Your December To Do List!

Written by Gwyneth James MBA CPA, CGA  Senior Partner

Okay, I know…accounting is the farthest thing from your mind right now, but hear me out. There are just a few items that you need to take care of while you sip your glass of egg nog.

  • If you have a business, don’t forget to take an odometer reading on December 31st.
  • If your business is incorporated, this month is the time to pay yourself a little extra – either as a bonus or as a dividend – to ensure it is added to your T4 or T5 for 2018.
  • As an individual, December is donation time if you want to shore up that tax credit for 2018.
  • Another item that is based on the calendar year is your TFSA contribution, but that rolls over if it’s unused so don’t worry. And you have until March 1st to contribute to your RRSP.
  • If you have non-registered investments that you’d like to realize a gain or loss on, make sure you sell that stock or mutual fund before December 27th.

That’s it! See, not that hard.

Happy Holidays!

Home Buyer’s Plan and Lifelong Learning Plan

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

You’ve been moving around and renting for the past five years or more, but now want to buy a home.  Unfortunately, the only savings you have are in RRSPs.  Don’t cash them in!  The Home Buyer’s Plan (HBP) allows you to “borrow” up to $25,000 of your own savings.  Fill out Area 1 of Form T1036 and take it to your financial advisor.

OR you have decided to return to school full-time.  The Lifelong Learning Plan (LLP) allows you to “borrow” from your RRSPs up to $10,000 a year to a maximum of $20,000.  Fill out Area 1 of Form RC96 and take it to your financial advisor.

These withdrawals will not be taxable and will not have tax withheld, but they must be repaid by making an RRSP contribution and flagging it as an HBP or LLP repayment on Schedule 7 of your tax return.

  1. For the HBP, payments start the 2nd year after you withdrew under the plan.  You have 15 years to pay it all back.
  2. For the LLP, payments starts the year after you cease being a full-time student (to a maximum of four years).  You have 10 years to pay it back.

Any year you miss all or part of the repayment, the balance of the amount that you were supposed to pay is added to your taxable income as if you withdrew from your RRSP.  In some cases, for example a year of very low income, this is an effective tax saving strategy.

There are some restrictions that are beyond the scope of this article related to, for example, RRSP contributions in the 3 months before you withdraw under either plan, the definition of a “first-time homebuyer”, and the type of residence or post-secondary education that qualifies.  Be sure to read up on these or consult an expert.

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

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!

Do You Know Just How Important Financial Ratios Are?

Financial MarginsWritten by; Suzanne Cody CPA, CGA, Senior Partner

Just exactly what are financial ratios? In business, they are a measure of a company’s financial and operating performance. They are used to demonstrate the value of the business. They can be used to compare a business to other businesses in both similar and different industries as well as to analyse a company’s financial standings. They assist in identifying strengths and weaknesses.

There are four main categories of financial ratios:

  • Liquidity
  • Solvency
  • Profitability
  • Efficiency

Liquidity
The most common liquidity ratio is the current ratio, which is the ratio of current assets to current liabilities. This ratio indicates a company’s ability to pay its short-term bills. A ratio of greater than one is usually a minimum because anything less than one means the company has more liabilities than assets. A high ratio indicates more of a safety cushion, which increases flexibility although some of the inventory items and receivable balances may not be easily convertible to cash. Companies can improve the current ratio by paying down debt, converting short-term debt into long-term debt, collecting its receivables faster and buying inventory only when necessary.

Solvency
Solvency ratios indicate financial stability because they measure a company’s debt relative to its assets and equity. A company with too much debt may not have the flexibility to manage its cash flow if interest rates rise or if business conditions deteriorate. The common solvency ratios are debt-to-asset and debt-to-equity. The debt-to-asset ratio is the ratio of total debt to total assets. The debt-to-equity ratio is the ratio of total debt to shareholders’ equity, which is the difference between total assets and total liabilities.

Profitability
Profitability ratios indicate management’s ability to convert sales dollars into profits and cash flow. The common ratios are gross margin, operating margin and net income margin. The gross margin is the ratio of gross profits to sales. The gross profit is equal to sales minus cost of goods sold. The operating margin is the ratio of operating profits to sales and net income margin is the ratio of net income to sales. The operating profit is equal to the gross profit minus operating expenses, while the net income is equal to the operating profit minus interest and taxes. The return-on-asset ratio, which is the ratio of net income to total assets, measures a company’s effectiveness in deploying its assets to generate profits. The return-on-investment ratio, which is the ratio of net income to shareholders’ equity, indicates a company’s ability to generate a return for its owners.

Efficiency
Two common efficiency ratios are inventory turnover and receivables turnover. Inventory turnover is the ratio of cost of goods sold to inventory. A high inventory turnover ratio means that the company is successful in converting its inventory into sales. The receivables turnover ratio is the ratio of credit sales to accounts receivable, which tracks outstanding credit sales. A high accounts receivable turnover means that the company is successful in collecting its outstanding credit balances.

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

Business Owners Register Now!

In partnership with the Chartered Professional Accountants of Canada’s (CPA Canada) financial literacy program, we are very pleased to be presenting a special clinic to help improve the financial literacy of the Peterborough business community.  We will be hosting a 60-minute session titled Understanding Financial Statements.   

This is a basic session explaining the terms and concepts of financial statements. By taking this session, participants will be able to assess how their business is doing, why a balance sheet is needed, and learn more about their cash flow.

This program is free and open to the public.

Space is limited and registration is required. Please register by Friday January 12, 2018 by email, or by phone 705-876-6011.

Session Details: Understanding Financial Statements

Presented By:  Sheila Thompson, CPA

Where: Canterbury Gardens, 1414 Sherbrooke Street, Peterborough (click here for map)

When: Tuesday January 16, 2018 from 4pm to 5:30pm

For more information: Please contact our office 
info@codyandjames.ca
705-876-6011

We look forward to seeing you there!

1-888-511-2791
info@codyandjames.ca