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What happens if you miss the deadline to file your personal income tax return?

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Homeroom’s Alan Chau bursts into panic mode at the thought of a missed tax deadline…Lucky for him,  the Canada Revenue Agency (CRA) opens the option to file online on February 20, 2017. So, he’s got some time in his hands…

 

Planning on forgetting to file your tax return on time?

The result of failing to file your personal income tax return by April 30, 2017,  deadline can best be revealed with the scary emoji: 

It is mostly scary financially as the penalty can cost a hefty coin. Basically, your wallet will get the worst of it.

Here’s what will happen:

  1. The CRA will charge you daily interest starting one day after your return is due on any unpaid amounts owing for 2016. This includes any balance owing if the CRA reassess your return.
  2. The late-filing penalty is 5% of your 2016 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If you were charged a late-filing penalty on a previous return eg: 2013, 2014, or 2015, your late-filing penalty for 2016 may be 10% of your 2016 balance owing, plus 2% of your 2016 balance owing for each full month your return is late, to a maximum of 20 months. That’s double the trouble!
  3. Your goods and services tax/harmonized sales tax (GST/ HST), including any related provincial credits, Canada child benefit payments (including related provincial or territorial payments), and old age security benefit payments may be delayed or stopped.

FYI: Since April 30, 2017, is a Sunday, your return will be considered filed on time if the received on or before May 1, 2017.

Tax Tip

Even if you cannot pay your full balance owing on or before May 1, 2017, you can avoid the late-filing penalty by filing your return on time.

Keep an open and honest communication, and the CRA will be your BFF: agreeable, reasonable and understanding. But ignore or cheat them in any way and expect a pricey strike-back.

Self-employed Individuals

If you carried on a business in 2016, your return for 2016 has to be filed on or before June 15, 2017. However, if you have a balance owing for 2016, you have to pay it on or before May 1, 2017. We recommend that all sole proprietors have their tax returns ready to go for May 1.

Find out how to pay the CRA here.

Happy tax season 2017!

Save money on your bookkeeping, Wonder Woman-style!

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When you are juggling a small business or start up and your life…. every penny counts.

Here are our top four tips for saving money on you  bookkeeping:

 

1. Organize your receipts

 

Keeping your receipts well organized can sometimes be difficult when you are busy running your business. As bookkeepers we are never surprised when a new client brings in bags or boxes of mangled receipts. However, if you are looking to make your bookkeeping as cost effective as possible then the easiest way to save money is to make sure your receipts are well organized so that the bookkeeper does not have to sort them for you.

In addition to sorting them, make sure they aren’t scrunched up into little balls. You may laugh but a lot of people do this and it takes a lot of time to un-scrunch them. Additionally scrunching them up can cause the ink to wear off which means that you are paying us to un-scrunch receipts that turn out to be blank pieces of paper.

Also if you want to claim the GST you paid on a meal as well as the tip (in addition to cutting down the amount of time we spend entering your data) make sure you staple together the original itemized restaurant bill to your credit/debit slip.

Sole Proprietors:

A common mistake a lot of first timers make is arranging their receipts by month instead of by category.

The fastest way for your bookkeeper to enter your bills into Quickbooks is if they are sorted by category. If you want to go one step further and really limit the amount of time a bookkeeper spends on you file, organize your receipts by company eg. Translink.

Corporations:

If you are incorporated then you need to organize your receipts by payment method (eg. Visa account, cash, business savings account) rather than by category so that it makes it faster for your bookkeeper to enter your bills and reconcile your accounts.

2. Keep your receipts/documents in one place

Create a filing system for your receipts/ documents and utilize that system so that you can ensure all paperwork is easily accessible.

Keeping your receipts all over the place can result in two issues.

  1. You will lose some receipts. This means your reporting will be inaccurate and you may miss out on including significant write-offs in your tax return.
  2. You will need to keep contacting your bookkeeper to let them know about additional receipts you have found or to ask them to hunt down important documents for you. This means that you will utilize more of their time and your fees will increase.

3. Save your online receipts to a flash drive, or upload them to LedgerDocs

These days a lot of businesses send email receipts. Although you have the option to forward all of your email receipts to your bookkeeper we recommend that you download your invoices and save them onto a flash drive that you can submit with your paperwork. This saves your bookkeeper time as they do not have to sort through all of your emails, in turn saving you money.

It also means that if your email crashes you have all of your important documents saved elsewhere.

If you’re using LedgerDocs, snap pictures of your receipts and forward them to your unique email address in real time. We’ll take care of the rest! Contact us here if you are interested in signing up!

4. Don’t keep receipts you can’t claim

Know what you can and cannot claim and know your categories. For example: in most cases YOU CANNOT CLAIM CLOTHES as an expense unless they are branded with the company logo or required safety wear.

