The government is changing some of the rules regarding the exempt status of income earned inside an insurance policy. The change is effective January 1, 2017.
Life insurance inside a corporation has been an effective tax planning strategy. The changes will reduce the effectiveness of the tax planning. However, existing policies issued before January 1, 2017 will quality for grandfathering.
As a result of these changes it is a good idea to put your policy in place before the deadline. Do not wait for the last minute start the process now. Even if you do not have extra money today to invest inside your insurance policy it can be beneficial to set it up now so
Start by calling your life insurance agent. Ask about corporate owned life insurance for tax benefits.
If you provide a loan or a loan guarantee to a business it is essential that there is a written agreement even if it is for your spouse or child. I am not talking about whether they are trustworthy. That is whole other discussion. I am just talking about the tax consequences if it is not paid back.
A good illustration of this is a Tax Court of Canada case. In this situation a mother guaranteed a business loan for her son’s corporation. She tried to deduct the losses on her tax return. It was denied. She had no expectation of investment income so no deduction is allowed.
What could she have done differently? She could have had an agreement that the corporation had to pay her an annual guarantee fee. This would have made all the losses deductible.
Another common situation is a loan. The same principle applies in this situation as well. There needs to be a loan agreement detailing the terms. The interest rate needs to be specified.
When people go into these arrangements for relatives they still need a written agreement or tax deductions will be lost.
The Allowable Business Investment Loss (ABIL) can be used for these losses but there is a requirement that there was a potential of investment income. The written signed agreement provides you the evidence needed.
I believe that the average person knows how to spend their money better than the government. For that reason I want everyone to pay the least tax that is legally possible. Instead of voluntarily paying extra taxes so the government can give it to their favourite cause or to subsidize some business that competes with my clients, I prefer to use that money for my family and to give to the charity of my choice.
I have clients that were not doing their taxes or bookkeeping correctly costing them Tens of Thousands of dollars. I corrected these mistakes resulting in refunds of up to $20,000. I am not talking about wealthy people. This is significant money for them. The sad part is there are limits to how many years we can go back to collect these refunds. It is 3 years in most cases and up to a maximum of 10 years in some situations.
A lot of people start a business without a lot of knowledge beyond their area of expertise. This costs them money. Sometimes they will concentrate on the business and not worry about the paperwork. It is easy to justify spending time on finding new clients and getting work done. Doing all the paperwork may not be as exciting or fun. But it needs to be done. I know some people that are months behind in sending out invoices. If you do not invoice on time it can cost you. Customers may not remember what you did and be annoyed at getting a larger bill all at once. Many find it more palatable to receive smaller invoices monthly or weekly. A customer might go bankrupt and you may never collect. This is work you have already completed but did not get paid. Can you afford to work for free? You are losing money you already earned.
If you are not compliant with CRA rules, it could cost you a lot in interest and penalties. The first penalty is bad enough but the next one could be doubled. Repeat offenders can get very high penalties.
If you do not keep the bookkeeping up to date, how do you know if you are making a profit?
If you have several products or services do you know which one is making you the largest profit?
Are you calculating GST correctly? If not you may be paying more than is necessary.
Are you calculating and paying payroll source deductions correctly and on time? Errors and late filing can cost you in penalties and interest.
Presentation Topics we are going to discuss :
- The legal setup of your business.
- Registration with CRA and tax compliance.
- Avoiding Audits
- Avoiding Penalties
- Hiring Employees and Sub Contractors
- Record Keeping
- What are Debits and Credits
- Paying Yourself
- Paying the Least Tax (Tax Planning)
WHEN: Thursday May 14, 2015 8:30 am to 12:30 pm
WHERE: Atlas Business Centre 7633 50 ST Edmonton AB
PRICE: $97.00 plus GST
The Everyday Communities
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The Padgett Awards Night was on November 18, 2014. I am pleased to announce that I received several Awards:
2014 Leaders Club
This award is for the top 10 offices in Canada
All Star Team 2014
This award is for the top office owners in Canada. The Office Owner of the Year is selected from this group.
2014 Office Owner of the Year
This is the top award in Canada.
Vickers Award 2014
I received the Vickers Award for outstanding revenue growth.
November 17 to 19 I attended the Padgett Annual Tax Update Seminar in Montreal. Margaret Riggin has been leading the tax seminar for a number of years. Margaret Riggin, CPA, CA is one of Canada’s top tax accountants and has been a frequent instructor and lecturer for York University and the Chartered Professional Accountants of Ontario
I always get a lot from these seminars and the discussions afterwards.
HOW TO START A SMALL BUSINESS IN ALBERTA
So you want to start a small business now what. First decide if you want to be a sole proprietor, have a partnership, or a corporation. You may not be familiar with the terms and the legal relationship so I will discuss each briefly in the following document:
If you have a corporation you need to register the corporation for a business number but not necessarily for GST. Even a sole proprietor or partnership may need a business number. The following document provides some explanation:
When you hire employees you have additional obligations. First you need a payroll account with CRA (Canada Revenue Agency). See Part 2 for details of registration. There is a potential trap with hiring subcontractors. The following document provides additional information:
The next part discusses how to keep records and how long they need to be kept and in what format:
How do you pay yourself is a question I get quite often. There are tax and other consequences. The following document describes some the of basics: