Giving Employees Holiday Bonuses

Written by:  Gwyneth James MBA, CPA, CGA

Ho Ho Holiday Bonuses! Don’t give out bonuses to your employees before reading this!

At this time of year, you may be wondering about the rules for giving your employees bonuses and gifts for Christmas or year-end.  The CRA has specific rules about giving employees gifts and bonuses that determine if they are taxable benefits to the employees.  A taxable benefit means that the employer must include the amount in the employee’s income and may have to deduct income tax, CPP or EI on the employee’s paystub.  The type of gift you are giving will determine if it is a taxable benefit to your employee or not and which deductions you will need to withhold.

This is the breakdown of the different types of gifts you can give your employees:

  • Cash Bonuses – If you are giving your employees a cash bonus on their pay cheque this is a taxable benefit to the employee.  You will need to deduct income tax, CPP and EI premiums on their paystub.
  • Gift Cards & Gift Certificates – If you want to give your employee a gift card or a gift certificate instead of cash the CRA still considers this a taxable benefit to the employee. You will need to deduct income tax and CPP on their paystub, but not EI premiums.
  • Non-Cash Gifts – Non-cash gifts can be given to an employee for a special occasion with a total fair market value (not the employer’s cost) of up to $500 annually, including HST, and it is not a taxable benefit to the employee. If the value of the gift or gifts is over $500, any amounts over $500 are a taxable benefit to the employee. An example of a non-cash gift would be tickets to an event for a specific date and time. Items of a trivial value like t-shirts, mugs, coffee or plaques do not have to be included in this calculation.

All of these gifts are deductible as expenses in your business’ bookkeeping.

Have a wonderful holiday season and a prosperous new year!

Joining Forces with a National Accounting Organization!

Media Release – September 5, 2018

Business partners Suzanne Cody and Gwyneth James are pleased to announce that they have joined Porter Hétu International, a Canadian-based organization of accounting firms. Cody & James CPAs, a local firm that provides full-service accounting for small to medium-sized businesses, will now be able to provide assurance engagements (reviews and audits) through their new association with Porter Hétu International.

Suzanne and Gwyneth are very excited about the new direction of their firm, although they will remain true to their client base by continuing to offer a full suite of accounting services — everything from financial statements, corporate and personal tax returns, bookkeeping, and payroll — in their personable, approachable manner and in a language the clients can easily understand.

Porter Hétu International (PHI, porterhetu.com) was founded in 1988 and currently has 50 member CPAs. Its Mission is to provide a platform that facilitates and fosters the growth of members’ personal and professional lives. With nation-wide and international association, PHI is an alliance that enables local, in-person relationships that are backed by the strength and depth usually only available in large firms.

Cody & James CPAs has roots in the community stretching back 25 years. Gwyneth purchased the firm in 2009 and Suzanne joined in 2013. Its Mission is to enhance economic development and success throughout the Kawarthas by providing entrepreneurs, professionals, employees, retirees the information and advice they need to make great financial decisions. With a staff of 11, Cody & James CPAs is able to provide accounting services across a broad range of industries and to ensure all business clients have both an account manager and a backup contact.

Have You Set Up Your Shares?

Written by:  Suzanne Cody CPA, CGA  Senior Partner

Have you set up your shares? One of the most important things you need to do when creating a new corporation, in addition to preparing Articles of Incorporation, is to set up share classes.

Do you really own your corporation? Unless it is restricted by its articles, a corporation has the same role in carrying on a business as a person. A corporation is a separate legal entity from anyone else, even yourself. Ownership of a corporation is established through its issued shares, which entitle one or more persons to the rights needed to run the company.

Issuing and paying for and these shares is important but quite often initially overlooked. The main repercussion of not having shares issued and on the books is that the corporation could be deemed not to exist. This could have serious tax consequences to the individual(s) involved with the formation of the corporation.

It may seem a bit daunting but with some sound legal advice, setting up shares for a new corporation doesn’t need to be complicated. Legally, at a minimum, a small, non-reporting (not listed on the stock market) corporation has to have a single share class issued. This class is referred to as Common Voting Shares. We’ll call them Class ‘A’ shares. These shares give their owners the rights to receive dividends, vote at shareholders meetings, and to receive any property left in the corporation when it is dissolved. It is quite common to have a single shareholder, giving that person complete control over the corporation.

Common Shares can be issued as a single class or with multiple classes. But, if you only need one class of shares to set up your corporation, why would you want to issue more?