Additionally, you cannot claim haircuts, facials or any other kind of personal maintenance even if you are a TV personality or the face of your company.

Placing receipts into your file that you can’t claim just means that your bookkeeper spends extra time sorting through receipts, remember time is money.

 

Regardless of what state your bookkeeping is in we are happy to help you. That said, we always recommend that you consider these points because it not only helps you save money it keeps your bookkeeper happy and guarantees that you will be added to their secret list of favorite clients.

If you need help getting organized contact us today.

Employee or Contractor: CRA checklist


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Something to chew on over the long weekend……

Looking to hire additional help for your expanding business? Last week, we outlined key questions to ask yourself before expanding your sales force.

We noted that deciding between hiring a contractor or an employee is not as simple as figuring out your personal preference.  The Canadian Revenue Agency (CRA) has a very comprehensive checklist that they use to determine if you should be paying your new hire as an employee or if it is OK to consider them a contractor.

This week, we are going over the checklist presented by the CRA  in more detail so that you can make sure you are paying people under the correct category to avoid nasty fines.

Tip: If you own a store or run an office and you don’t want to hire a contractor through a temporary  employment agency then you need to hire an employee and pay the applicable payroll taxes.

Determine who has control

Do you want to have control over the worker? Will you determine when, how and where the work will be completed? Do you expect them to complete the work personally?

According the CRA ‘It is the right of the payer to exercise control that is relevant, NOT whether the payer actually exercises this right’ so basically, if you have the option in any way, shape or form to control the employee’s time and how they complete the work then they are not considered a contractor.

Tools & Equipment

Who provides the tools and the equipment to complete the job?

If you provide your new hire with the tools and equipment they need to complete the job and are responsible for all repairs to that equipment then you need to hire an employee.

Subcontracting Work or Hiring an Assistant

Can the person who is working for you independently hire an assistant or subcontract out the work you have asked them to do?

 If the answer is no, then as you may be assuming by now, you have yourself an employee.

Financial Risk

 Will the worker be financially liable if they do not fulfill the contract? Does the worker actively market themselves? Does the worker perform a substantial amount of the work from their own workspace? Are they responsible for paying their own employees?

If you answered YES to these questions then you may be able to categorize your worker as a sub-contractor, if you answered NO then you guess it, you need to pay them as an employee.

Responsibility for Investment and Management

Does the worker have any capital invested in their business and an established business presence?

If they do then you are pretty safe hiring them as a contractor so long as the also meet majority of the above criteria.

Opportunity for Profit

Can the worker realize a profit or incur a loss? Is the worker paid a flat fee and incurs any expenses as a loss?

If the answer is NO then you need to hire the worker as an employee.

In the end if you are uncertain about your relationship with your new hire or you can’t distinctively answer majority of these questions with a YES or NO response (because the status of your relationship is unclear) then it is best to contact the CRA and get a ruling before you proceed.

This will save you a lot of grey stress hairs, and costs in the long term.

#ThursdayThoughts: Employee or Contractor?

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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.

5 Items that are NOT business expenses

A lot of business owners are guilty of keeping receipts for items that cannot be claimed as a business expense. To save money on your bookkeeping, by limiting the amount of time your bookkeeper spends sorting through receipts, leave the following receipts out of your folder.

1. Clothes

You may also be required to wear a certain type of outfit to work on a regular basis such as a suit. However, unless you are buying specific safety gear or are required to wear a branded uniform any clothes you purchase are considered a PERSONAL NOT BUSINESS expense. This includes associated costs such as dry cleaning and laundry services.

I know this is a terrible reality for most of us in particular for all of the office workers out there. As much as we wish things were different (we too would like to get some money back for looking this good on a daily basis) the CRA just won’t budge on this one.

Until the day when we start a revolution by wearing burlap sacks in protest please refrain from sneaking your clothing purchase receipts into your bookkeeping folder.

2. Personal maintenance

When you are the face of your company or the company you work for it’s important to look the part. This can be expense we all know Botox, makeup and personal training isn’t cheap!!

That said the CRA wants you to be beautiful on your own dime. Clearly this faceless monster doesn’t understand the pressures of being a local celebrity.

Again until we find a way to make them understand how important looking and feeling good is when you are a business owner please keep these receipts out of your bookkeeping.

3. Groceries

Eating is expensive!!! It would be really nice to get some of that money back on your food consumption especially considering that majority of your eating takes place while working.

Twice a year you can throw a party and claim it as a business expense. Keep that in mind when gathering your receipts.

Anything more than that is just groceries for your family, you know it…we know it…and the CRA will know!!

 

4. Solo Meals

So you ordered Subway for one during your lunch time “business meeting”…hmmmm interesting. Unless you went Dutch, which we know you didn’t, you can’t claim single meals as a business expense without running the risk of having it rejected during an audit. In addition your three daily trips to Starbucks don’t count as business meetings.

