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!

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.

Stay Compliant with CRA’s Payroll Deductions and Remittances

Written by:  Pam Hammett, Bookkeeper and Payroll Specialist

As responsible business owners, you have an obligation to remit your business taxes, whether it be income taxes, HST, or withholdings of employee Source Deductions to Canada Revenue Agency (CRA). This article will cover not only the importance of correctly deducting Payroll Source Deductions; but of remitting these withholdings by the required deadlines.

With payroll, all monies deducted on behalf of the CRA are considered to be held “in trust” for the Receiver General. Employers who remit withholdings or deductions late, withhold the statutory deductions but do not remit them, or fail to deduct the required deductions will be subject to penalties, which may increase on subsequent occurrences, plus interest charges.

These penalties can be quite substantial. The CRA’s Employers’ Guide to Payroll Deductions and Remittances breaks down, in detail a complete list of penalties, interest and possible consequences which will occur if Payroll Source deduction and withholdings are not prepared correctly and remitted on time.

In summary, penalties may include:

  • A failure to deduct can lead to a penalty assessed up to 10% of the amount of CPP, EI and income tax not deducted
  • A failure to remit amounts deducted or being late with a remittance the penalties are currently:
    • 3% if the amount is one to three days late
    • 5% if it is four or five days late
    • 7% if it is six or seven days late and
    • 10% if it is more than seven days late, or if no amount is remitted.

Note: These penalties are quoted from the CRA website as at January 2, 2018.

In addition to these penalties, the CRA may also charge you interest on the amounts due from the date the payment was due. Prescribed interest rates are set by the CRA and can be found by clicking here.

Further, if you are assessed and penalized by the CRA more than once in a calendar year, the CRA will apply higher penalties to the second or later failures to remit. Therefore, it’s imperative that you calculate deductions accurately, actually deduct and collect from your employee(s) pays and remit to the CRA on time.

In the worst-case scenario, should you not comply with the CRA in terms of payroll deductions, remitting and reporting requirements, the CRA can and may prosecute you resulting in fines up to $25,000 and/or imprisonment up to 12 months.

As you can see, failure to comply with the CRA Payroll Deduction and Remittance requirements can result in penalties and interest which add up exponentially and possible legal prosecution.

Your Chartered Professional Accountant can help with accurately calculating and deducting payroll deductions helping you stay compliant with the CRA.

Pamela Hammett
Bookkeeper and Payroll Specialist

Pamela Hammett has been a member of the Cody & James team since June 2016 and has over 20 years of accounting, bookkeeping and administration experience. Pam is actively working towards a certification as a Payroll Compliance Practitioner. Once certified, Pam will become Cody & James CPAs’ in-house Certified Payroll Specialist servicing the payroll needs of our clients.

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!

What Good Is A Loss?

Written By:  Suzanne Cody CPA, CGA

As a business owner, you may face a loss from time to time but this does not mean that all is lost!  There are tax planning advantages which can help ease the stress that a year with poor financial performance brings.

For tax purposes there are different types of losses.  Losses that occur from expanding your operations, the cost of starting up, or as a result of poor economic times are referred to as non-capital losses.  A capital loss occurs when you sell an asset (capital property) at less than its cost, commonly known for tax purposes as its adjusted cost base.  It is important to note that the tax application of a non-capital loss is different from a capital loss.  Capital losses can only be used to reduce capital gains but non-capital losses are more flexible because they can be used to reduce income from other sources such as employment, RRSP and rental income.

Losses are not all bad.  Non-capital losses occurring in your business can be used to offset other income.  If the losses exceed your income from other sources, you have a non-capital loss which carried back up to three years to recover taxes paid in more prosperous years or carried forward to future years when you have taxable income.  The carry forward period depends on the taxation year it occurred in:

  • For taxation years ended March 22, 2004 or earlier: 7 years
  • For taxation years ended after March 22, 2004: 10 years
  • For taxation years ended after 2005: 20 years, except ABIL

For the most part, non-capital losses can be used to reduce any type of income.  The timing of when to use the loss is optional but you should be aware that there are specific advantages to carrying the loss back to a previous tax year or saving it for a future period.  Some of the things to consider are:

  • Were tax rates higher in previous years than they are expected to be in the future?
  • Do you expect to not report any profit in the coming years?
  • Will you be amalgamating or selling your business in the near term?
  • Do you want to carry the non-capital loss back to generate cash flow?
  • Is there a portion of the loss about to expire?

It’s best to consult with your accountant to determine the optimal time to use it.

Giving Employees Christmas Bonuses

Written by:  Amanda Beard, Junior Bookkeeper, CPA student and employee at Cody & James CPAs

Are you giving your employees a Christmas bonus?

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!

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