Clare Kelly, CPA lives with her family in Nelson B.C and has been a business owner in the Kootenays since 2008. She works to contribute her hardwon business knowledge and technical skills towards the improvement of the sustainability and resiliency of her community.
Introduced in 2021, this incentive allows for eligible businesses to claim depreciation more aggressively on eligible capital property. The goal is to encourage the growth of small businesses in Canada by providing a method of reducing taxable income.
How is this accomplished?
Depreciation reduces taxable income and thereby, usually the associated tax owing. It is a method of expensing a capital asset over time. For example, if you purchased kitchen equipment for $1000 and would normally claim $20 in depreciation the first year based on the normal tax rules, you may now be able to claim an increased amount. Properties that qualify must be purchased after April 18, 2021 for Canadian Controlled Private Corporations, after December 31, 2021 for individuals and partnerships, and be available for use before January 1, 2024.
How do you make a claim?
You must identify the capital property that you want to claim the immediate expensing on in your tax return.
How can I find out more about this?
Speak to your tax advisor. There are a few additional rules that you will want to understand before making the claim and it could reduce your taxes payable.
Have you tried using the budget function in your cloud accounting software? Xero, and some other cloud account software subscriptions, allow you to enter a budget (create from scratch or import from Excel), and then pull reports over the course of the year to assess how successfully your organization is meeting its pre-established goals. Your budget does not have to be overly detailed and you can edit it as the goals of the business change.
Comparing actual results to budgeted results regularly is a vital activity, even for the smallest business or non-profit. It allows you to detect a growing difference (positive or negative) between your intended path and your actual situation and course-correct before a variance is too difficult to overcome. Budgeting is also a good way to test your predictive abilities and can highlight areas of your business that you may not understand, or need to ask questions about.
Steps to Utilizing a Budget
Create/import your budget into the software
Update the budget for changes to planned goals on a regular basis
Ensure bookkeeping is timely and income and expenses are allocated to the reporting period they relate to (ie: recorded in the correct month)
Add the budget summary and variance reports to your monthly or quarterly review of your business
For those of you using Xero, check out this starter guide to the budget function:
The Underused Housing Tax Act came into effect on January 1, 2022 and is an annual 1% tax on the ownership of vacant or underused housing in Canada (based on taxable value but fair market value can be elected). While the tax usually applies to non-resident, non-Canadian owners, it also may apply to some Canadian owners.
Does it Apply to Small Organizations or Partnerships?
Exclusion from the act as listed by the CRA (not an exhaustive list):
an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners
any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
a registered charity for Canadian income tax purposes
a cooperative housing corporation for Canadian GST/HST purposes
an Indigenous governing body or a corporation wholly owned by an Indigenous governing body
You or your organization may be considered an “affected owner” (meaning the tax act applies to you) if, amongst other things:
an individual who is not a Canadian citizen or permanent resident
an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
a corporation that is incorporated outside Canada
a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
a Canadian corporation without share capital
Are There any Exemptions?
Possible exemptions listed under the Act depend on the type of owner you are, and the availability, location, use or occupant of the property.
What Happens if the Act Applies to You?
If you are an “affected owner” you must file a UHT return for each residential property that you own in Canada on December 31 and pay the tax by May 1st, 2023 (normally due April 30th, but that is a Sunday this year). If you qualify for an exemption, a return must still be filed.
Unsure if you Need to File?
The Act has caused many Canadians to try a determine if they fall under one of the affected individuals such as partner (are you on the title of a residential rental property?) or trustee (are you on the title of a relative’s residential property?).
Begin by reading the CRA’s web page, then discuss with your CPA.
Tax audits (we will be discussing requests for information, not in-person audits) do not have to be a big deal. They are performed routinely by regular people (CRA agents do actually have families and small businesses of their own!), and who can be very helpful. It is important to remember that the job of the CRA is not to charge you the most tax payable, their job is to collect the appropriate tax payable under the law. We have actually observed CRA auditors help clients benefit from an audit (for example, spotting an ITC that was missed in a claim, thereby increasing the refund available to the taxpayer!).
Ask for an Extension
Audits typically have a response deadline of 30 days. Whether you think you will need it or not, ask for an extension (30 days is commonly awarded). Act as if you did not receive the extension and start preparations immediately, but know that you have a buffer just in case you need it.
Read the Request Back to a CRA Agent
Once you have read the information request, write down a list of the information and corresponding documents you think you need to provide, call the CRA and discuss with an agent. This reduces the chance of providing irrelevant or unhelpful information.
Make a Checklist
When you are clear about what documentation to provide, make a physical checklist and actually check off each item as you add it to the submission. Working methodically reduces the chance that you accidentally omit an important piece of supporting evidence. Ask another individual to check your submission package against the checklist for accuracy and completeness. Add that checklist to the cover letter you are sending to the CRA so that if you do forget to add something, they will see that and call to ask for the missing information.
