Small Business Seminar Presented by: Canada Revenue Agency

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Small Business Seminar Presented byCanada
Revenue Agency
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Welcome

• Welcome to the Small Business Seminar
• The seminar is approximately two hours long.
• Feel free to ask questions as we go through the
  seminar
• If you have a complex inquiry you can ask at the
  end of the seminar
• The seminar will cover

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The seminar will cover

• Types of Legal Entity
• Business Registration
• Keeping Books and Records
• Good and Services Tax (GST)
• Payroll Deductions
• Electronic Services
• Where to get help!

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Types of Legal Entities

• Sole Proprietorship
• Partnership
• Corporation

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Features of a Sole Proprietorship

• Owned and operated by one individual
• Owner receives all the profits/losses
• Easy and inexpensive to register
• Personal property of owner is at risk
• No separate legal status
• Owner reports income on his/her T1 General

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Features of a Partnership

• Partners bring money, property and skills to the
  business
• Associated between two more or persons/entities
• Partners share profit/losses based on agreement
• Each partner is considered self-employed
• Bound by acts of any member
• Partners report income on his/her T1 General

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Features of a Corporation

• Separate legal status with perpetual existence
• Can raise more capital i.e. public venues
• Adaptable to large and small businesses
• Corporations can be bought and sold without
  affecting its legal status
• Shareholders/Directors liable for taxes owing
• Corporation must file corporate T2 tax return

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Buying an Existing Business

• Obtain a Clearance Certificate if you are buying
  an existing business
• If you dont obtain a clearance certificate you
  could be liable for any outstanding tax debts
• When you buy an existing business, you generally
  pay a set amount.
• If individual asset prices are not set out in a
  contract, you have to determine assets,
  inventory, and goodwill if applicable.

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Bring Assets into a Business

• Example
• You purchase a business for a total purchase
• price of 120,000. The FMV of the net
• identifiable assets of the business is as
  follows
• Accounts receivable.............................
  120,000
• Inventory.........................................
  ...... 10,000
• Land..............................................
  ......... 30,000
• Building..........................................
  ....... 50,000
• Total net identifiable assets..............
  110,000
• You can determine the value of the goodwill by
• subtracting the total value of the net
  identifiable
• assets from the purchase price
• Purchase price ...................................
  ... 120,000
• Minus net identifiable assets..............
  110,000
• Amount attributed to goodwill ........ 110,000

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Buying an Existing Business

• Another way of buying an existing business is to
  buy the shares of an incorporated business.
• This does not affect the cost base of the assets
  of the business.
• A corporation is a separate legal entity and can
  own property in its own name.
• A change in ownership of the shares will not
  affect the tax values of the assets the
  corporation owns.

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Bringing Asset into a Business

• If you are operating a sole proprietorship, this
  is a reasonably simple process
• Transfer these assets to the business at their
  fair market value (FMV)
• If a GST/HST registrant an input tax credit can
  be claimed based on the FMV
• The cost of the FMV is the value that you will
  calculate on your capital cost allowance schedule
  at year end

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Business Number (BN)

• The business number is based on one business
  number for all your Canada Revenue Agency (CRA)
  accounts
• The business number is 9 digit number ending with
  an account indicator
• The four major CRA accounts are
• Goods and Services/Harmonized Sales Tax (RT0001)
• Payroll account (RP0001)
• Corporate Tax Account (RC0001)
• Importer/Exporter Tax Account (RM0001)

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The Business Number

• The business number is alpha numeric
• The number is 9 digits
• The account indicator is 2 letters 4 numbers
• Your BN might look like this
• 82345 6789 RT0001
• (registration number) (account
  identifier)

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Books and Records

• Your book and records should
• Be kept in an orderly manner
• Be easily assessed
• Your books and records must
• Be supported by vouchers or other source
  documents
• Be permanent
• Be maintained in Canada
• Allow you to determine your tax or duty payable

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Why Keep Accurate Books and Records?

• Legislative requirement
• Identifies sources of income
• Expense reminder
• Well-kept records can mean tax savings
• Information about your business
• Easier to deal with creditor and arrange
  financing
• Well kept records can prevent most of the
  problems you might encounter if audit your
  returns

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Books and RecordsFinancial StatementsIncome
StatementsBalance Sheet

• Records
• Journals
• Contracts
• Annual Inventory Records
• Bank Statements and Cancelled Cheques

• Source Documents
• Sales and Purchase Invoices
• Cash Register Tapes
• Patient cards

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Retaining and Destroying Records

• Six-year requirement
• You must retain books and records for six years
  from the end of the last taxation year to which
  they relate for income tax and GST/HST purposes.
• Basically 7 years