There may be additional people that you want to have owing shares in your corporation but you may not want them to have the right to vote. This is the perfect scenario to set up Class ‘B’ shares. Theses shares would be perfect for encouraging your employees to become more vested in your corporation or to provide your spouse or children with some ownership without being able to exercise control. These types of shares are referred to as Non-Voting Common Shares. They provide the ability to pay dividends and have a place in line should your corporation be dissolved. There are tax guidelines surrounding the payment of dividends to family members (referred to as ‘income sprinkling’). Before paying out dividends it would be wise to consult your accountant.

Do you need to raise capital? That’s what Preferred Shares can be used for. Setting up Class ‘C’ Preferred shares provides the vehicle for an investor to contribute funds to your corporation via a share purchase. They can have rights attached to them to permit dividends to be paid at a set amount. They are structured to offer their shareholders an advantage over shareholders that hold Common Shares These shareholders are first in line after any creditors to be reimbursed if the corporation is dissolved. These shares, like Common shares, can be either voting or non-voting.

Finally, to provide you with future flexibility, it would be a good idea to keep some of your shares from each class unissued. These shares would remain in your Treasury and make it easier to permit new shareholders to join the corporation later on. For example, if there are two shareholders and only two shares issued, you will not have any to sell to anyone else.

 

3 Things You Need To Do When Starting Up A Corporation

Written by:  Suzanne Cody CPA, CGA

As busy as you are when you are just getting things going, it is important to be mindful of Tax issues. There is a great deal of juggling going on with so many puzzle pieces to put together when setting up a newly formed corporation. If you want to avoid starting out on the wrong foot, handling basic tax matters should be in your crosshairs.

You may have started your business to earn a little extra income in addition to your day job like many others have done and now you have a full-time venture on your hands. You have made the decision to incorporate and now need to transfer your existing business to it. You should consider filing an election with the CRA to roll the assets and liabilities into the corporation to avoid unwanted personal tax liabilities. This will require you knowing the value of your current operations.

Get a new business number from the CRA. Upon incorporation you will need to request a business number for the corporation. You will also need to register for a GST account assuming your sales are over $30,000. Depending on whether you plan to have employees and how you plan to compensate yourself, you may also need to register for a payroll account.

You must choose your year-end date within the first twelve months of incorporating. This date does not need to coincide with the anniversary of your incorporation date not with the end of the calendar year. The ideal year-end should be based on your business cycles. For instance, if you are a retail store, you would want to choose a date occurring just after the end of your busy season. This would mean that there would be less inventory to be counted, not as many transactions in progress, and more time for administration work required to close your books.

If you would like further information, please call the office at 705-876-6011 or I can be contacted directly at

Should You Or Shouldn’t You? Equipment Financing Options

Written by:  Suzanne Cody CPA, CGA  Senior Partner

When you need equipment you don’t necessarily have to buy it, you have options. You could lease it instead. Leasing is often a good alternative to applying for a loan. Equipment financing is designed specifically for the purchase of business equipment. There are three main options for financing your acquisition:

  • Purchase Financing
  • Operating Lease
  • Capital Lease

Once you have made the decision to lease, there are leasing options to consider. A question often asked by people is how will financing options affect them. Depending on which option you choose, there can be a great impact to your bottom line. It will affect both your financial statements and your tax return. There are a number of considerations that should affect this decision such as:

  • What financing options are available
  • Which option best suits your cash flow situation
  • Which option best suits your tax situation
  • Which option will be of the lowest overall cost after tax and discount rates are considered
  • What your lending institution’s perception of the effects to your financial statements will be

You might even be able to turn your old equipment into cash by entering into a lease back arrangement.  Remember you should consider the overall needs of your business. Making short-term purchases without long-term planning can be costly and not provide you with the desired or best results.

If you would like further information, please call the office at 705-876-6011 or I can be contacted directly at

Advocacy & Bill 148

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

The Peterborough Chamber of Commerce is a non-profit, membership-driven association that advocates on behalf of the Peterborough business community. Members of Chambers across Ontario, including yours truly, loudly and firmly stated their displeasure with one aspect of their government’s Bill 148 which introduced several updates to the Employment Standards Act.

That aspect was the public holiday pay formula – the method used by employers to compensate employees for time off (or worked) on statutory holidays. The new method looked only at the employee’s prior pay period and paid an average of the amount of that paycheque divided by the numbers of days worked in that period. That presented a huge issue for employers of part-time and casual employees because that individual now could receive as much as a full day’s pay for the holiday if they only worked one day in that prior pay period. Payroll costs for some businesses were skyrocketing and that had not been the government’s intention.

