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#ThursdayThoughts: Employee or Contractor?

CRA, Vancouver Bookkeeper(s), Tax Return Service Vancouver, Small Business Bookkeepers in Vancouver, subcontractor, contractor, employee

Tear. It’s been a year. Your small business is growing before your eyes. You stare at your Profit and Loss statement for the hundredth time like a kid who’s been fervently measuring their height against the wall fixedly checks in on their progress, and your eyes fill with water. You really made it.

Your email  inbox is flooded with fan mail. It’s wonderful and scary. You want to respond to all of them, even the creepy ones, you want to be Superman/Wonder Woman/the Hulk combined, deliver on your promise of top-notch service but you need help.

You can finally afford it, but who do you hire: an employee or a contractor?

We recommend that before you hire anyone as an employee you start them out as a contractor for a trial period. This way you can test them out and make sure they work well with you, are reliable and will not steal business from you before committing to a long-term agreement.

Once the initial trial period is over, ask yourself the following questions to give some clarity when trying to determine the best way to proceed with your expansion:

What is the nature of the project?

Will you need to control the time of those who help you and the sequence in which they complete tasks?

  • Yes- Then you need an employee
  • No- Then you can consider a contractor

Are you supplying all of the equipment?

  • Yes- Then you need an employee
  • No- Then you can consider a contractor

Do you need a very specific task completed?

  • Specialized tasks are often completed by contractors however if it is an ongoing specialized task then you may want to consider hiring an employee.

How long will I be this busy?

Do you have a higher workload because you have taken on a short term, labour intensive contract?

  • Yes- Then you can hire a contractor
  • No- Then you should consider hiring an employee

Financial responsibility

Will the payment of the person you hire depend on you receiving payment for the overall contract?

  • Yes- Then you can hire a contractor
  • No- Then you should hire an employee

Training

Do you plan on providing training?

  • Yes- Then you should hire an employee
  • No- Then you can hire a contractor as they should already be trained.

What are the Financial differences

If you hire an employee

  • You must match your employee’s CPP which is 5% of their gross earnings.
  • You must pay 1.4 times the EI amount that the employee pays.
  • You must remit taxes on behalf of the employee.
  • You must supply your employee with the equipment necessary to complete the job.

If you hire a contractor

  • They are responsible for paying their own CPP and taxes.
  • They supply their own equipment.
  • You cannot fire them without paying out the contract, they also cannot quit without finishing the contract.

As attractive as it may appear to hire a contractor over an employee you must make sure that your contractor is considered a contractor under the rules set out by the Canada Revenue Agency (CRA) or you risk experiencing heavy fines.

Stayed tuned for next week’s post where we will discuss the CRA employee or contractor checklist in more detail.

New Services at Homeroom

homeroom_esig_fall_2013_FNL_IMAGE

We are pleased to announce that Homeroom Small Business Solutions is expanding and as a result we are now offering some exciting new services that will be provided by our latest team member and communications guru Mirey Faema.

Our New Services Include:

Communicating well is the key to successfully maintaining your relationships with clients, staff and suppliers. That is why it is essential to make sure you have a well thought out communications plan.

We will sit down with you and assess your current communication methods,  then provide you with the tools you need to improve your communication strategy and grow your business.

 

Stay tuned for this month’s blog.

This month, keeping in line with the launch of our new services, we will be looking at the Importance of Communicating Well.

We will explore various topics including social media, the importance of key messages and the consequences of having poor communications.

We hope that our new services and this month’s blog topic will allow us to help you grow your business.

If you have any questions about our new services or would like to request a blog topic please do not hesitate to contact us.

Self-Employment; The possible answer to your job search woes

Self-employment

Photo courtesy of David Martyn Hunt

In our current economic climate the chances of finding a job doing exactly what you are trained to do, or would like to do, can at times seem impossible. The market is competitive, wages are decreasing and quite often the battle to find the ideal position leaves you feeling deflated and pessimistic.

However, in my opinion it is not all doom and gloom!!

I believe that if you have a marketable skill, and you feel that you are disciplined enough to work from home (to keep your overhead low) you may just be able to create your dream job by going out on your own.