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Accounting Methods

• Accrual method
• Report income in the fiscal year you invoice it,
  regardless of when you receive the payment
• Deduct allowable expenses in the fiscal period in
  which you incur them, whether or not your pay for
  them in that period
• Must be used by all businesses other than farming
  and fishing

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Fiscal Periods

• Business income must be reported on an annual
  basis
• December 31 year end is common for sole
  proprietorships and partnerships
• Corporations often have a non calendar year end
• A corporation has 371 days to chose its fiscal
  year end from the date of incorporation

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Start-up cost

• To be able to deduct a business expense, you have
  to have been carrying on business in the fiscal
  period in which the expense was incurred

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Business Income

• Business income includes income from
• A profession
• A calling
• A trade
• A manufacture or undertaking of any kind
• An adventure or concern in the nature of trade
• Does not include income from an office or
  employment (e.g. wages)

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Business Income

• Keep track of the gross income your business
  earns. Gross income is your total income before
  you deduct the cost of good sold
• Support all income entries with original
  documents. Original documents include sales
  invoices, cash register tapes, receipts, patient
  cards, fee statements, contracts etc.

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Sales Journals

• Keep this record, along with
• Duplicate deposit slips
• Bank statements
• Cancelled cheques

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Business and Professional Income Guide T4002,
Page 40 Income Calculation
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Business Expenses

• You can generally deduct business expense if you
  incur them for the sole purpose of producing
  business income
• Your expense can be current or capital in nature
• Always!! Get receipts or other vouchers when you
  buy something for your business
• Remember to keep your cancelled cheques if you
  receive them from the bank
• Keep them in an orderly manner so they can be
  easily reviewed

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Business and Professional Income Guide T4002 pg.
13 and 14 Current and Capital Expenses
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Operating Expenses

• Prepaid expenses
• Accounting and legal
• Advertising
• Supplies
• Rent
• Telephone and utilities
• Interest and bank charges
• Maintenance and repairs
• Meals and entertainment
• Motor vehicle

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Motor vehicle expense

• Must be reasonable
• Must have receipts to support claim
• Must keep a record of the total km driven and km
  driven to earn business income
• Write down the odometer reading at the time you
  buy, sell, or trade your vehicle
• Mileage log will track date, destination, purpose
  and number of km driven for business

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Business and Professional Income Guide T4002 pg.
16 and 17 Motor Vehicle Expense
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Business use of home expense

• You can deduct expenses for the business use of a
  work space in your home, as long as you meet one
  the these conditions
• It is your principal place of business or
• You use the space only to earn your business
  income, and you use it on regular and ongoing
  basis to meet your client, customer, or patients

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Business and Professional Income Guide T4002 pg.
23 24 Business Use of Home Expenses
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Salaries, including employers contributions

• You can deduct salaries and the employer portion
  of CPP, QPP, EI and WSIB contributions
• You can also deduct any premiums you pay on
  behalf of an employee for a sickness, accident,
  disability, or income insurance plan

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Self Assessment System

• It is the responsibility of Canada Revenue Agency
  to interpret and apply the law in a uniform, fair
  and impartial manner
• It is the responsibility of the business owner to
  submit a full self-assessment of the duties and
  tax payable each year or as required

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Income tax returns

• Sole proprietorships files a T1 General personal
  income tax returns if
• taxes are owing for the year
• Capital Property has been disposed in the year
• Owners are require to make CPP contributions
• Received a demand to file

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Income Tax Returns

• Partnerships (less than 6 partners)
• In a partnership, each partner files a T1
  General, personal income tax return to report his
  or her share of the partnerships income or loss
• Although some partnerships must file a
  Partnership Information Return T5013

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Income Tax Returns

• Corporations
• All corporations, whether taxable or non-taxable,
  have to file a corporate income tax return (Form
  T2)
• The corporation must file no later than six
  months after the end of the corporations
  taxation year
• T2 Corporation Income Tax guide is T4012

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Payment of Taxes

• Instalments
• Payroll deductions
• Goods and Services Tax (GST) / Harmonized Sales
  Tax (HST)

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Income tax instalments

• As a sole proprietor, partner, or corporation,
  you may be required to pay your income tax in
  instalments throughout the year
• CRA will send you a notice telling you your
  instalments are due
• You may choose to calculate your instalments your
  self using the systems provided by CRA
• Individuals P110 Paying Your Tax by
  Instalments
• Corporations T7B-CORP Corporation Instalments
• Goods and Services Tax RC4022 General
  Information for GST/HST Registrants

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Payroll Deductions

• Canada Pension Plan
• Employment Insurance
• Income Tax
• Note As an employer, you are holding these
  deductions in TRUST for your employees. Your are
  expected to keep these funds separate from the
  operation funds of your business.

