalties and interest.

Charge GST

GST stands for Goods and Services Tax, not Great Sunny Times. It’s not an optional fun tax…It’s MANDATORY. GST needs to be charged on EVERYTHING you invoice. Yes, you need to charge GST on your materials. At the end of the year, your total GST collected needs to be 5% of your total sales. If it isn’t, the CRA will want to know why and you will be liable for the GST that you should have charged.

Get Help

Managing your bookkeeping on top of managing your business is challenging. Most contractors and construction companies we work with come into the office with plastic bags filled with receipts and invoices so we know how easily this part of the business can fall through the cracks. Knowing your numbers and ensuring you are compliant is an extremely important part of your business and shouldn’t be ignored.  Hire a professional bookkeeper who can keep you on track and make sure you are compliant with all your filings.

If you need help with your bookkeeping contact us today for an obligation free quotation.

Homeroom E-Return: “I am digitally illiterate. How does the e-signature work?”

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Forget that pen. Unplug that printer. Signing documents just got hella easier and funner. Let’s jump right in!

Now that you know how to securely submit your online tax documentation, how do you sign all the paper we email your way without turning on your printer?

Each year, we get more advanced and efficient with everything we do. Next year, we will be using the user-friendly DocuSign app to send tax returns securely.

E-Signature Is The Way

The electronic signature allows you to sign your tax return draft from anywhere! The Canada Revenue Agency (CRA) accepts personalized electronic signatures. Save the paper err day, all day!

How does the e-signature work?

  1. Go to your inbox and open the email from Homeroom Team.
  2. Click on the yellow button “Review Document.”
  3. Read the document carefully to ensure everything OK eg your address, full name, etc.
  4. Tap “Start” (top right) to begin signing.
  5. Click on the area on your screen that is highlighted with a tiny red arrow pointing down to begin to sign.
    1. Mobile Phone: Use tip of your finger to sign your name.
    2. Computer: Use your mouse to sign * Make sure you are using personalized signature NOT the typed-out version.
  6. Click FINISH (top right corner) when you are done.
  7. You will receive a copy via email. You can securely save your document online FREE with DocuSign.

If you experience any issues or get stuck along the way, give us a call at 604-739-9536.

Next week’s blog post will highlight the turnaround of filing your tax return!

 

Bittered Sling: Spice up your life with award-winning culinary and cocktail delights!

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It’s all about the taste! Throw in a mix of select natural herbs, fruits and spices and enjoy an original culinary or cocktail creation bursting with flavour that ranges from savoury to sweet AKA bitters! We’re down with THAT!

 

Bittered Sling, the award-winning retail line of high-quality cocktail bitters and culinary extracts, is the brainchild of mixologist Lauren Mote and world-class chef Jonathan Chovancek.

Ever since their launch in 2012,  the company has been buzzing with success, making local and international headlines.

BitterSWEET name, yo!

The name Bittered Sling derives from the May 13, 1806 edition of The Balance, and Columbian Repository (Hudson, NY) that defines a cocktail as “A stimulating liquor composed of spirits of any kind, sugar, water and bitters. It is vulgarly called a bittered sling and is supposed to be an excellent electioneering potion inasmuch as it renders the heart stout and bold, at the same time that it fuddles the head.” — Bittered Sling website

Add a dash of MAGIC to your culinary menu!

Bitters are used as a flavouring agent. Add a dash to your plate, or squeeze a few drops into your spirits or even sparkling water to create a powerful potion of exciting flavours! Yum yum yum.

Be the star of ANY party with fun and tasty recipes, like Coffee Swizzle, with Bittered Sling bitters here.

As part of our New Client Feature series, we caught up with Chovancek, who together with Mote, has over 30 years of professional experience, on healthy eating, motivation and startup advice!

When it comes to healthy and happy eating, Chovancek suggests fermented foods and drinks. Plant and seafood-focused and plenty of exercise. “Find activities you find fun—don’t get stuck in workout ruts!”

What do you enjoy most about being a business owner?

“The independence.”

What’s your favourite part about the food and beverage industry?

“The people we interact with everyday.”

Your fave food/ cocktail pairing?

“Anything with a Bittered Sling cocktail.”

What motivated you to start your own business?

“Fate.”

What’s your #1 motivator?

“My business and life partner!”

What’s your vision for the business?

“Grow, grow, grow. Unite people around the world through flavours.”

What advice do you have for other people who would like to start their own business?

“Find a niche that is under represented in the market. Allow your passions to guide you.”

How do you achieve a work/ life balance?

“Work is life!”

Who could benefit from your services?

“Anyone who enjoys delicious food and beverages. We are all about taste!”

 

 

Homeroom E-Return: “My tax return is too complex. How will I properly explain my situation?”

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Is your tricky tax situation keeping you in the dark?  | Photo by Alexas_Fotos via Pixabay

 

By now, you’re probably feeling a bit more keen to dip your toes into the world of online tax filing, and save yourself time and money!

