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T4-vs-T4A

T4 vs T4A: Differences and When To Issue Which Slip

T4 vs T4A – What’s the Confusion?

There is a common confusion each year among business owners understanding when to issue a T4 vs T4A. Business owners who employ several individuals may have staff working full-time, part-time, once-in-a-while. So, to whom do we issue a T4 and to whom a T4A? What’s the difference? How does it impact the employer and those who work for the employer? Let’s discuss below.

Employee vs Subcontractor

Determining when to issue a T4 (vs T4A) requires determining whether an individual is an employee vs subcontractor. Following factors come into play to determine if an individual is an employee:

  • Control – the degree to which the business owner exercises control over what work will be done and how it will be done by the worker. The more the control exercised by the employer, the more likely that the worker is an employee.
  • Tools and equipment – the extent to which the worker or the employer has invested in the tools that used to perform the underlying work. If tools are primarily provided by the employer, then the worker is likely an employee. If it’s the other way round, then the worker is likely self-employed.
  • Subcontracting work or hiring assistants – Can the worker subcontract work or hire assistants? To the extent the worker can, they’re likely self-employed. In the opposite situation, they’re likely an employee.
  • Financial risk – the degree of financial risk taken by the worker. This could be in the form of certain costs that are incurred by the worker in delivering the service that are not reimbursed by the employer. Typically, employees have no financial risk and self-employed individuals carry some financial risk by incurring costs in advance of getting paid by the employer.
  • Investment and management – the degree of responsibility for investment and management held by the worker. If the worker is required to make capital investments, hire and manage their staff, and has an established business presence, these are indicators of being self-employed. In the opposite scenario where there is little to no investment required, the worker is likely an employee.
  • Opportunity for profit – the extent to which there is uncertainty about the proceeds and expenses from the work. Self-employed workers will likely have some variability in the profit. Employees, however, will have little such variability.

All of the factors above need to be considered and a subjective determination needs to be made if a worker checks several of the boxes above to be categorized as an employee vs being self-employed.

If the worker is an employee, then the employer needs to follow all the rules applicable to employees in the province they are in, deduct payroll taxes, CPP, EI and contribute the employer’s portion of CPP and EI as well.

What does a T4 look like?

Here is what a T4 slip looks like. The Year box indicates which year in which the income was made.

The box with Employer’s name shows the details of the employer issuing the T4 and the box with Employee’s name and address should be addressed to the employee.

Important boxes to keep in mind:

  • Box 14: Shows the employment income made in during the year from this employer.
  • Box 16: This is the how much was contributed towards Canada Pension Plan.
  • Box 18: Contains employment insurance (EI) premium remitted to the CRA.
  • Box 20: Any contributions made towards Registered Pension Plan.
  • Box 22: This is the amount of income tax deducted from your pay during the year.
  • Box 44: If part of any union, it indicates any union dues paid.
  • Box 46: Any charitable donations made from the earnings made through the employer.
  • Box 42: This shows the commission income made from this employment

What does a T4A look like?

A T4A slip looks very similar to a T4 slip. T4A is generally issued when the payment was made over $500. It applies in case of self-employed commission income, pensions, annuities, fees for services, scholarships and other income.

Similar to T4 slip, this has the tax year, Payer’s name and Payee’s details in the recipient’s name and address box.

  • Box 020: If the Payee is self-employed and has received commission income, then this is where it shows up. The recipient is also required to file form T2125 on their personal tax return, which is the statement of business or profession activities. Please note that this amount should be the net amount, which does not include GST/HST.
  • Box 022: Any income tax that was deducted for this T4A slip
  • Box 048: Any fees for services provided, like box 020. And this amount is also net amount only without GST/HST.
  • Box 105: This box contains any scholarships, fellowships, bursaries and study grants (awards) that may have been received by students in general from their school or university. Many local and international students may receive a T4A slip if they had received any such payments from institute of education.

Did you know?

The CRA deadline for submitting the 2019 T4 and T4A slips is February 28, 2020. Employers who do not issue these slips on time will be subject to fines by the CRA.

 

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WSIB for Employers

WSIB for Employers: Coverage, Eligibility and Should you Register?

What is WSIB?

Workers Safety & Insurance Board (WSIB) also referred to as Workers Compensation Board in the past is an organization managed by the Government of Ontario. The purpose of WSIB is to provide benefits as payments and services to any workers who may have been injured at the workplace or suffered any illnesses while at work. In some cases, WSIB may even help employees return to work with modified job duties or help them cover your medical expenses for that illness or injury.

 

How does WSIB work?

All employers eligible for WSIB pay insurance premiums which gets contributed to a province-wide fund. This premium amount is based on Employers gross payroll less any salaries for directors, multiplied by the industry rate. Each industry has their own rate which is determined by the accident experience and the nature of the business. For example, any business that requires workers to operate in more dangerous environments can expect their rate to be much higher. A good example would be Landscapers vs. an Accountant’s office. You should expect the Landscaping company to pay a higher premium compared to the Accountant’s office.

 

In summary, the purpose of WSIB premiums are to protect both the employers and the employees, in addition to providing a safe workspace for all employees. For any circumstances if there is a filed claim, the primary goal is for both the employer and employee to cooperate and work towards getting the employee back to their job as soon as practicable.

 

Do I need WSIB?

For most industries and business, it’s mandatory they setup WSIB and report premiums on a monthly, quarterly or annual basis. The determining factor is if your insurance earnings are less than $20,000, you file Annually. Insurable earnings under $1 million – you file quarterly. Insurable earnings over $1 million – you file monthly. However, for some industries, it’s voluntary if you wish to enroll or register for WSIB services. To find out you can either call WSIB and answer their questionnaire over the phone to determine whether you’re required to register for WSIB or an easier solution is to fill out their online questionnaire to determine WSIB eligibility by visiting this link.

