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

The Mystery of TD1 Forms Solved!

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

It’s your first day on the job and you’ve been handed a pile of paperwork to complete and sign plus the employee policy manual to read and a Health & Safety video to watch. In the midst of the chaos, you probably don’t understand – or care – what the significance of the TD1 forms are. But they are important and can cause big problems if they aren’t completed properly.

There’s even a penalty levied by CRA on employees who do not provide their employer with a completed TD1 form within seven days – $25 per day, minimum $100, maximum $2,500!

One of the purposes of the TD1 form is to inform the payroll department about the personal tax credits you usually claim on your tax return. If you are able to claim credits beyond the basic personal amount (examples are Family Caregiver Amount, eligible dependant, or disability tax credit), this form will allow your employer to deduct less tax at source. You will have more money in your hands throughout the year instead of having to wait for a refund the following spring.

Another purpose of the TD1 form is to instruct your employer to deduct additional tax each pay. This is useful if you have rental or investment income or are running a small business on the side. It will reduce the amount you have to pay in the spring when all your sources of income are added together, possibly pushing you into a higher tax bracket.

If you are working more than one job, be aware you can only claim the personal tax credits on one form. For the other employers, you will sign the TD1 form with a zero for the tax credits so every dollar you earn has tax withheld.

TD1 forms are in effect with your employer until you provide new ones, so be sure to complete an updated set if your tax situation changes.

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 

We’re Here Longer for You!

Through tax season, we’ve extended our office hours.  Until April 30th our office hours are;

Monday to Friday 9am-5pm

Saturday 9am-3pm

We can also be available for evening appointments as required.  Please call our office to confirm availability.

 

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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info@codyandjames.ca