Posts Tagged ‘small business’

Perspective on cash flow

A 26-year financial services veteran’s perspective on cash flow

Posted on: October 19, 2017 | Author: Myron Feser, vice president of sales, ATB Financial

Cash is king. For no one is this more true than for the entrepreneur who’s working to get their new business off the ground. Learning how to manage cash flow is a crucial milestone on the road to success.

Cash flow is the health of your company. Access to working capital will allow you to provide stability during tough times, while having cash available helps your business grow and thrive during prosperous ones. The ability to handle the ups and downs of any economic cycle also shows the bank that your company is well managed!

Of course, like many things involved in entrepreneurship, it isn’t as easy as it sounds. In fact, effectively managing cash flow can be downright overwhelming, especially if you’re just starting out. It’s always a good idea to engage financial experts, like a business accountant, to help you. As your business grows, you may even want to think about bringing in someone to orchestrate your cashflow full-time.

Whether you’re managing your finances on your own or if you’ve brought in an expert, the next step is to understand your business cycle. That means knowing how quickly the goods or services you provide can be turned into cash. For example, if you have a manufacturing business your cycle might look like: Take raw materials -> manufacture product -> sell the product -> turn the receivable into cash.

The shorter the cycle, the better it is for your business as you’ll have more cash on hand. Even shortening your business cycle by one day can have a significant impact on your company’s working capital position.

Again, having working capital is crucial to building a successful business. Most businesses don’t fail because they aren’t profitable. They fail because they run out of cash. Keep an eye on your cash and your business cycle, and your business should thrive!

Myron’s top cash flow tips:

Entrepreneurs often underestimate how much working capital is required to grow their business. Talk to your banker and figure out how much you need.

Finance any capital purchases like capital assets so that you don’t tie up too much of your working capital.

Make sure you understand your finances and cash flow—even if you do bring in outside help. Monitoring your cash flow on a daily or weekly basis is critical.

Develop strategies to make your business cycle as short as possible.

Definitions

Working capital: the money you use for day-to-day operations. Current assets minus current liabilities.

Capital purchases: significant purchases that a company makes as an investment to acquire or improve long-term capital assets.

Capital assets: assets owned by the company, like buildings or equipment.

Business cycle: how fast you turn your inventory, product or service into cash.

FEDS CLARIFY INCOME SPRINKLING PROPOSAL

Advisor.ca http://www.advisor.ca/tax/tax-news/feds-clarify-income-sprinkling-proposal

The federal government provided revised income sprinkling measures, offering clarity about how its controversial changes to the Income Tax Act will be implemented.

Specifically, the feds provided bright-line tests for determining whether family members are significantly involved in a family business, and thus are excluded from potentially being taxed at the highest marginal tax rate (known as the tax on split income, or TOSI).

A key requirement is “regular, continuous and substantial” contribution to the business, says Walsh. Family members who fall into these categories won’t be subject to TOSI:

Family members who fall into these categories won’t be subject to TOSI:

  • The business owner’s spouse, provided the owner meaningfully contributed to the business and is aged 65 or over. This aligns with current pension income splitting rules.
  • Adults aged 18 or over who have made a regular, substantial labour contribution – generally an average of at least 20 hours per week – to the business during the year, or during any five previous years. The measure recognizes that post-secondary students may step back from the business during the school year. Hours will be prorated for seasonal businesses.
  • Adults aged 25 or over who own 10% or more of a corporation that earns less than 90% of its income from services, and isn’t a professional corporation. This is consistent with current tax rules concerning capital, and recognizes that some service-based or professional-based businesses often don’t require significant capital to do business. (Service- or professional-based businesses must pass the labour test, above). Business owners have until Dec. 31, 2018, to adjust to this exclusion.
  • People who receive capital gains from qualified small business corporation shares and qualified farm or fishing property,if they wouldn’t be subject to the highest marginal tax rate on the gains under existing rules. This is consistent with the feds’ withdrawal in October of the lifetime capital gains exemption measures.

Family members aged 25 or older who don’t meet any of these exclusions would be subject to a reasonableness test to determine how much income, if any, would be subject to the highest marginal tax rate.

In certain cases, adults aged 18 to 24 who have contributed to a family business with their own capital will be able to use the reasonableness test on the related income.