That’s what I did. Now I have 3 employees, 65 clients and enough work to keep me strapped to my computer even while on holiday! (Not that I am complaining)

Don’t get me wrong, starting your own business is not an easy solution but thankfully we are lucky enough to live in a country where the growth and development of small business is encouraged, making it a viable option.

So now that this blog post (which was Item number 433 on my to-do list) has compelled you to take the plunge towards self-employment, the next question I should answer is:

‘What do you actually need to do to get started?’

Here are Teya’s top 3 tips (say that 5 times fast)

  1. Get some memorable business cards printed (I recommend a thick card stock with rounded edges)
  2. Perfect your elevator pitch (describe what you do and your competitive advantage in 30s – 1 min)
  3. START NETWORKING.

How to grow your idea into a business

  • Make sure you tell all your friends and family what you are doing because they will be your first clients.
  • Be persistent and don’t give up hope.
  • When you get your first client, WOW them.
  • Don’t forget to ask for referrals.
  • Talk about your business (even if it isn’t really a business yet!) to EVERYONE you meet. You never know who can give you a huge break.

The best advice I received was from a local successful entrepreneur and Author, Steve Jagger. He suggests that as a new entrepreneur you should always ACT AS IF… you have a hugely successful company even if you are just starting and have no clients.

If you are confident no one will know the difference.

I will never forget the first networking event I went to, I was SUPER nervous and desperately wanted to make a lasting first impression.

I later discovered (through friendships that had formed as a result of my attendance to that event) that I had convinced everyone there that I was very experienced and had a viable company. The actual fact was that I had printed business cards from my computer the night before, and didn’t even have a single client.

I really do believe that the possibilities for success are endless. So long as you are prepared to work hard.

The Truth About Meals

meals

Photo courtesy of Nick Nguyen

Do you know how to properly deduct your meal expenses? There are different rules for different people depending on who you are, who you work for, and what your employment contract states when it comes to deducting your meals.

The 50% Rule: The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less.

What is reasonable? Ultimately the CRA defines what is reasonable. If you get audited, you will have to prove to the CRA auditor that your expense was reasonable. Is it reasonable to spend $500 on entertaining a client who pays you $50 a year? Probably not.

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event. However, special rules can affect your claim for meals in these cases. See sections on solo travellers and conventions below.

These limits DO NOT apply if any of the following apply:

  • Your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel, or motel).

  • You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location (note that you are limited to six of these events each year).

  • You bill your client or customer for the meal and entertainment costs, and you show these costs on the bill.

  • You incur meal and entertainment expenses for a fundraising event that was mainly for the benefit of a registered charity.

Claiming Meals For Business

What business gifts are you giving your clients? There are tax implications to the choices of gifts you purchase. Gift baskets (with food in them), gift cards to restaurants and coffee shops are considered meals. Which means they are only 50% deductible to you.

Many businesses supply coffee, tea, creamers, bottled water, juice, pop, snacks, or sometimes alcohol in the office fridge.  In order to claim these, you must have a business reason, the names of who participated and the reason for consumption.

Also as a  business, you are allowed to write off six office events a year and claim a 100% deduction on those events.

For any entertainment expenses to qualify as a business expense, you must be able to demonstrate that the amount was incurred for the purpose of earning income, the onus is on you as the business owner to keep track.

You must have a business reason as well as names of customers or persons being entertained.  For example, if you’re going to spend big money on tickets to a hockey game, keep a record of who you were entertaining and have a good reason for it. The more expensive something is, the more important it is to have a good reason for conducting business.

Never eat or drink alone if you want to write it off unless you are one of the exceptions. Take office breaks with a co-worker, call it team building and you can write it off. Be sure to write on the receipt, who you were with, and what was the purpose.

A cautionary tale: a client was recently audited and asked to provide the name and phone number for each receipt that had been deducted, the client was not able to provide this information, and all the meals were disallowed. It’s all good…until you get audited.