 

WSIB Clearance Certificate

Especially in the construction industry, it’s very common for employers to receive WSIB clearance certificates. The clearance certificate acknowledges Employer’s WSIB account is in good standing and all outstanding premiums have been paid. While bidding for any commercial/industrial construction contracts, one of the key requirements the bidder requires is that all contractors must have WSIB accounts and have valid clearance certificates, allowing for a safe work site.

 

What type of Worker’s Compensation benefits am I eligible for?

As an employee, you’re entitled to compensation no matter who is at fault. However, the primary deciding factor of your claim is based on the legitimacy of the injury. It’s very important you complete Form 6 in any case of an injury in order to apply for workplace insurance benefits. As an employer, your key responsibility is to keep up with your premiums which protects you from the unfortunate case of an employee willing to sue you for unsafe work environments or injury at the workplace.

 

Employer Requirements

All employers must keep their payroll records up to date in order to complete their premium reporting in a timely manner without resulting in late penalties. In addition, annual reconciliations should be completed by the 3rd month following the end of the year. The purpose of annual reconciliation is to verify all insurable earnings have been accounted for and it ties into your annual payroll amounts.

 

 

 

 

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Compliant With CRA

Top 5 Benefits of Staying Compliant with CRA

What does it mean to be compliant with CRA?

The thought of being compliant with CRA may cause some initial anxiety among business owners, especially if you are behind on your taxes. This is understandable because business owners are busy managing other vital issues on a daily basis such as

  • how to stay ahead of their competitors
  • managing cash flow
  • try to find the right product and service mix for their customers
  • managing the workforce … and so and so forth.

 

These constant struggles drain business owners. This is especially taxing when you are trying to maximize the outcome of your strategy with limited financial and human capital. Being compliant with CRA is simple but requires consistency in reporting to them. This means that your GST/HST returns, corporate taxes, personal taxes, payroll returns, and other related items are filed and paid on time. In one of our earlier blog posts, we covered the risks of being exposed to a GST/HST audit by not being compliant with CRA’s reporting requirements.

 

Why is being compliant with CRA important?

We operate in a global village which presents tremendous amounts of opportunities. However, opportunities bring challenges and threats. As a business owner, you have to formulate a flexible growth strategy which results in sustainable growth. This also molds a protection shield against its competitors, economic downturns, and geopolitical instability.

We understand that entrepreneurs are busy working on their businesses. But, they can’t ignore the importance of staying compliant with the rules of the industry and country they operate in. We, at Think Accounting, advise our clients to stay compliant with CRA by keeping their books and records up to date.

We make every possible effort to ensure that our clients do not pay unnecessary penalties and interest. Your money is better in your own pocket than CRA’s, which brings creates value for you and your business.

 

Selling Your Business and Getting Bank Financing

At Think Accounting, we are heavily involved in helping our clients with the purchase and sale of businesses. We have come across many situations where sellers failed to maintain good records. This resulted in getting less than par for the value of their company.

The business could have been sold for a higher price if the accounting records were maintained well. We have also encountered situations where business owners were unable to secure the necessary financing at a desired interest rate. They are caught in situations where they ended up securing funding above the market interest rate. This results in higher borrowing cost, which ultimately had negative implications on their bottom line.

Business owners must adopt a long-term approach and never compromise their long-term growth for short-term gains. We operate in an economy where businesses are working on thin margins, and it is very alluring for business owners to cut corners on taxes and compliance costs, which is a wrong approach to adopt.

One audit or review by the compliance authority will eat away all that was saved by not following the proper guidelines. You will pay the costs you were supposed to pay in the first place. You will also be responsible for paying the interest and penalties for violating the required guidelines. Lastly, it will also flag your business, which means excessive monitoring of your business by the regulatory authorities.

 

Top 5 Benefits of staying compliant with CRA

No doubt, it is an added cost to stay in compliance and maintain your records, but it has considerable benefits that outweigh the cost. Here are the benefits that businesses can derive by staying in compliance with CRA:

  1. Lower borrowing cost and more access to capital.
  2. Lower professional fees – accounting and legal fees would be lower at the end of the year if the books are maintained and kept in order.
  3. Reduced audit risk – Fewer chances of CRA or other authority to audit.
  4. Higher selling price – You can negotiate a better price for your business by not providing an opportunity for the buyers to discover any noncompliance items during the due diligence. It will result in quick sale of your business at a higher market value.
  5. Smooth transition to the new buyer – Robust process helps the transition period easier. Good process and compliance can be a useful selling feature and can attract more buyers which can ultimately result in a higher selling price.

 

We encourage you to contact your advisors, accountants, or legal team to help you fill the gaps, if any, to ensure that you are compliant with CRA and other regulatory matters.

 

Contact Us

CRA compliance requires specialized knowledge and is better left to professionals. We’d be happy to help you navigate this maze. Reach out to one of us at info@thinkaccounting.ca or call us at 905-565-0095!

 

 

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RRSP 2019 2020 Tax

The Ultimate Guide To RRSPs For 2019/2020 Tax Season

It’s almost the end of 2019 and perhaps somewhere in the back of your mind, you’ve started thinking about your RRSP strategy for 2020 to maximize your tax refund when you file your 2019 personal tax return. In this blog post, we’ll go over the different types of RRSPs, RRSP Contribution Limit and what is considered as Earned Income for the purposes of creating RRSP contribution room.

 

But first…let’s go over the basics.

 

The Basics of RRSP

What is a RRSP? A registered Retirement Saving Plan (RRSP) is a government sanctioned (Regulated Investment Plan) used as tax deferral vehicle and registered with Canada Revenue Agency (CRA) in accordance with rules set out in Income Tax Act. It is designed to help a taxpayer save for retirement by making tax deductible contributions. It’s a mutual contract between two parties – the Taxpayer and the Financial Institution. A taxpayer can contribute to RRSP plan and claim the deduction from the income in the year of contributions (subject to RRSP room limitation)

 

How do RRSPs work?

