A lot of new business owners have no experience in accounting or bookkeeping. This lack of understanding often leads to some very common mistakes.
The first mistake is to just ignore the bookkeeping and accounting for several years until you eventually find time and/or money to deal with it. In these circumstances owners are prompted to get compliant after the CRA sends demand letters ordering them to file outstanding returns. From my experience working with clients, at least 10% of small businesses file their first returns late. This can lead to unnecessary penalties and interest, which can often times be more costly than the actual bookkeeping.
Another mistake small business owners often make is that they engage a bookkeeper without knowing their bookkeeping needs. Bookkeeping can performed on a continuous basis (daily) or periodically whenever a report is required and the costs range greatly for dealing with the same amount of data. Continuous bookkeeping is the most expensive option. For some companies, having daily up-to-date records is necessary to keep an accurate portrait of the company’s financial position. Bookkeeping cost savings increase the more infrequent it becomes (monthly vs quarterly vs annual). When appropriate, annual bookkeeping is the most cost effective and efficient way, especially when done through a streamlined software system, such as CaseWare. QuickBooks and Sage are normally used for ongoing bookkeeping files and are not as efficient for data entry.
Some small businesses have several employees, receivables collection activity, payables, and relatively numerous transactions that make the bookkeeping and frequent bank reconciliations necessary. Without up-to-date books and records, owners wouldn’t know their profitability, and more importantly, their available cash flow. For businesses in this category they would want to have their bookkeeping performed on either a continuous basis, or a frequent periodic basis (weekly, semi-monthly, monthly).
For small businesses that don’t have employees and their transactions don’t necessitate constant bank reconciliations, such as realtors, period bookkeeping is the best match. If they are reporting annually for GST they can leave their bookkeeping to the end of the year. If they are reporting quarterly for GST then they should look into switching to annual filing. If your annual sales are less than $1.5 million, you can opt for annual filing (note – quarterly installments still apply). Opting for quarterly GST filing when it is not required increases your bookkeeping costs with no real benefit.
Lastly, it’s important to remember that bookkeeping solutions can be flexible. For example, if someone is required to file monthly for PST, they might be better off using continuous bookkeeping just for their sales. The bulk of the cost savings of annual bookkeeping can still be achieved when recording the expenses. There are numerous businesses that benefit by using a hybrid bookkeeping system.
Call us today if you would like to discuss your bookkeeping options with a Public Business Accountant. We can help you develop the right bookkeeping solution to meet your needs.
Complete Accounting Solutions – Public Business Accountants (PBA), is 1st in the Three Best Rated list for Best Accounting Firms in Surrey.
“Best Accounting Firms in Surrey, BC
Handpicked Top 3 Accounting Firms in Surrey, BC. We check customer reviews, history, complaints, ratings, satisfaction, trust, cost and their general excellence. You deserve only the best in life!”
Complete Accounting Solutions is honored to receive this recognition and would like to thank all our dedicated clients for making it possible.
Our client reviews can be found at http://www.completeaccounting.ca/results/reviews/.
Should you go with a Holding Company and PREC arrangement?
Professional Real Estate Corporations (PRECs) can be an ideal part of a tax planning strategy for successful realtors. However, a limitation on investments prevents realtors from using their PREC to directly invest. I’ve found that realtors typically focus on real estate in their investment portfolio and this restriction poses a problem. When starting a PREC, it’s a good idea to seriously consider setting up a Holding Company at the same time. If structured properly, a realtor can still reinvest their small business profits without triggering personal taxation.
How should realtors take money out of their related companies?
For Holding Companies with passive investments, such as rental properties, the passive tax rates apply. These higher tax rates generate a Refundable Dividend Tax on Hand (RDTOH) balance, which is refunded when the dividends are paid out to the shareholder. A realtor’s tax planning strategy should focus on allocating personal income from the RDTOH account balance first, and secondly, from any Capital Dividend Account balance. The CDA accumulates the 50% non-taxable portion of capital gains and can be paid out tax free to the shareholder; however, an election must be filed correctly in order to avoid severe penalties. It is easy to incorrectly file an election so it is highly recommended that you use a designated accountant, such as a Public Business Accountant, PBA.
If a realtor still needs additional income beyond the RDTOH and CDA account, then they need to decide on whether to declare T4 management fees or T5 dividend income.
A realtor’s tax planning strategy can also be impacted by their future activities and mortgage requirements. It’s important to coordinate the tax planning with a good mortgage broker. Doing so will save yourself a lot of hassle and could get you a better mortgage rate.
Contact us if you would like to arrange an appointment with a PREC/Hold Co. accounting expert.
If you do not live in Canada but have a rental property here, the tax reporting requirements can be a challenge. If the rental property is not setup correctly you could be subject to significant penalties. Having a Public Business Accountant involved prior to the start of your rental could save you a lot of money and worry.
Non-residents of Canada with rental property are subject to special tax remitting and filing requirements. Foreign residents are required to remit 25% of their gross rents (before expenses) as a tax withholding unless they have filed a NR5 – Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld for Tax Year. Failure to do so can result in penalties. Since most rental properties are not very profitable from rental revenues, filing the NR5 can be very beneficial from a cash flow standpoint. This form must be paper filed.
After each year, non-residents with rental property that choose not to remit the standard 25% are also required to file a tax return within six months of the year end. Any tax owing is due April 30th. This is a Section 216 return, not a regular T1 tax return. Like the NR5, these Section 216 returns must be paper filed.
If you have a profit on your Canadian rental property and pay tax, you are likely required to report the rental activity in your place of residence as part of your worldwide income. However, you would most likely be eligible to claim the foreign tax credit if your place of residence.
It was a great honor to receive this award for our Surrey accounting office. It’s a public testament not just about Complete Accounting Solutions as an accounting firm, but also the Public Business Accountant designation. Having a PBA firm stand out and win in an industry dominated by CPA firms is an outstanding endorsement. It really speaks to our professionalism, dedication to small and medium business owners and commitment to customer satisfaction. We hope this award will encourage today’s accounting students to consider the PBA designation.
We would like to thank the Consumer Choice Award team that put this wonderful event together.
I would also like to thank my dedicated team that made this award possible – Muneeb Ehsan, Barbara Munn, Crystal Araujo, and Balwinder Kaur.
Complete Accounting Solutions is proud to announce it is the winner of the 2016 Consumer Choice Award in the category of Accountants – Small – Medium Business – South Mainland for the Greater Vancouver Area. We are Professional Business Accountants (PBA), members of the Surrey Board of Trade 2014-2016, and maintain an A+ BBB rating.