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Canada Pension Plan

• 4.95 for employee
• Maximum earnings of 42,100.00
• Basic exemption is 3,500.00
• Employer matches contribution
• Maximum contribution per employee for 2006 is
  1910.70

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Employment Insurance

• 1.87 for employee
• Maximum earnings of 39,000
• Employer contributes 1.4 times the employees
  contribution
• Maximum contributions by employee for 2006 is
  729.30

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Federal and Provincial Deductions

• Determine the claim code per the TD -1 and the
• TD -1 ON
• The T4032 shows the federal and provincial taxes
  separately
• Follow the payroll deduction table
• TOD (Tables on Diskette) is available on the
  internet to help you calculate your deductions.

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GST When to register?

• Your sell or provide taxable foods or services in
  your commercial activities in Canada and
• Your total taxable worldwide revenues (including
  those of your associates) were more than 30,000
  in the immediately preceding four consecutive
  calendar quarters, or exceeds 30,000 in any one
  calendar quarter
• For Public Service Bodies the threshold is 50,000

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GST/HST Registrants

• Businesses are responsible for charging,
  collecting and remitting theses taxes to the
  government
• Businesses who register are called registrants
• Note As an registrant, you are holding these
  deductions in TRUST for the government. Your are
  expected to keep these funds separate from the
  operation funds of your business.

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GST/HST Registrant

• Registrants charge and collect the GST/HST on
  most of their sales, and pay the GST/HST on most
  purchases
• Registrants can claim a credit, called an input
  tax credit to recover the GST/HST they paid or
  owe on purchases for use in commercial activities
• If they pay more than they collect, they receive
  a refund

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Input Tax Credits (ITCs)

• As a registrant, you can claim back the GST/HST
  you paid or the you owe on the purchases and
  expenses related to your commercial activities
• These claim are called input tax credits (ITCs)
• You claim the ITCs on your GST/HST return

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Goods and Services Tax GSTHarmonized Sales Tax
HST

• GST is a tax that applies at the rate of 7 to
  the supply of most goods and services in Canada
• HST applies at the rate of 15 to the supply of
  most goods and services in the Participating
  Provinces
• The participating provinces are
• New Brunswick
• Nova Scotia
• Newfoundland and Labrador

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On which goods and services do you charge the
GST/HST?

• Your have to charge and collect GST/HST on
  taxable foods and services you sell, lease,
  transfer, or otherwise provide in some way
• Certain foods and services are subject to
  GST/HST, but at the rate of 0
• Theses goods and services are referred to as
  zero-rated
• Exempt supplies are exempt of tax and if you only
  have exempt sales you cannot be a GST/HST
  registrant
• GST/HST ruling can be contact at 1-800-959-8287

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Reporting Periods

• Annual Taxable Revenues
• 500,000 or less
• 500,000 6,000,000..
• Over 6,000,000

• Reporting/Filing Period
• annually, quarterly or monthly
• quarterly or monthly
• monthly

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How to calculate and file

• For each reporting period, you calculate
• The GST/HST collected or collectible on your
  taxable supplies during the reporting period and
• The GST/HST paid or payable on your purchases for
  which you can claim an ITC
• The difference between the two amounts, plus or
  minus any adjustments, is your GST/HST payment or
  your refund

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Electronic Services for Businesses

• Types of Electronic Services available
• Business Registration Online
• Corporation Internet Filing
• GST/HST NETFILE
• T4 Internet Filing
• Online Requests for Business
• Electronic Payments
• Electronic Mailing Lists
• Who is using our electronic services?
• Future initiatives
• How can we encourage our clients to use these
  services?

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Use the BRO Business Registration Online to
register

• Register for both CRA and participating
  provincial programs at one time over the Internet
• Obtain a BN account number from the convenience
  of home or office

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Use Netfile for your GST/HST refunds

• For GST/HST returns with a Nil Balance or refund
  up to 10,000
• Faster processing, faster refunds
• Direct Deposit available
• GST/HST TELEFILE

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T4 Web form

• Online, interactive session
• 1 3 T4 slips
• File original, amended and cancelled T4 slips
• Print T4s for employees
• 51 of all T4 Returns have 1-3 slips

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• Downloadable software
• 1 70 T4 slips
• Print T4s for employees

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• Newest of the T4 options
• Use commercial payroll software
• 1 500 T4 Slips (610 Kb)
• File original, amended and cancelled T4 slips
• File multiple T4 returns

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• 34 M payments worth approximately 300 Billion
• Roughly ½ of all payments are paid to us
  directly
• Businesses can pay most business taxes through
  their Financial Institution using Electronic
  Payments options.

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(No Transcript)
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Thank for attending. Please take a moment to fill
out your evaluation sheets.
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Contact Us.

• www.cra.gc.ca
• 1-800-959-5525
• Business Enquiries Line