RRSPs are usually invested in financial products, which may earn interest, capital gains or dividends, depending on investment plan. RRSP provides following basic benefits:

  • The taxpayer can deduct RRSP contributions and reduce taxable income in the year of contribution.
  • Investment income earned within RRSP is sheltered from tax until withdrawn from the plan
  • Although all withdrawals are fully taxed, many individuals have lower marginal tax rate (MTR) in retirement than they did during their working life. This creates a tax deferral opportunity, if planned properly, where you can get a refund in your high income years (at a higher tax rate), and pay lower income taxes in your years of withdrawal (at a lower tax rate).

 

Types of RRSPs:

 

1. Regular RRSP:

In the case of a regular RRSP, the taxpayer make contributions to their own plan and the funds are managed by financial institution or investment company.

 

2. Spousal RRSP:

Spousal RRSPs are another great tool available for taxpayers to save/defer taxes. It can be setup to split income for the purpose of saving on taxes in the years of retirement. The contributing spouse is normally the higher income earner. The purpose is to shift RRSP assets into hands of lower income spouse so that, at retirement, the income from the plan is taxed at a lower marginal rate, resulting in tax savings.

Spousal RRSPs are designed to help spouses equalize their taxable incomes during retirement. The contributing spouse can claim the deduction for the contribution (subject to available RRSP contribution limit). But the annuitant spouse will have to include any withdrawals from the plan in their taxable income, subject to spousal attribution rules (3 years after contribution). Spousal RRSPs are usually established when there is large gap in income between the two spouses.

Taxpayer can establish more than one spousal RRSP plans for his or her spouse, but for the purpose of spousal attribution rules CRA will view them as a single RRSP. A taxpayer can only contribute to his or her own RRSP until the end of year in which he or she turns 71 years of age. However if the taxpayer has younger spouse, the taxpayer can still contribute (subject to available contribution room) to spousal RRSP until the end of the year younger spouse turns age of 71.

 

3. Group RRSPs:

Group RRSPs are collection of individual RRSPs grouped together for administrative purpose. Typically sponsored by an employer, union or professional association. These types of RRSPs normally managed by financial institution, insurance companies or security dealer. Often, both employer and employees contribute to group RRSP, with the employer matching employee contribution up to a certain limit or percentage of income.

 

4. Self-Directed RRSP:

A self-directed RRSP gives you freedom to build and manage your own investment portfolio by buying and selling a wide variety of different types of investments.  Under self-directed RRSP account, an investor can hold various different investment. Whereas a regular and spousal RRSP is normally administered by a trustee (investment company or a financial institutions), a self- directed RRSP is entirely managed by the taxpayer. Individuals should consider opening self-directed RRSPs only when they:

  • Have the time and knowledge to manage own investments, or have access to professional investment advice;
  • Have large deposit-based RRSP;

With a Self-directed RRSP, an individuals has the opportunity to tailor their portfolio in an effort to obtain the highest possible return.

 

RRSP Contribution Limit for 2019:

Are you wondering how much you can contribute to your RRSP before the 2020 deadline?

Total contribution room is the amount you are allowed to contribute to your RRSP. Your total contribution room is 18% of your previous year’s Earned Income, up to the maximum contribution limit, adjusted for carry-forward contribution room and pension related items. To take full advantage of this tax deferred vehicle, contribution should be made as early as possible in the calendar year. Contribution made between March 2nd of the current year and March 1st  (February 29th in case of leap year) of the following year can be claimed on the current year’s tax return up to available contribution limit.

Employer sponsored pension plans (RPP’s) or Deferred Profit Sharing Plans (DPSPs) reduce tax payer RRSP contribution limit.

 

RRSP Deduction Limit for 2019:

The RRSP deduction limit for 2019 is 18% of taxpayer earned income for 2018 or $26,500 whichever is less. For example if your earned income for 2018 was $75,000, then your RRSP deduction limit is 18% of $75,000 = $13,500, which is less than maximum contribution limit set by CRA.

 

Past RRSP Deduction Limits:

 

Year RRSP Deduction Limit
2019 $26,500
2018 $26,310
2017 $26,010
2016 $$25,370
2015 $25,930
2014 $24,270
2013 $23,820

 

The RRSP deduction limit differs from RRSP contribution limit as it does not take into account past unused RRSP contributions.  Most people don’t make the maximum RRSP contribution every year. This unused amount is carried forward and added to available contribution room for future years.  Your contribution limit can be seen on your latest notice of assessment or reassessment from CRA. Screenshot below is an example.

What is Earned Income for RRSP?

RRSP contribution limit for 2019 or any given year depends on Earned Income for the previous year. This includes active income such as employment income and business income, but does not include most type of passive income (i.e. interest, dividends and capital gains)

Type of income that qualifies for RRSP earned income:

  • Salaries and wages, net of employment expenses claimed, RRP;
  • Net income from self-employment;
  • Royalties for a work or invention;
  • Net rental income from real property;
  • Research grant;
  • Alimony and maintenance received and,
  • Foreign employment income.

Earned Income is reduced by following items:

  • Current year business loss;
  • Current year Rental Loss;
  • Alimony and support paid.

Passive Income which do not qualify for RRSP contribution limit calculation:

  • Investment income;
  • Taxable capital gains;
  • Death benefits;
  • Scholarships and bursaries;
  • Employment insurance benefits.

Note that CPP disability payment is considered to be earned income.

 

RRSP Contribution Deadline for 2019:

In one of our blog posts on CRA deadlines, we covered several deadlines that apply to Canadian individuals and corporations. As far as RRSPs are concerned, your deadline to contribute is March 2, 2020 in order for that contribution to be applied against your 2019 income.