But what about that extra self-employment income you earned mid year after that messy divorce when you quit your full-time job at the school your kid goes to, right before you moved out and started working part-time as an actor?

Sure. Not every tax situation is clear-cut and on a snap-and-send basis, like the Homeroom E-Return requires. You might feel the need to explain your situation to us in-person.

Thing is, MOST of the time, clients presume their tax situation is more complicated than WE know it is. We’ve seen it all, and it is seldom THAT extra.

Do it up, and leave the rest to us, the pros! We know where to find you (and we mean that in the nicest, non-stalkerish, most helpful way possible!)

  1. Complete the intake form.
    1. This form is designed to ask ALL the important questions that will allow us to file your tax return.
      1. Eg: How many tax forms do you have, which year are you filing for, what is your marital status, are you self-employed, etc.
  2. We will review your form and send you instructions on how to submit your tax documentation.
  3. We will schedule a phone call or email you any questions we may have.
  4. We will send you a tax return draft to review.
  5. We will e-file your tax return when we receive your signed tax draft.
To encourage easy and safe tax filing, you will receive the best Homeroom rate when you request the Homeroom E-Return!
Next blog post will delve deep into the electronic signature that will make even the computer-illiterate want to e-sign!

Homeroom E-Return: “Is it secure to submit my tax docs online?”

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Look up at the bright sky dotted with tiny humans dangling off stringed balloons, and you might wonder why anyone would want to take such beautifully vicious plunge to their  death. Statistically, however, paragliding is as safe as driving.

And just like paragliding, submitting your personal tax documentation online has never been more secure or fast! Send us photos or scanned copies of your paperwork in a snap and know that a professional has got your back!

We will email you instructions on how to securely submit all your paperwork to our unique LedgerDocs email address (see waaay below).

Here’s a blurb from the LedgerDocs website on the security of the growing app:

LedgerDocs’ first priority is to ensure that your information remains safe. We have invested in innovative architectural engineering to provide maximum data durability and availability, while using cutting edge security features to take special care of your data.

  • LedgerDocs uses a 256-bit SSL encryption to protect any information that travels between your browser and LedgerDocs. This is the same encryption that banks use for online transactions.
  • All of your data is backed up regularly to multiple locations, ensuring that there is no data loss in the event of a natural disaster.
  • Users are able to easily grant and revoke access privileges to documents and files with one click

On the real real

  • Avoid losing paperwork
  • Send files from anywhere with Wi-Fi *no appointment or parking required
  • Feel like a professional is holding your hand the entire time *in a non-creepy way, of course!

How do I send my files?

  1. Scan your tax paperwork OR snap pictures of it
  2. Go to your personal email inbox and attach up to five files MAX
  3. If you’re feeling up to it, type us a message as you would ANY other email
  4. Send to our LedgerDocs email: homeroom@app.ledgerdocs.com
    1. Subject: [YOUR NAME] Tax return
    2. Email: Please find attached [NUMBER OF TAX SLIPS]
  5. Delete from your Sent Mail email folder (if you want to be extra safe)
  6. Your job is done! Now you have the rest of the day to do what makes YOU happy! Paragliding, perhaps?

Still not convinced Homeroom E-Return is for you?

Next week, we will answer the question: “My return is too complicated. How will I properly explain my situation?”

Facts about the Homeroom E-Return

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File your tax return from your favourite coffee shop, or your PJs! Too good to be true? We take on our clients’ Frequently Asked Questions (FAQs) to help you lose your E-Return inhibitions.  | Photo by Viktor Hanacek via Pic Jumbo

Ever heard of an E-Return? Does the idea of submitting all your tax documents online scare the bejesus out of you?

You are not alone.

After years of boring in-person appointments with clients idly staring at the wall, as Homeroom owner Teya Jensen (formally, Mali) e-filed their returns, we quickly implemented the Homeroom E-Return. File from wherever, whenever. Sleep in if you like, hike Mount Everest, or do it on your lunch break. And know that a professional is taking care of your return!

No stress, no appointment necessary, no parking spot required, and hassle-free tax-filing completed in a SNAP!

Over the next few weeks, we will look at the Frequently Asked Questions (FAQs) of the Homeroom E-Return. Because there is such a thing as a fun and relaxing tax season and you should know about it!

FAQ: The Homeroom E-Return

  • Is it secure to submit all my personal documentation online?
  • How do I send my files?
  • My return is too complicated. How will I properly explain my situation?
  • How much does it cost to file an E-Return?
  • I am not computer literate. How does the e-signature work?
  • What’s the turnaround to file my return?
  • Can my spouse file with me?
    • What about my kids?
  • When do I get charged?
  • I am 12 years behind. Can you efile ALL my returns?
    • If so, will you charge me separately for each return?

Keep an eye out for next week’s post on one of the most frequently asked questions: How secure is it to submit all my personal tax documentation online?