In a conference call, a spokesperson for Finance Minister Bill Morneau said CRA audits will require proof when it comes to claiming an exemption for a family member.

Employment Insurance Benefits for Self-Employed People

Self-employed Canadians are able to voluntarily access Employment Insurance (EI) special benefits. There are five types of EI special benefits:

→ Maternity benefits (15 weeks maximum) available to mothers of a new born child. It covers the periods surrounding birth;

→ Parental / adoptive benefits (35 weeks maximum) available to adoptive, biological or otherwise legally recognized parents while they are caring for a newly adopted or newborn child. It may be taken by either parent or shared between them;

→ Sickness benefits (15 weeks maximum) which may be paid to a person who cannot work because of injury, sickness, or quarantine;

→ Compassionate care benefits (26 weeks maximum), that may be paid to persons who have to be away from work temporarily to provide support or care to a family member who is gravely ill with a significant risk of death. The benefits can be shared between different family members who applied and are eligible to receive them; and

→ Benefits for parents of critically ill children (35 week maximum): available to eligible parents who take leave of work to provide care or support to their critically ill or injured child. Either parent is eligible or the benefits can be shared.

You are eligible to access the EI special benefits if you:

→ Are a self-employed person or you work for a corporation but cannot access EI benefits because you control more than 40% of the corporation’s voting shares; and

→ Are a Canadian citizen or a permanent resident of Canada.

Self-employed Canadians are required to voluntary opt into the Program at least one year prior to claiming benefits. Premium payments begin in the tax year in which they enrolled in the EI Program. Register to participate in the EI program through “my service Canada account.”

Self-employed persons can opt out of the EI Program at the end of any tax year, provided they have never claimed any benefits. If a claim for benefits was made they have to continue to contribute to the EI Program on their self- employed earnings for as long as they are self-employed.

Self-employed Canadians that opt into the EI Program will pay the same EI premium as salaried employees (maximum of $858.22 in 2018). She or he will not be required to pay the employer’s portion of the EI premiums.

Per Diem Meal Allowance

In a recent Technical Interpretation, CRA noted that an employer-provided meal allowance will not be taxable where the following conditions are met:

→ It must be a reasonable amount;

→ The allowance is received to cover expenses while travelling away from the metropolitan area or the municipality where the employer’s establishment is located, at which the employee normally worked or to which the employee normally reported;

→ The travelling is done to perform the duties of an office or employment.

As a general rule, CRA allows an employer to use $17 (including the GST/HST, and PST) per meal as a reasonable over-time meal allowance. The rate is stated in the CRA Guide T4130.

CRA usually considers an allowance to be reasonable if it covers the out-of-pocket expenses incurred by an employee who is travelling for employment purposes.

Director & Personal Liability

In a Tax Alert titled “Abuse of Source Deductions and GST/HST Amounts Held in Trust” CRA warned that businesses must hold source deductions and GST/HST amounts in trust for the government. Penalties and interest and possibly personal liability for the directors will be the result if this is not done.

Federal legislation allows CRA to collect unpaid amounts through garnishments, assessments of the directors, seizure and sale of the assets of the debtor corporation, an assessed director or a sole proprietor, and any other means of recovery.

Taxpayers who have not complied with this requirement may make a voluntary disclosure to CRA. The taxpayer will not be penalized or prosecuted if valid disclosures are made before CRA begins any compliance action against the taxpayer.

Taxpayers may only be required to pay the in trust amounts owing plus interest.

TAX ALERT – GOVERNMENT SIMPLIFIES MEASURES TO REIN IN INCOME SPRINKLING

On December 13, the federal government released legislation to simplify restrictions on income sprinkling, proposed to go into effect January 1, 2018. These revisions indicate they have listened to feedback during the consultation period, by providing more certainty to taxpayers through the introduction of “bright-line” tests to automatically exclude some family members, and allow income sprinkling for those members who make sufficient contributions to the business.

A summary of what the revised legislation contains can be found at https://www.bdo.ca/en-ca/insights/tax/tax-alerts/

 

What to expect when the Canada Revenue Agency calls you

It is possible that the Canada Revenue Agency (CRA) will contact you by phone for legitimate tax reasons.

During such phone calls, the CRA officer must validate your identity and therefore will ask for certain personal information, including your date of birth, your address, and in the case of a business some account specific details.