 

Contact Us

The rules around RRSP can be quite complex and go far wide and deep. We’d be happy to help you navigate this maze. Reach out to one of us at info@thinkaccounting.ca or call us at 905-565-0095!

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Personal Real Estate Corporations (PRECs) in Ontario – What Does It Mean For Taxes?

What are Personal Real Estate Corporations (PRECs)?

Personal real estate corporations are close to becoming a reality in Ontario after the Government of Ontario’s introduction of new legislation (Trust in Real Estate Services Act (TRESA)) that will modernize the old Real Estate and Business Brokers Act, 2002 (REBBA). Essentially, this means that individual Ontario real estate agents will now be able to incorporate their business if the bill is passed into law, similar to other regulated professionals like doctors, accountants and lawyers. This would allow them to offer more services to clients, invest in new technology and create jobs in their community. More importantly, this opens up avenues for better tax planning for Ontario realtors, which we will discuss below.

 

What Do Personal Real Estate Corporations Mean for Taxes?

Does it mean Real estate professionals will pay less taxes with Personal Real Estate Corporations in Ontario? Or would they have undue advantage after incorporating?  The answer is NO. However, a Corporation definitely opens up some avenues for better tax planning in the long-term. Our Canadian tax system is fundamentally based on the concept of ‘integration’. In simple terms, integration means that everyone should pay the same amount of taxes whether you are incorporated, or you are an individual filer. Does integration work perfectly in the real world? A perfect integration does not exist, and it is difficult to achieve perfect integration.

 

Canadian legislators have been introducing new legislation over the past few years to close the loopholes that exist in our tax system. Historically, taxpayers and corporations have been benefiting from all the shortcomings that existed in our tax system. This action by the Ontario Government of introducing this legislation is a great step to right direction. If passed, the bill will provide an opportunity to real estate agents to defer taxes into the future, which is something not currently available as a sole proprietor. Tax deferring and claiming current deductions are two key aspects of tax planning. It can result in significant tax savings if it is done right.

 

Currently, real estate agents report their income as sole proprietorship – which simply means that you as an agent will have to pay taxes on the entire amount you earned minus your applicable deductions in that one year. However, with this change if the legislation is passed, you as an agent will be able to claim all the allowable deductions under your corporation. But, you will have the opportunity to defer your income taxes by not withdrawing all your profit out of the corporation in the same year. Income taxes will be payable at corporation level not individual level. You will only pay personal taxes once you withdraw after tax money from the corporation.

 

Under the current system, if a real estate agent earns $1 million in commissions, they have no choice but to pay income taxes on the entire amount minus applicable deductions. Under the proposed Personal Real Estate Corporation structure, if an Ontario realtor makes $1 million in commission in any given year, they will first pay corporate taxes at the corporation level, and then personal taxes at their personal tax rate only to the extent that they withdraw funds out of the corporation for personal use. As such, for high income earners who do not need their entire earnings immediately, there is an opportunity to defer personal income, and therefore personal taxes, into the future. This would be especially beneficial to real estate agents whose earnings can fluctuate significantly year over year depending on the timing of their closings.

 

Should a Real Estate Agent Incorporate? What are the Advantages and Disadvantages?

Incorporating your real estate business has its advantages and disadvantages summarized below:

Advantages of incorporation:

  • Lower corporate tax rate of 12.50% plus the agent’s personal taxes (depending on how much is withdrawn from the corporation) versus an average of 30% to 40% personal taxes on entire earnings.
  • Tax deferral opportunities – This allows you to grow money on tax deferral basis through various investment vehicles.
  • Income splitting between among spouse. Of course, be aware of TOSI rules (Tax on split income)

 

Disadvantages:

Disadvantages of incorporation are usually compliance related costs:

  • Incorporation charges – This could range from $1,000 to $3,000.
  • Higher accounting fees – You might be paying higher fee for corporate filing.
  • Stricter compliance – You will be required to submit T4 if you decide to withdraw money through payroll for yourself and spouse. Also, you must make remittance payment on monthly basis to stay in compliance with CRA. Check out our related blog on CRA compliance and deadlines.
  • Primarily for high income agents – No advantage if an agent needs all their earnings for personal use – that is, the advantages only exist for high income earning agents who can afford to leave some earnings in the corporation and pay lower tax rate.

Advantages of incorporation outweigh the disadvantages despite the higher compliance and accounting cost. If you are realtor earning $100K you could save up to $10K in taxes on deferral basis assuming you don’t withdraw all earnings out of the corporation in the same year. Tax deferral advantage can be substantial if your earnings are higher. You can also structure your retirement if you’re a savvy investor by investing through your corporation and grow the investment on tax deferral basis. However, you will need to be aware of Small business deduction (SBD) grinding rules.

 

Please note that by incorporating, your practice will not result in any additional deductions from your income. You can still deduct the expenses that you have been deducting as sole proprietor. The biggest advantage of incorporating is in tax deferral, not in tax deductions.

 

In summary, this is a progressive step by Ontario Government to bring fairness among all professionals. However, this bill needs to be passed before it can get implemented. This could take years unless the lobby continues to pressure their MPs and relative authority to expedite the process. There might be other complications on nature of the corporation from CRA once the bill is passed. CRA might look at this nature of incorporation as a “business for self” corporation, which limits the deferrals and essentially leaves no room for tax planning.

 

Contact Us

Got questions? Reach out to us at info@thinkaccounting.ca or give us a call at 905-565-0095!
  

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What Are Notice to Reader (NTR) Financial Statements and Why We Need Them

NTR Financial Statements or Notice to Reader Financial Statements may ring a bell if you’re a business owner who’s ever applied for a bank loan, but to others, or to new business owners, the term “NTR” or “Notice to Reader” may sound foreign in the beginning.

We all know what financial statements are for a business – primarily comprised of Balance Sheet and Income Statement. We won’t get into the details of what these financial statements, but more so into what are NTR Financial Statements, some of its unique aspects and why they are needed.

Unique Qualities of NTR Financial Statements

  1. Prepared by an Independent External Accountant

NTR financial statements cannot be prepared internally the business owner or the in-house bookkeeper from the accounting system. They typically are prepared by a CPA who is external to the company. Note that this accountant can be the same accountant who does the business’ bookkeeping and year-end tax returns.

 

  1. Nature of work is Compilation

Preparation of NTR financial statements is typically called a “Compilation Engagement”. That is, the external accountant is required to “compile” the financial statements based on the raw information that is provided by the client. The accountant is not required to ensure that the transactions provided by the client exist. Better accountants will ask for the bank to be reconciled and perform a high-level reasonability of the trial balance, especially on any new material transactions during the year, but the standards do not require them to.

This is a very important for the readers of NTR financial statements to note because, at times, there is a misconception that just because NTR financial statements are prepared by an external accountant and presented on the accountant’s letterhead, these numbers must be “correct”. Apart from the universal ethical standards that all CPAs must adhere to (for e.g., being independent from the client and not participating in knowingly misstating facts just so that the client can get financing), the CPA body imposes pretty laxed performance standards when it comes to preparing NTR financial statements.

 

  1. Financial statements are not audited

This is an extension to the above point. Although NTR financial statements are prepared by an external accountant and is a “professional engagement”, it is very clearly noted on the cover letter to these financial statements that the accountant has prepared these financial statements based on the information provided by the management of the company, the financial figures have not been verified and that the accountant does not provide any assurance on the accuracy of the numbers.

To emphasize this, every page of NTR financial statements is required to be very cleared marked as “Unaudited”.

 

  1. Purpose of financial statements

It is also very clearly noted on the cover letter to these financial statements that “Readers are cautioned that these statements may not be appropriate for their purposes”.

This means that the Notice to Reader financial statements are usually prepared with a very specific purpose – for e.g. to obtain bank financing, for a potential buyer in a M&A transaction, for investors, and so on.

Financial statements prepared for specific purpose and to be used by one type of user does not mean that these financial statements may be appropriate for all types of users.

 

Why we need Notice to Reader Financial Statements

Although we’ve alluded to this above, here are some specific reasons for which NTR financial statements may be prepared:

  • Annual Reporting to Owner – Although not “required” for any other purpose, the business owner may want these “formal” financial statements to be prepared for their own use and add them to their corporation binder along with board meeting minutes.
  • Bank loans – This is a very common requirement by banks when evaluating the creditworthiness of a client. Banks typically make notes of specific questions that may need to be clarified with the accountants. As such, the better organized these financial statements are, the easier it is for the bank to use them.
  • Investors – Smaller investments and/or investors may not require “Reviewed” or “Audited” financial statements and Notice to Reader financial statements may suffice. This is especially true for young startups when there are little tangible and intangible assets on the Balance Sheet and business does not have significant revenue.
  • Selling a business – When a business owner decides to sell their business, prospective buyers will want to see at least NTR financial statements for prior 3 to 5 years for their due diligence. For larger businesses and deals above $5 million, the requirement will likely shift to “Reviewed” or “Audited” financial statements.

Contact Us

We hope the above gave you some basic insight into what are Notice to Reader Financial Statements and why we need them. At Think Accounting, this is one of the most popular engagements with our clients, who find it very useful as part of their annual reporting package. If you’d like to discuss NTR financial statements with us for your business, reach out to us at info@thinkaccounting.ca or call us at 905-565-0095.

  

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Non-Resident Rental Income Tax In Canada

Non-resident rental income tax applies if you are not a resident of Canada and earn rental income from a Canadian property. The lure of owing property and earning rental income is timeless. Moreover, Canada, and especially metro cities like Toronto and Vancouver have seen astronomical increases in property prices and rental rates. As such, the interest of non-residents looking to generate rental income in Canada has been more than ever recently.

Needless to say, tax consequences of earning rental income from Canadian property are different for non-residents versus what they would be for Canadian residents. Let’s dive in!

Non-Resident Rental Income Tax Reporting Requirements:

As a non-resident earning rental income from a Canadian property, the payer, such as the tenant or an appointed agent, has to withhold non-resident tax at the rate of 25% on gross rental income. The payer must remit the tax to CRA on or before 15th day of the following month that the rental income applies. Failure to remit the non-resident tax will result in penalties and interest on the non-resident tax amount.

Tax should be remitted on the non-resident account number, for example, NRK or NRF number. You can get this number by calling CRA (at 1-855-284-5946), to be set up only once.

NR4 Slips (with Canadian agent):

NR4 is a statement that shows the amount that is paid to a non-resident (gross rental income). As non-resident rental income tax is withheld and remitted, you are discharging your tax obligation to CRA on the rental income. The payer has to provide non-resident NR4 slips including the gross rental income and the tax withheld on an NR4 slip. The payer is required to submit NR4 to CRA on or before the last day of March of the following year to which the rental income applies.

Table to decide if you need to file an NR4 slip based on the total gross income and tax withheld:

Total Gross Income Tax Amount reported on NR4 slip
Less than $50 Tax withheld Yes
Less than $50 No tax withheld No
$50 or more Tax withheld or no tax withheld Yes

 

NR4 Pro Forma Statement (without an agent):

NR4 Pro-forma statement is requireed when the payer does not appoint an agent. The payer must submit NR4 Pro-forma statement to request an NR4 slip from CRA.

Pro-Forma statement includes:

  • Non-resident’s name
  • Non-resident’s account number
  • Rental property address
  • Gross rent for the year, an amount of tax withheld, remitted tax
  • Mailing address to send NR4 slips for CRA, and
  • Signature of non-resident if they are preparing the Pro-forma.

Deadline to submit the NR4 slips is March 31st, and a late-filed NR4 will result in a penalty of $100.