Convention expenses

You can deduct the cost of going to conventions, up to two a year. The conventions have to:

  • relate to your business or your professional activity; and

  • be held by a business or professional organization within the geographical area where the organization normally conducts its business.

This second limit may not apply if an organization from another country sponsors the convention, and if the convention relates to your business or professional activity.

Sometimes, convention fees include the cost of food, beverages, or entertainment. However, the convention organizer may not show these amounts separately on your bill. If this is the case, subtract $50 from the total convention fee for each day the organizer provides food, beverages, or entertainment.

You can deduct this daily $50 amount as a meal and entertainment expense. However, the 50% limit applies to the daily $50 amount.

Food, beverages, or entertainment at a convention do not include incidental items such as coffee and doughnuts available at meetings or receptions at the convention.

Travelling Expenses for Employees

Travelling expenses include food, beverage, and lodging expenses but not motor vehicle expenses. You can deduct travelling expenses as long as you meet ALL of the following conditions:

  • You were normally required to work away from your employer’s place of business or in different places.

  • Under your contract of employment, you had to pay your own travelling expenses.

  • You did not receive a non-taxable allowance for travelling expenses.

  • You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.

The 12-hour rule: You can deduct food and beverage expenses if your employer requires you to be away for at least 12 consecutive hours from the municipality and the metropolitan area of your employer’s location where you normally reported for work.

Solo Travelling employees

For a solo meal, you need to know if you fit into one of the special categories or if you have a contract that states whether you are required to carry on duties in different places.

As a rule of thumb travel and eat and drink solo at your own peril.

If you do, keep a log of how long you were away, why you were away, and how come you couldn’t get back within 12 hours.

Arrange your meals together with an employee, team member, colleague, client, customer, supplier, or partner to discuss business matters.

Unless you meet the criteria of railway worker, commission sales, transport, or have a contract to carry on duties away from the place of business or in different places, remember the 12-hours-away rule.

 

References:

Travel solo at your peril http://www.taxdetective.ca/articles/article/1482041/89556.htm

Canada Revenue Agency

The 12 Craziest Write-Offs of 2012

Crazy write-offs

Photo courtesy of moffoys

Homeroom proudly presents: The 12 Craziest Write-Offs of 2012: weird & wonderful things we’ve had receipts turned in for last year.

  1.  The first Crazy Write-Off: receipts came in for a beta, a Hamster & a Kitty. They’re cute yes, but not tax deductible.
  2. The 2nd Crazy Write-Off: receipts came in for 2 packs of diapers. DIAPERS?! Nope, sorry, can’t write off baby’s ‘leavings’.
  3. The 3rd Day of Crazy Write-Off: receipts came in for Marriage Counselling sessions. Hate your spouse? Revenue Canada cares not.
  4. The 4th Crazy Write-Off: receipts came in for  boxes of LEGO! Sorry, lego is fun, but definitely not a business expense.
  5. The 5th Crazy Write-Off: receipt came in for a stay at a ‘CLOTHING OPTIONAL’ RESORT!!! Not *that* kind of ‘business’.
  6. The 6th Crazy Write-Off: receipt came in for LEATHER CLEANING! White leather sofa? Fetishwear? Biker Gear?
  7. The 7th Crazy Write-Offs: receipt came in for U-Brew Beer Kegs!! Is your business driving you to drink?!
  8. The 8th Crazy Write-Off: receipts came in for purses, clothes & shoes!!!! Sorry ladies, unless it’s a UNIFORM, no dice.
  9. The 9th Day of Crazy Write-Offs: receipts came in for boxes of tampons! This would be AWESOME, wouldn’t it girls?!!  Dream on…
  10. The 10th Crazy Write-Off: receipts came in for packs of BIRTH CONTROL PILLS!!! Kudos for being baby-making responsible!
  11. The 11th Crazy Write-Off: receipts came in for MOVIE TICKET/CONCERT STUBS! Schmoozing customers/staff? Great! Yourself? No.
  12. The 12th Crazy Write-Off: receipts came in for ‘ADULT’ MOVIES!!! There’s ‘business’ and then there’s ‘BUSINESS’.