Several meetings, conference calls, letters and emails later, the Minister of Labour determined that this part of Bill 148 needed further review. It was announced that the method used to calculate statutory (or public) holiday pay would be rolled back to the old method for the period July 1 to December 31, 2018.

This means that the Victoria Day holiday was calculated using the new method, but Canada Day and subsequent statutory holidays will use the pre-2018 method of an average of pay over the previous four work weeks divided by 20.

Advocacy does work and it is ongoing by business organizations like the Chamber. Whether you add your voice through membership or not, submissions to the Ministry of Labour are encouraged to ensure that when the review period is completed, the method used to pay employees for statutory holidays is fair to all employees and employers.

For more information, please refer to this bulletin posted by the Ministry of Labour:  Click here 

Reporting the Sale of Your Principal Residence

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

Starting with the personal tax returns filed for 2016, individuals who sold their principal residence had to report that sale on their tax return on Schedule 3 – Capital Gains (or Losses) for the Year. The principal residence exception eliminates any capital gains from the sale providing that the home was your principal residence during the entire period that you owned it; this schedule was for reporting purposes only.

New for your 2017 tax returns, another form must be completed for all principal residence sales. In addition to the Schedule 3, Form T2091(IND) Designation of a property as a Principal Residence by an Individual (Other Than a Personal Trust) must be signed by the taxpayer and filed with the personal tax return.

If the home was your principal residence for the entire period you owned it, only page 1 of the form needs to be filled out. No cost of property is required for these individuals.

Deemed dispositions need to be reported here as well. A deemed disposition may happen as a result of a change in the use of property, the death of a taxpayer, or becoming non-resident.

Failure to report the sale of a principal residence in the year it is sold will result in late-filing penalties and could result in the taxpayer being taxed on the entire capital gain.

A property can qualify as a principal residence as long as the taxpayer, their spouse or common-law partner, or any of the taxpayer’s children resided there at some point during the year. There may be exceptions if the property is rented out.

Canada Revenue Agency considers the first 1.25 acres of a property as part of the principle residence. There will be a capital gain on the excess property when the principle residence is sold. However, properties larger than 1.25 acres that are not subdividable are an exception.

Make sure you don’t miss this important change to your tax return!

Are You Thinking About Owning a Rental Property?

Written by; Suzanne Cody CPA, CGA

When you earn income from renting a property it can affect many things from a tax perspective. It is important that you are aware of these effects so that you are not surprised when it comes time to file your taxes.

The income from renting personal property can be considered either property income or business income depending on the kinds of and number of services you provide as related to the property. The number of properties you own does not change the way the government views the income but the more services that you provide the more likely that the income will be deemed to be business income. Currently the CRA is taking a long hard look at this type of income especially as it may relate to trailer parks.

Personal income from property (rental income) does not affect the calculation of Canada Pension Plan (CPP) premiums while business income is included in pensionable earnings.

Personal business income is included when calculating both the working tax benefit and medical expense supplements but rental income is not included when claiming these refundable tax credits.

If you are a corporation, rental income can be taxed at much higher rate than income from business. As of 2017, the tax rate for rental income was more than 20% greater than that for business income.

If you would like further information, please call the office at 705-876-6011 or I can be contacted directly at shcody@codyandjames.ca.

Who Should Have a TFSA?

Written by:  Gwyneth James MBA CPA, CGA

The Tax Free Saving Account (TFSA) has been around now for ten years and is pretty popular with good reason – everyone should have one.

There is no tax deduction for contributions to a TFSA. The ‘tax free’ relates to any investment earned by the TFSA. It is tax free even when withdrawn.

For people just entering the workforce the TFSA is the ideal place for your emergency fund. Even $100 a month will provide a nice $2400 emergency fund within two years and get you in to the habit of saving. Then when an emergency happens (like the furnace conks out or the car transmission goes – not the emergency trip to Casino Rama or the 30% off shoe sale) you have the funds to cover it and the $100 a month starts to rebuild it right away.

The TFSA is also the place for everyone to save for those big purchases like new furniture, a vacation or home renovation. Again move money into your TFSA monthly and save for that big purchase.

If you are fortunate enough to have no debt and have maximized your RRSPs then the TFSA can be used to accumulate additional savings for retirement.

If you are retired and have any taxable investment income those funds should be inside a TFSA to reduce the tax bite.

However, be mindful of the maximum contribution limits. The CRA establishes contribution limits each year and they vary each year. It must be clear that no matter how many TFSA’s you have, the contribution limit applies to the combined total of all TFSA’s held by an individual and there are penalties if you exceed your contribution limit.

If you do not have a TFSA, you should – and start using it. If you do have one, good! Now make sure it is put to the best use!

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