 

 Section 216 Tax Return: Non-Resident Rental Income Tax Return

Electing Section 216 gives the opportunity to deduct the expenses and capital cost allowance from the rental income and calculate and remit taxes on net rental income instead of gross income. This would help with cash flow due to reduced tax payments. For example, if you earn $12,000 gross rent per year and spend $5,000 in property management fees, landscaping or other relevant expenses, you may deduct the $5,000 in expenses from the $12,000 income. That leaves a remainder of $7,000 in net rental income. The tax amount calculated on the net rental income would be $1,750 at a 25% tax rate.

Expenses to claim against the gross rental income:

  • Advertising Cost
  • Property Tax
  • Insurance
  • Legal/Accounting Fee
  • Repair and Maintenance
  • Home Improvements
  • Salaries and wages (If you are making a payment to an employee who takes care of the rental property)
  • Traveling cost
  • Utilities
  • Management Fees

If an individual has remitted their 25% withhold tax on their gross rental income, and they were unaware of these deductions, they can file Section 216, which will allow them to receive a refund of the difference between the total tax payable and the non-resident rental income tax already remitted.

The Section 216 return is due by June 30th of the following year to which rental income applies.

Minimize the tax withheld amount (NR6 Form):

By filing an NR6 form, the payer holds 25% tax on net amount of monthly rent. Without filling an NR6, tax would be remitted at 25% on gross rental income.

When the CRA approves your NR6 form, it will allow the payer to submit monthly taxes on net rent income rather than their gross rental amount. Tax amount must be remitted on or before 15th day of the following month.

NR6 is due on or before the first day of each tax year or when the first rental payment is due.

Disposing of a rental property for non-residents:

If you are selling your Canadian rental property, you must apply for clearance certificate by filling T2060 form. This form includes the details of the property, sellers and buyer’s information, actual cost base, proceeds of disposition to calculate gain/loss on the property. T2062A form is required only when depreciation claimed on the building portions can be recaptured.

Important filing due dates:

  • NR4 Submit to CRA by March 31st
  • NR6 – Submit to CRA on or before the January 1st or before the date first rental payment due. You can file an NR6 past this date and CRA may approve.
  • Section 216 Income Tax Return – Two years to file to pay tax on the net rental income
  • Section 216 Return if NR6 filed – June 30th of the following year

Contact Us

If you are non-resident and own, or plan to own, a rental property in Canada, you can see from above that the requirements around non-resident rental income tax return can be quite specific and complex. At Think Accounting, we have several non-resident clients with Canadian rental properties whom we help out with their tax planning and annual tax filings. Reach out to us at info@thinkaccounting.ca or 905-565-0095 and talk to one of our team members about how we can be of assistance.

Thinkaccounting is Canada’s leading online accounting firm.
Thinking of moving your systems online? We’d love to help!
Book a complimentary call with us, and learn how we can work together
to simplify your workflow.
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GST/HST Audit – What To Expect, Audit Triggers & How To Handle It

Received a GST/HST Audit Letter – Fear not!

If you are the owner of a small business corporation and you just received a CRA GST/HST audit letter, do not panic. In one of our earlier posts, we talked in general about navigating a CRA audit. In this blog post, we’ll focus on GST/HST and go over what some of the audit triggers are, what to expect when you are going through the audit and how best to handle it.

How smooth or daunting the audit process goes, all depends on you.  To navigate the audit process smoothly, you need to understand why and how the CRA GST/HST audits are conducted. Knowing this, we can implement improved accounting practices to set-up your business for success.

CRA GST/HST Audit Triggers

CRA requires any business with income of over $30,000 to be a GST/HST registrant and collect GST/HST on all taxable sales. When a return is filed, it is systematically assessed for high-risk. At times, the selection can also be at random. Whatever the case is, the focus is to identify for evidence of non-compliance and common filling errors.

Some of the common audit triggers are:

  • Reporting significant sales or ITCs (input tax credits) in your initial years; CRA likes to conduct audits in initial years to ensure compliance from early stage.
  • Deducting large business expenses – automobiles, meals and entertainment, interest, home office expense are favorites of CRA to dig deeper into.
  • Revenue discrepancies between T2 and HST return filed.
  • Recurring losses – losses can happen and that’s all right – as long as you maintain proper documentation.
  • Operating in a cash-intensive industry – restaurants, repairs shops, construction, transportation – if you are in ant on of these industries expect CRA to give you extra love right out the gate.

…and the list goes on.

CRA GST/HST Audit Process – What To Expect

If you are reading this, chances are, you have already been selected and received “The call” from CRA – which is the initial step in the process.  The auditor contacts you to inform about the audit and request documentation through an official letter.

A typical letter usually asks for:

  • Banking records for all business accounts including bank statements
  • Detailed general ledger
  • Detailed listing of the GST/HST collected and input tax credits claimed
  • Sales and purchase invoices
  • Lease/purchase/sales agreements for any vehicle or capital assets leased, bought or sold

The business owner is required to provide all requested documentation within the 30-day period. Once the auditor receives and reviews the provided documents, additional documents may be required. At times, auditor may even request to visit your location for a more thorough review.

After the examination, an official letter is issued discussing their findings and final reassessment. Worry not, even this reassessment can be appealed if you feel the auditor misinterpreted. CRA allows you to file a GST/HST objection 90 days from the date of the reassessment, giving you enough time to gather additional information on auditor’s initial findings.

 You Got “The Call”, Now What? How To Handle It?

As soon as you become aware of the GST/HST audit, be prepared. What this entails is ensuring that the books are up-to-date. This also includes making sure all transactions contain the necessary information as support. Take this time to also identify any unique or rather large transactions that occurred this period as they will likely be the focal point of the audit.