Discuss with your CPA.
Still feeling confused or uncertain? Call your CPA to discuss an action plan.
Death by Shortcut is a common reason many small businesses and nonprofits fail. It can be invisible, insidious, and swift. Shortcuts may feel satisfying in the moment, but they can allow the override of valuable controls and leave your corporate assets vulnerable.
Dangerous Shortcuts to Avoid
Cash Coding Significant Payables and Receivables
If you are cash-coding, it likely means you are recording money spent and money received as it shows up in your bank statement or feed instead of creating an invoice for a customer when they owe you payment, or creating a bill when you owe a vendor. Bypassing the creation of invoices and bills prevents you from effectively forecasting your cash flow. If you don’t have a record of money you expect to spend and receive, and how much time it takes you to receive that money, you won’t be able to make smart decisions about when to spend money. This could cause major, and totally avoidable reliance on short term borrowing (which is not cheap anymore!). The end of month is not the time to record financial transactions. If cash is tight, ensure you are creating invoices and entering bills frequently (sometimes daily), so that you can manage your funds more effectively.
Allowing Junior Employees to Approve and Pay Bills
If you are allowing an employee (bookkeeper, payables clerk) to enter, approve, and pay significant bills before they have been vetted by a more senior staff member, you are playing with fire. Even the most detail oriented, conscientious individuals make mathematical errors, accidental duplications, succumb to phishing scams, or make poor timing decisions (failing to check a bank balance before issuing a payment). A secondary approval should be required for purchases entered, as well as payments that exceed a reasonable threshold for your business. Use the approval function in Xero, or ensure sign off is digitally secure and marks the actual bill.
Separating finance tasks such as data entry from others like banking can be challenging for small organizations. Sometimes there aren’t enough staff for the ideal separation of duties. Even minor changes to workflows can increase security significantly. You may even be able to hire a parttime employee with the money you save from resulting cash flow improvements (like reducing interest payments on lines of credit).
Contact your CPA if you need help designing or modifying a workflow!
Compilation Reports replace what some business owners and non-profit directors called their “Year End”, or “Notice to Reader”. It affects all year ends with a report date ending on or after December 14, 2021. The report is created by a Chartered Professional Accountant to assist an organization in compiling its financial information. It does not provide assurance (for example, it is not an audit).
What Does the New Standard Mean for Business Owners and Directors?
The Compilation Report requires a few things that Notice to Readers did not. Most notably:
Declared Basis of Accounting
The management of the organization is now required to declare a basis of accounting. What is that?! The basis of accounting refers to the method used to determine which revenues andexpenses are recognized in the financial statements of an organization. For example, if the organization is a farm, it may only recognize cash when it spends or receives it, or if it is a not for profit organization that is preparing for an audit in a future year, it may recognize income and expenses under a specific set of rules such as ASNPO.
Information on the Intended Users of the Compilation Report
You will be asked to declare whether the financial information compiled is intended to be used by a third party (for example, your bank or another lender) and whether the third party has access to additional information. Additionally, if the information is to be used by a third party you must acknowledge that the third party is “in a position to request and obtain further information from you or has agreed with you on the basis of accounting before the practitioner can accept or continue their work on the report. For example, if you use cash accounting (record cash when received and spent instead of when you receive a bill, or issue an invoice), then you want to confirm with the user of the report (for example, your bank), that they will accept a report that uses this basis before you provide information to the report preparer.
Adequate Understanding of your Enterprise
The CPA preparing the report now needs an adequate understanding of the nature of the organization’s business and operations, accounting system, and accounting records. This means you will likely need to provide more information at year end than you may have in prior periods. Have patience! This ensures the statements are not misleading and most importantly, provides information that users of the Report can use to make properly informed decisions.
More questions? Contact your CPA as you prepare for your year end activities and ask what resources they have available to assist you.
An ESG plan is an action plan used to achieve its environmental, social, and governance goals and ensure they align with the organization’s vision, values, and overall strategic plan. The point of the plan is to capture and communicate non-financial risks and opportunities related to day to day operations.
An example of an ESG plan component
A tangible example of an ESG plan item could be the purchase of refurbished computer hardware in place of new hardware to reduce e-pollution and lower a carbon footprint. It could also be a commitment to reevaluate pay structures to improve gender equity or support Indigenous economic reconciliation by prioritizing Indigenous supply chain partners.
3 Benefits of an ESG Plan
Attract Quality Staff
Allocating attention and resources towards governance (a ESG pillar) can enrich a work environment by making it more equitable, participatory, and motivating for employees and owners alike. This can improve employee morale and lower turnover, even for entry level positions.
Secure Valuable Supply Chain Contracts
Larger organizations are developing ESG strategies, increasing the demand for supply chain partners whose activities support their ESG goals. In some industries, having an ESG plan will become a basic requirement in the near future. If your organization is ahead of the curve, your ESG plan could be a competitive advantage over larger competitors.
