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.

Bill 148 – More than Just Minimum Wage Increase

Written by; Gwyneth James MBA CPA, CGA

Ontario Bill 148: Fair Workplaces, Better Jobs Act has received its second reading at Queen’s Park and appears set to be enacted on January 1, 2018. Bill 148 will amend portions of the Employment Standards Act (ESA) and the Labour Relations Act (LRA).

With all the attention on the increase to minimum wage, there are several other changes that have not hit the radar of many small businesses, but will substantially change the landscape of employment and labour law in Ontario:

  1.  Scheduling: employees have the right to request schedule and location changes after 3 months of employment without repercussions; and if they are scheduled to work at least 3 hours, they must be paid for 3 hours minimum. There are other changes that effected companies should be familiar with.
  2.   Vacation Pay: after 5 years of service, employees will earn vacation pay at 6% (roughly equal to 3 weeks of vacation).
  3.   Paid Emergency Leave: all employers must now provide 2 days of paid personal emergency leave per year and 8 unpaid days.
  4.   Family Medical Leave: employees may take up to 27 weeks of unpaid leave in a year to stay home with a terminally ill family member.
  5.   Public Holiday Pay (“stat pay”): the calculation for stat pay will now be based off of the pay period immediately preceding the holiday instead of 20 days.
  6.   Pregnancy and Parental Leave: there are increases to the weeks of parental leave allowed and for employees who suffer a miscarriage or still-birth.
  7.   Equal Pay for Equal Work: part-time and temporary employees must be paid the same wages as full-time employees performing equivalent work with some exceptions.
  8.   Union Certification: several changes to this process that effected companies should be familiar with.
  9.   Independent Contractors: there are new rules and regulations to prevent employers from treating employees as self-employed in order to avoid the ESA. Employers will be subject to penalties unless they can prove that the individual is truly an independent contractor.

It is extremely important that business owners make time to get familiar with all these changes and reflect them in their employment practices in the new year.

Tax Planning for Retirees

Personal Accounting: a retired coupleWritten by:  Gwyneth James MBA CPA, CGA  Senior Partner

Fall always feels like a time of new beginnings and some folks take time as the days cool to consider their year-end tax planning. Retirees should examine their year-to-date income and consider whether they should take more or less funds from their registered savings accounts (RRSPs and RRIFs).

A few basic reminders:

  1. In the calendar year a taxpayer has their 71st birthday, RRSPs must be converted into a RRIF (or annuity) and an amount withdrawn each year. They can also be collapsed and paid in a lump sum, although this would only make sense if the balance is not too large.
  2. An RRSP can be converted into a RRIF or annuity at any time, but this forces some defined amount to be included in taxable income each year.
  3. Only defined types of pension income qualify for pension splitting. For example, income from company pension plans qualifies at any age, but RRIFs do not until age 65.

Some retirees opt to start withdrawing RRSPs earlier than age 71 which spreads the taxable income over a longer period of time. This can be beneficial in a year where income is expected to be lower than in the future, for example if OAS, CPP or pensions have not yet started. If the funds are not required for living expenses, transfer into a TFSA for later use.

Other retirees convert some of their RRSPs to RRIFs at age 65 to take advantage of the ability to pension split. Pension splitting allows one spouse to transfer up to 50% of their pension income to the other for tax calculation purposes only. This can result in much lower tax owing if that one spouse is in a higher tax bracket than the other. The transferee spouse also qualifies for the $2,000 pension income tax credit.

Each year you elect to do a pension split, complete and sign form T1032 and keep it on file in case CRA asks to see it. Couples who have not remembered to split their pension income can go back and adjust the past three years’ tax returns.

Must Know Tax Rules If You’re Heading South For the Winter

Written by Gwyneth James MBA CPA, CGAWell Traveled Luggage

A client gleefully informed me this week that he’s off to Florida for the winter. I took a minute to check when he’ll be back. There are 3 reasons for this: (1) US taxes, (2) OHIP, and (3) Canadian resident status.

  1. The Canadian and US governments have improved their tracking of traveller movements so carefully check your dates of entry and exit to US. Ensure you stay no longer than 182 days in a 12-month period or you will be subject to US taxes (Canadian citizens only; limit is 90 days for other countries’ residents and Canadian permanent residents).  However, IRS calculates the time spent by a snowbird in the States over the course of 3 consecutive years to assess whether you should be actually be classified as a “substantial presence” and subject to US taxation. Under that calculation, spending 182 days a year for 3 years in a row would put you over the limit.
    Snowbirds are advised to complete and file Form 8840 with the IRS (“Closer Connection Exception Statement for Aliens”). This should be filed every year you spend more than a couple of months in the US.
  2. Ontario requires at least five months of residence in the province to maintain OHIP coverage (i.e. you can be outside of Canada for a total of 212 days in any 12 month period).
  3. There is a chance that, if you stay away more than six months and have really settled in somewhere overseas, you can be deemed to have emigrated.  Canadians who lose their resident status are subject to departure tax – assets are considered to have been sold at fair market value and any gains are taxed.