For example, a retail shop selling graphic t-shirts in B.C. decides to target customers outside the province by launching their website in January. The website attracts customers from the States and Ontario.  The volume of sales from the two new customer base is 10 times the volume of sales from B.C. In this case, you would want to ensure that appropriate tax rates were set-up and used for the new customer base, and customer address is properly displayed on each invoice.

During the Audit: telephone discussions and on-site review

It is normal to feel scrutinized and at the edge when taking to a CRA auditor, that’s the nature of an audit. However, knowing fully well that nothing is reported incorrectly in your books should put you to ease. When dealing with a CRA auditor, be honest and prudent. Provide requested information to the auditor, answer all the auditor questions to the best of your ability and explain why one approach was chosen over another.

Additionally, although you may be hesitant to do this, request a follow-up meeting with the auditor to discuss their findings in person. A follow-up meeting is in your best interest as most of the technical issues can be resolved when there is open discussion. Therefore, what is formally reassessed in the final letter may only be a fraction of auditor’s initial findings.

This last but pivotal step also aids in preparing for the appeal process, if you decide to go that route. If not, this will give you the opportunity to resolve any non-compliance issues and improve processes to avoid future audits.

Contact Us: Make GST/HST Filing Easier

Let’s be honest, staying on top of your GST/HST can get hard. But managing a business is tougher. Leave the tax filings to the professionals. Email us at info@thinkaccounting.ca or call any one of our team members at 905.565.0095 and see how we can make your life easier, so you can get back to thriving your business.

About Us

Think Accounting is a tech-savvy accounting firm based in Greater Toronto Area with offices in Mississauga and Oakville, helping ambitious and growth-focused business owners. We specialize in cloud accounting, tax planning, e-commerce accounting, corporate and personal taxes, sales taxes, cloud accounting systems implementation and other advisory services.

  

Thinkaccounting is Canada’s leading online accounting firm.
Thinking of moving your systems online? We’d love to help!
Book a complimentary call with us, and learn how we can work together to simplify your workflow.
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CRA’s Tax Filing And Payment Deadlines For 2019

Studies and surveys have indicated that every year a large number of Canadians either end up missing their tax filing deadlines imposed by CRA, or meet them at the eleventh hour. Besides the stress, missing tax filing or payment deadlines could be expensive and, in some cases fiscally risky.

Here are the some of the general timeliness for 2019 that can be circled in your calendars to take care of the tax filings and payments. 

Individual, Self-Employed and Deceased Income Tax Returns

Individuals – Most Canadians’ income tax and benefit returns are due on April 30th of the following year. For instance, the deadline for 2019 personal tax returns is April 30, 2020.

Deadline for payments for individual taxpayers: Unless certain specific circumstances exist and you are required to pay taxes by installments, your tax balance is also due by April 30th.

Self-Employed Individuals have until June 15th to file the income taxes. This also applies to their spouses.

  • Importantly, if there is a balance owing, it must paid by April 30th of the following year, even for the Self-Employed individuals and their spouses.

If you make instalment payments on your income tax or are required to do so, your payments are due four times throughout the year on the 15th of March, June, September, and December.

Deadline for filing and payment by deceased taxpayers or Terminal Return: For a person that dies between Jan. 1 and Oct. 31st included, their tax filing and payments follow the same April 30th deadline.

  • If a person dies after Oct. 31st, then tax filing and payment is due six months from the date of their death.

Deadline for filing and payment for deceased taxpayers who were carrying on a business at the time of death: If the death (of the person or the spouse /common law partner) occurred between January 1 and December 15 inclusive, the due date for the final return is June 15th of the following year.

  • If the death occurred between December 16 to December 31 inclusive, the due date for the final return is 6 months after the date of death. However, again, the CRA begins assessing tax on any balances owed on April 30th.

What happens if the deadlines fall on the weekend or the statutory holiday?: CRA considers your return to be filed on time if the CRA receives it by, or it is postmarked, midnight of the next business day. Simply put, if the deadline falls on a holiday or a weekend, the deadline moves to midnight of the following business day.

Corporate Tax Filing and Payment Deadlines

Corporate Tax Returns: Businesses have the option to observe a non-calendar fiscal year i.e. does not fall on Dec 31st. In either case, if they have a calendar or non-calendar fiscal year end, their Corporate Tax returns are due six months after the end of their fiscal year end. For e.g., corporate tax return for a corporation with a fiscal year-end of December 31, 2019 would be due by June 30, 2020.

  • You must pay any corporate tax owing within three months of fiscal year-end to avoid interest being calculated.

GST/HST filing deadline: For the monthly and quarterly GST/HST filers, the returns and the payment are due one month after the end of the reporting period.

  • For the annual GST/HST filers, the returns and the payment are due three months after the fiscal year end.

Interestingly, the businesses could have a different year end for corporate tax and GST/HST returns. For e.g., it’s possible to have a fiscal year end of December 31st, and GST/HST year end of November 30th. In that case, your annual GST/HST return shall be due by the end of February.

If the filing or payment deadline falls on a holiday or a weekend, the deadline moves to midnight of the following business day.

Payroll Filing and Payment Deadlines

Payroll Remittance due dates – The remittance due dates depend on the remitter type i.e. monthly, quarterly. For businesses on monthly remittance schedule, the payment is due by the 15th of the next month. Quarterly remitters’ payment is due by the 15th of the next month after the end of the preceding calendar quarter. For e.g. the remittance for the quarter of Jan 1 to March 31 is due by the April 15th.

T4 and T4A returns for businesses with a payroll account are due each year by the last day of February following the year .

And finally – why file on time?

The CRA imposes strict deadlines on Canadians for filing returns and payments. Failure to meet these deadlines can result in owing interest, fees, or penalties. As a taxpayer, it’s important to keep appraised of what the CRA expects and when. So, for starters, filing on time makes you avoid these interest and penalties. Some of the provincial benefits are administered through CRA. Federal benefits of Canada Child Benefits and GST/HST credits may be delayed if the returns are delayed or not filed. For Businesses, it could increase risk of audits or reviews in case of delayed filings. In essence, the taxman is not happy when he does not get his payments on time.