The best way to protect yourself and prove that your “meeting” is legitimate, in the event of an audit, is to write the name of the person you were meeting on the meal receipt.

Rejection = Penalties and interest

5. Personal items, trips & gifts

Did you really purchase that tent for your business trip to Pemberton? We may accept this as true if you are a journalist who works for a local paper that rewards you with love not money, or more logically a tour guide. But when the average business owner adds this receipt to their folder the bookkeeper will automatically assume it is personal unless you make a note claiming why it is a business expense.

Tickets to Disneyland, ski passes, expensive artwork, adult toys and climbing the grouse grind to have lunch will also be filed by your bookkeeper under “I don’t think so” unless you write a convincing argument on your receipt in advance.

 

The main thing to know about bookkeepers is that we want to make sure your expenses are recorded correctly so that if you are audited you have nothing to worry about because all of your expenses are legitimate business expenses that would be approved by the CRA.

To find out more about how we can help you with your business or to determine if you have some expenses that are an exception to the rule contact us today.

New Services at Homeroom

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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.

Employee VS Contractor – CRA Penalties for incorrect worker classification

File:US Navy 080823-N-1328S-003 Steel Worker 3rd Class Michael Featherston and Constructionman Steven Cline, both assigned to Navy Mobile Construction Battalion (NMCB) 133 embarked about the Military Sealift Command hospital ship US.jpg

Over the past month we have been exploring the topic of hiring new staff and how to determine if you should hire your new worker as an employee or as a contractor.

Last weeks post explored, in more detail, the CRA checklist that you need to refer to when determining how your new staff should be classified. Following on from last week, today’s post will outline the CRA penalties that you will incur if you do not abide by this checklist as well as provide you with insight into what might cause the CRA to investigate you.

What you need to know about the CRA

The first thing you need to consider when classifying your workers is that when you are paying them as contractors the CRA is not receiving payroll taxes from your business.

Avoiding payroll taxes may feel like a small WIN. However, you need to remember that the CRA, much like your business, does not like to experience a loss.

The unfortunate difference between the CRA and most small businesses is that when the CRA feels like they may be owed money, they have the power to come after you and make your life very uncomfortable.

Red Flags

The CRA may chose to review your business at anytime however there are some common factors  that usually  trigger an investigation.

  1. When your contractor files their tax return, the CRA may choose to audit them to ensure they have listed the correct income. This will lead to them investigating and interviewing all of the contractors clients which will include you.

  2. The top two expenses for most businesses are rent and payroll. If your return shows that one of your top expenses is contractors then the CRA will more than likely view that as a red flag and investigate you.

  3. Your worker may try to apply for EI and discover they are not eligible due to the fact that you were paying them as a contractor. This could lead to them asking the CRA for a ruling.

  4. Your worker at any point can request a ruling if they feel that you are paying them incorrectly.

  5. Come tax time when you worker discovers they owe money to the CRA for unpaid taxes they may become disgruntled and  request a ruling.

If you are investigated the CRA will interview you and your contractors face-to-face and make a ruling that is based on your answers to the checklist questions that we discussed last week.

Consequences

If the CRA investigates your business and determines that you have incorrectly categorized and paid a worker as a contractor when they should have been paid as an employee, you will experience the following penalties:

  1. You will need to back pay (to the start date of your agreement with the worker) all outstanding payroll taxes INCLUDING  the employee’s portion.

  2. You will also need to pay penalties and interest on the amount that was overdue.

All expenses will be incurred by your business and cannot be passed on to the worker in any circumstances.

The cost associated with the CRA ruling that your contractor should have been an employee can be crippling to your small business. That is why we recommend that you thoroughly read through the checklist and if at any point you are uncertain you contact the CRA and get a ruling.

In addition to affecting your business, the investigation can affect your contractors. If they have claimed a different amount on their return to what your records show, they too will experience penalties.

Lessons

Make sure you encourage your contractors to declare their income correctly. Inform them that you will be declaring the full amount they are going to charge and that you don’t want to see them incur any penalties.

Study the CRA checklist and make sure you are confident that you have categorized your worker correctly. If you are unsure contact the CRA and ask for a ruling, the short term pain will result in long term gain.

Use your common sense, if it walks like a duck and it talks like a duck, chances are it is a duck!!!. So if you hire someone who resembles a standard employee within your industry chances are the CRA will rule that you should be paying them as one.

If you don’t need a full time worker yet the job requires you to hire an employee, hire an on call employee or use a temp agency. Temp agencies include payroll in their fees so you are covered.

We cannot reiterate enough how important it is that you make sure you categorize your workers correctly and that when in doubt you contact the CRA.

 

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.