The CRA will not:

The CRA may:

·         ask for information about your passport, health card, or driver’s licence

·                  validate your identity by asking for certain personal information, including your full name, date of birth, your address and, in the case of a business, details about your account

·         request personal information by email

·         notify you by email when new mail is available for you to view in CRA secure portals such as My Account, My Business Account or Represent a Client

·         email you a link requesting you fill in an online form with personal or financial details

·email you a link to a CRA webpage, form, or publication in response to your telephone enquiry

·         send you a link to your refund by email or text message

·send you a notice of assessment or re-assessment by mail or notify you by email when it is available to view in My Account, My Business Account, or Represent a Client

·         setup an in-person meeting in a public place to take a payment

·ask for financial information such as the name of your bank and its location

·         demand immediate payment by prepaid credit card

·request payment for a tax debt through any of the CRA’s payment options

·         threaten with immediate arrest or prison sentence

·take legal action to recover the money you owe if you refuse to pay your debt

 

Before giving money or personal information:

  • verify the caller’s authenticity
    • You can note the caller’s name, phone number, and office location and tell them that you want to first validate their identity.
    • You can then verify that the employee works for the CRA or that the CRA did contact you by calling the CRA at 1-800-959-8281 for individuals or 1-800-959-5525 for business.
  • verify your tax status and make sure your address and email are up to date
    • You can confirm this information with the CRA either online through the CRA secure portals, or by calling the CRA at 1-800-959-8281 for individuals or 1-800-959-5525 for business.

When in doubt, ask yourself

  1. Did I file my tax return on time? Have I received a notice of assessment or re-assessment indicating a tax balance due?
  2. Have I received previous written communication from the CRA by email notification or mail about the subject of the call? Does the CRA have my most recent contact information, like my email and address?
  3. Is the requester asking for information I would not provide in my tax return or that is not related to my debt with the CRA?
  4. Did I recently submit a request to make changes to my business number information?
  5. Why is the caller pressuring me to act immediately? Am I confident the caller is a CRA employee?

CRA phone interactions generally come after written communications, such as an email notification to check your online mail or a letter, and are made under special circumstances. For example:

  • If you have a tax debt, a collections officer may call you to discuss your case and request a payment. In this case, you may need to provide some information about your household financial situation.
  • If you have not filed your income tax and benefit return, a CRA officer may contact you by telephone to ask you for the missing returns.
  • If the CRA has questions about your tax and benefit records, or documents you have submitted, a CRA officer may contact you by phone for further discussion.

To report scams

To report deceptive telemarketing, contact the Canadian Anti-Fraud Centre online at www.antifraudcentre.ca or toll free at 1-888-495-8501. If you believe that you may be the victim of fraud or have given personal or financial information unwittingly, contact your local police service, financial institution, and credit reporting agencies.

 

 

Business Investment Loss – Denied

In a Tax Court of Canada case, a mother had guaranteed the business loans for her son’s corporation. Unfortunately, the corporation failed and subsequently the mother paid off the loans. The mother claimed business investment losses for the amounts repaid.

Her only motivation for the guarantee was to assist her son’s business. She did not charge a guarantee fee and thus there was no possibility of investment income.

The Tax Court disallowed the business investment losses for the mother because she did not make the loan guarantees to earn income. Solution – Charge an annual fee.

CRA Project – Third-Party Information Request to disclose Canadian Square sellers

CRA requested Square (service that allows you to accept  payments, using a reader that plugs into your iPod touch, iPhone, or iPad) to disclose information about Canadian Square sellers who processed greater than CAD$20,000 on Square during any of the calendar years 2012, 2013, 2014 or 2015; or during the period of January 1, 2016 to April 30, 2016.

Square will share with the CRA the following information associated with the Square account:

 The name(s) and address(es) associated with the seller’s Square account
The associated financial institution(s) name, transit number and account number
The number of Square Readers and Stands linked to the account
The total monthly aggregate of transactional information between the seller and their customers
The number of employee permissions granted through employee / location management functionality
Square encourages affected sellers to verify their tax statements with the amounts indicated on their Square Dashboard to ensure they have accurately reported their commerce activities.

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1511 10 Street SW Calgary, AB T2R 1E8
Phone: (403) 220-1570

Email: Padgett Calgary

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