Contact Us

If CRA’s tax filing and payment deadlines have you worried, get in touch with our team at Think Accounting. Visit us at www.thinkaccounting.ca, email us at info@thinkaccounting.ca or give us a call at 905-565-0095.

  
Thinkaccounting is Canada’s leading online accounting firm.
Thinking of moving your systems online? We’d love to help!
Book a complimentary call with us, and learn how we can work together to simplify your workflow.
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Fintech in Accounting: Bookkeeping Automation With Receipt Bank

Receipt Bank (“RB”) is one of the most popular online accounting software tools of modern accountants and business owners spearheading the trend of fintech in accounting. Traditionally, business owners would wait until the end of their bookkeeping period, (which could be monthly, quarterly, or even annually) to get their receipts to their accountants. This was quite inefficient as the accountants would not be able to do much work until they got the physical receipts. However, thanks to Receipt Bank, this has changed, and now clients can instantaneously transmit the receipts.

Receipt Bank offers multiple ways to submit receipts for effortless bookkeeping, which are read by its highly effective AI-powered optical character recognition (OCR) technology. It extracts all the necessary items from the receipt – such as, date, vendor name, total amount, tax amount, payment method and category.

Receipt Bank: Fintech in Accounting in Action

There are multiple ways to submit a receipt to Receipt Bank:

  • Mobile App: By far, the easiest and convenient way to submit any receipts. Download the app on your Apple or Android phone and log in using your credentials. Click on the camera icon and start capturing all the physical receipts!
  • Upload – Log in from your computer and basically drag and drop the invoices here and watch the magic happen!
  • Email – Every user ID for each account will have a unique email address to which you can just forward your receipts, and Receipt Bank will process it.
  • PayPal – Receipt Bank can integrate with your PayPal account, and it will directly extract all the transactions.
  • Dropbox – Once you connect Receipt Bank to Dropbox account, it automatically pulls any receipts added there for processing.
  • Invoice Fetch – There are over 1,000 suppliers which you can connect with Receipt Bank. Anytime an invoice is ready, it will automatically pull it into the system. Invoice Fetch is a great feature, especially for monthly recurring bills like telephone, internet, utilities and many more!

Why You Should Utilize Receipt Bank’s Fintech In Accounting

There are several reasons as to why a business owner should adopt Receipt Bank. Fintech in accounting isn’t just spiffy, it also saves you taxes! Just a few specific benefits worth mentioning are:

  • Capture all expenses – It is very common for business owners to end up losing their receipts or they fade out after a few days. Result is a huge loss on the business’s end as they won’t be able to claim those expenses (especially GST/HST); as in case of an audit from the CRA it would result in disallowing of expenses without proof. This way a business will end up paying higher taxes.
  • Claim Input Tax Credits – Thanks to RB’s remarkable AI technology that it can capture the tax amount with high accuracy. This way the business can be assured that it is not losing on claiming the tax expensed while filing for GST/HST return.
  • CRA Audit Proof – Canada Revenue Agency requires that in case of an audit or review that the business documents may be available until six years from now. In the event of absence of proof, the CRA can disallow the business expenses that may have been claimed earlier. RB securely stores the receipts for a minimum ten years! So, if such an event occurs, you are just few clicks away from pulling all the necessary receipts.
  • Searchable – There are many circumstances when you would want to look up a particular invoice from a certain vendor. If one was to go through the physical invoices, it could take forever to look up for the intended one. However, with the advanced search feature in RB, you could search receipts by different supplier names, date period, amount, invoice number and a whole lot more!
  • Expense Reports – Receipt Bank enables business owners to add their staff as users and process expense reports for reimbursable expenses.

Receipt Bank’s Cloud Accounting Software Integration

Receipt Bank integrates with almost all the major cloud accounting software such as Xero, QuickBooks Online, Sage Online, etc. Once integrated, Receipt Bank effortlessly transmits the receipt over to the accounting software. Let’s take QBO as an example:

  • Save the Data Entry – With all the data extraction done by Receipt Bank’s technology, you would need to eyeball the date, vendor, amount, category and push the receipt to your books. You can also get fancy by setting up rules for specific suppliers. For example; you can set up RB to automatically apply category as Fuel for any Petro Canada receipts, its tax rate, payment method, etc.
  • Save Time – By avoiding the data entry, there is a lot of time saved on the bookkeeping.
  • Source document attachment – There are many instances where you look at a transaction and wish that you could see the actual receipt to verify any information. Thanks to Receipt Bank that is now made possible. All those receipts that are pushed from Receipt Bank will be attached to each transaction and are easily accessible.
  • Expense Reports – Expense reports published from Receipt Bank can easily be processed as such in Xero or QBO.

Alternatives to Receipt Bank

There are other software out there which provide similar benefits:

  • Hubdoc – Hubdoc’s main feature is it’s bank and statement fetching capability. However, it also has the ability to extract data from receipts and push that into the cloud accounting software.
  • AutoEntry – Very similar to Receipt Bank and one worth exploring.

To conclude, there are several advantages to adopting fintech in accounting with the advancement in cloud accounting technology, and tools like Receipt Bank amplifies such benefits. It’s a must use tool at our firm and our clients love it!

Contact Us

Get in touch with our team at Think Accounting so we can help you take care of you by streamlining your business workflow and you can focus on growing your business. Visit us at www.thinkaccounting.ca, email us at info@thinkaccounting.ca or give us a call at 905-565-0095.

  
Thinkaccounting is Canada’s leading online accounting firm. Thinking of moving your systems online? We’d love to help! Book a complimentary call with us, and learn how we can work together to simplify your workflow. Book A Call
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