Build Trust with your Customers and Stakeholders
High value customers and business partners want to know that your activities will be sustainable and have longevity (you can honor a repairs warranty for that bike you sold them, or continue distributing the bikes they sold to you). Partnering for their success, not just your own, will win you loyal customers and long term business relationships.
Start Small, Start Today
ESG plans do not have to be complicated or unaffordable. In fact, looking for simple efficiencies in an organization’s operations is a practical way to start. Don’t forget to let your business partners know that you are enacting your plan. They are not waiting for perfection. They are
While the definition varies depending on context and perspective, economic reconciliation commonly refers to the full inclusion of Indigenous individuals, communities, and businesses in all economic activities and includes active efforts to eliminate the multiple barriers that reduce their equal participation in those activities.
How Can a Small Business Make a Difference?
No business is too small to make an impactful contribution to Indigenous economic reconciliation in Canada! Here are a few suggestions for those businesses beginning to explore the reconciliation space.
Reciprocity Trusts and Paying as a Land Tenant
Try out a new reciprocity experiment or “pay the rent to an Indigenous community”. Your business can reciprocate for decades of rent-free living (often on unceded territory).
Annual contributions often go directly to participating Indigenous Nations, who have control over where they accept payments from and what priorities they go towards.
On September 30th, dedicate business resources to reconciliACTIONs (learning, outreach, fundraising, advocacy) that your business can take to improve the lives of Indigenous peoples in Canada.
Organizations listed are listed as suggested resources, but are not endorsed by Cedar Creek CPA Inc.. Every reconciliation plan should be based on first hand research performed by your own business to determine best-fit partners before moving forward.
Bookkeeping and accounting used to be desk- work that tradespeople had to “get back to the office” to deal with at the end of a busy day. It’s no wonder that so many tasks were just left to pile up until they had to be dealt with (usually in a rush at year end, or when applying for a loan). This translated to higher accounting fees and lost tax planning (saving) opportunities.
If you are considering a move to cloud accounting from a desktop system, here are 3 great reasons to make the switch so you don’t have to “get back to the office” so often.
Mobile Expense Tracking
Both Quickbooks Online and Xero accounting software systems allow for employees to upload expenses for reimbursement (receipts or tracked mileage) using a mobile phone application. Expenses are entered in a more complete and timely manner.
Mobile Estimates/Invoicing
Customer estimates can be created using a mobile phone application and uploaded directly to accounting software. The estimate can then be turned into an invoice when it comes time to bill the customer. Estimates issued in real time tend to be more comprehensive and reflect actual details provided by the customer (instead of input later with reliance on notes or memory). Invoices can also be issued and payments accepted without using a bricks and mortar office set up at all.
Cloud File Storage
Consider moving your back- end filing cabinet online. A google drive, for example, can be linked to your phone and photos of documents or job sites can be uploaded or accessed from any location. This allows you to perform many different tasks without tying up time and resources returning to a physical office to catch up on filing.
Moving to a cloud accounting system does not have to be complicated and can improve efficiency in a myriad of ways. Try scheduling 20 minutes next week to read up on Quickbooks Online or Xero.
Atomic Accounting: Habits are the Compound Interest of Business Improvement
Looking for a long- lasting, low risk, high return way to improve your small business this year? Building and improving your bookkeeping and accounting habits is guaranteed to build value for your customers AND your company. The best thing is that it’s free and you can start anytime.
3 Habits and How They Build Value
Habit: Send monthly statements to customers on the 1st of every month with a personalized email asking them how business is going. No statement is too small!
Value: Customers know where they stand, can plan their cash flows and are reminded to take advantage of any trade discounts you are offering and are more likely to pay you in a timely manner.
Habit: Record expenses paid personally by shareholders on a monthly basis instead of waiting for year end.
Value: Sales tax ITCs (which may be significant) can be claimed more frequently and improve cash flow. Shareholders can access their updated loan balance when planning remuneration through salary or dividends. This is especially true if shareholders pay for a significant number of items on their personal credit card.
Habit: Explore unused functions available in your current accounting software on a regular basis.
Value:You already paid for that expensive accounting software (on average business owners only utilize around 20-30% of the software features they purchased) so learning to utilize the available functionality will likely save you accounting fees at year end, and help you improve cash flow planning during the year (think minimizing short term, high interest debt), or gain margin by assigning more recoverable expenses to customers that you didn’t track before.
Pick a habit! Which one are you starting with?
Author James Clear published Atomic Habits in 2018 and we give him the credit for referring to habits as “compound interest”. Despite habits being dangerously over- analyzed, Atomic Habits is really about the tips and tricks that allow us to actually implement all those habits successfully and make them stick.
Cedar Creek CPA 