More Information;

OHIP Coverage While Outside Canada
The Canadian Snowbird Association Travel Information Guide

Visit USA Act proposed to extend the length of stay limit for Canadian citizens over 50 years old, but that has not yet passed Congress.  Click here to read more.

If you established ties in a country that Canada has a tax treaty with and you are considered a resident of that country, but you are otherwise a factual resident of Canada, meaning you maintain significant residential ties with Canada, you may be considered a deemed non-resident of Canada.

Bon voyage!

6 Success Factors For Running a Home Based Business

Home Based Business Success Factors

Written by Suzanne Cody CPA, CGA

Are you thinking about starting or currently running a home based business?  The success of your business rests with several important aspects.  Some of the more important factors are defined and highlighted below.

  1. Target market – You need to know who your customers are.  The three main ways to determine this are by location, demographically, or by consumer lifestyle.  You should carefully select a market for your products or services.  The more specific the audience the easier it will be to meet their needs.  Marketing to a very wide customer base can be quite overwhelming not to mention ineffective.
  2. Website – A Website is an address for your business.  You need to have an internet presence.  It lets people find your business and is responsible for the very first impression you make.  Did you know that 84% of Canadian shoppers say that their purchases have been influenced by what they have accessed online?
  3. Search engine optimization (SEO) – SEO helps your website’s search engine ranking (where it is positioned by Google or Bing) by associating it to keywords and links that will make the site easier to find online.  Online shoppers searching for the products or services that you provide will see your website in the first pages of their website search.  This has the potential to bring you more paying customers.
  4. Marketing – As part of your budgeting you should include an amount for marketing.  No matter how small your business may be, every venture requires a marketing budget.  Some areas to consider when deciding on the amount of money you are willing to spend are business cards, classified ads, and radio spots.  As part of your marketing strategy you should track the results. You will want to repeat the ones that are most successful.
  5. Offline marketing – In addition to your website and online marketing campaigns, personal interaction is important to connect with potential clients.  Attending workshops and other networking events in your neighbourhood armed with business cards will help to boost your sales.
  6. Goals – You need to set realistic goals for your home based business.  When setting them, these goals should be based on what you can deliver or provide without outsourcing.  You should be aware of what your actual production capacity is.  You should not overextend.  This leads to unsatisfied customers.  You can improve on the numbers gradually.

A home based business can have many benefits.  It can be quite profitable while at the same time giving you the freedom to be your own boss.  A portion of your home’s expenses can qualify for a reduction to your taxable income.  A home business requires you to be very disciplined in terms of time and financial management and this is where many people fail especially in their first home based business ventures.  It is definitely not for the faint of heart!

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

Voluntary Disclosures Program

Written by Gwyneth James MBA CPA, CGA  Senior Partner

We all make mistakes, but we don’t all get a chance to fix them before it’s too late. What if you suddenly realize that you made a mistake on your tax return?

The Canada Revenue Agency (CRA) has a method for taxpayers to correct a previous tax filing or reveal information not previously provided in a tax return. It is called the Voluntary Disclosure Program (VDP) and MAY result in protection from penalties and/or prosecution. You can submit a form RC199 or simply write a letter to the Shawinigan tax office. Even if CRA accepts your disclosure, however, you will have to pay any taxes owing plus interest.

There are four conditions you must meet before using the VDP:
1. Voluntary – you must apply before CRA has caught you
2. Complete and Accurate – if you leave out or lie about any information in your application, CRA may reinstate penalties or prosecute you
3. Penalty – there must be a penalty to be waived, otherwise just file as usual
4. One Year Overdue – in most cases the information being disclosed must be over one year old
With the aid of an accountant or tax lawyer it is possible to file an anonymous VDP application to determine whether CRA is likely to accept the disclosure. The actual named application must be submitted to CRA within 90 days and must be exactly as the facts were outlined in the anonymous disclosure.

The VDP can be used for income taxes (personal and business), payroll source deductions, GST/HST, foreign income, ineligible expenses, and information returns (for example, foreign property declarations).

As painful as this process may sound, it may well be worth the pain if you can sleep better at night.

Why Should I Keep Good Records?

Written by:  Suzanne Cody CPA, CGA, Senior Partner

We all know that anyone in business needs to keep records. Keeping good records is not always easy but is really quite important to your business.

You need to keep good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, and what changes you need to consider making. Good records increase the likelihood that your business will be successful.

Having accurate financial information available is necessary for controlling your business. The information on your financial statements will help you in dealing with your financial institutions.

You receive money from many different sources. Records identify the sources of your income which is important because it separates your taxable from your non-taxable income.

Keeping track of deductible expenses as they occur is important. You may forget expenses that will reduce the amount of tax you pay by the time you file your taxes.

Keeping track of investments and real property is important for calculating capital gains for tax purposes.

You need good records to prepare your tax returns. These records are used to support the income, expenses, and credits reported to the government. For further details on your legal responsibilities on record keeping click here.