We at TrueVista Accounting are often asked the question “can’t I just hire him / her as a subcontractor?” Now let’s be honest, the reason for this is usually because the business owner doesn’t want to pay the benefits nor deal with stiff Labour Standards Codes; it can be difficult to terminate an underperforming employee.
However it does matter legally and with CRA.
Employers are liable for the actions of their employees, while with subcontractors, the business owner is responsible for carrying out the actions under that particular contract. Employees also (as previously stated) have certain rights under the Labour Standards Code, vacation time and statutory holidays just to begin.
CRA’s policy is that where there is “common intention” between the parties, there should be a written agreement, ie contract on the scope of work. The subcontractor must supply the business with an invoice for goods and services supplied, for payment by the business.
However, even if there is a written agreement and an invoice is provided, there are certain rules on the difference between an employee and a subcontractor. Ask yourself a few of these questions when “hiring” an individual as a subcontractor:
These are just some of the questions posed by CRA. If you answered the business instead of the contractor to the majority of these questions, you are hiring an employee according to CRA, NOT a contractor. Realize there are ramifications with hiring a subcontractor as well – possibly T5018’s and Worker’s Compensation considerations.
What are the consequences of not claiming the work is being performed as an employee and hiring an individual as a contractor instead? CRA will charge the business CPP and EI for BOTH the employee and the employer for the time period in question and the business will incur interest and penalties. This could result in $1000’s owing
Still not sure? If you would like to have the complete CRA employee versus contractor questionnaire, please contact us at TrueVista Accounting Solutions and we will be happy to forward it along to you.
New to running a payroll? Need help in setting up / paying employees and CRA liability balances? We’re here to help. QuickBooks can easily do this for you and we can train you how. Need an outside source to provide payroll? Have a discussion with us at TrueVista Accounting and we can help you determine what your best options are.
Well it’s that time of year again, getting ready to prepare year end documents, including T4s. To ensure there are no surprise amounts owing to CRA when you prepare the T4s (due to CRA by February 28th) you should to reconcile your payroll before January 15, 2015. If there are any errors for the 2014 year, they can be encompassed in your final 2014 payment – due January 15th, 2015. Here are a few tips to help you along:
Preparing for payroll tax forms and final January 15th payments
Make sure that your T4 summary as of December 31, 2014 is in good shape so that there are no red flags when you submit your paperwork to the CRA , which could in turn cause a PIER Review or worse, an Audit which is not what anyone needs or wants.
The T4 Summary will show the total that should have been remitted to CRA for the 2014 calendar year. Add up all payroll liability cheques issued to CRA from February 2014 (for the January 2014 payroll) to December 2014 (for the November payroll). Take the total on the summary and subtract your 2014 CRA cheque total to date (not including the January 2015 cheque you are about to prepare). The difference should equal the January 2015 cheque. If it does not, adjust your CRA December 2014 remittance and January 15th cheque accordingly.
Of course once all of this is completed your T4s are ready to be printed for employees and efiled to CRA, ahead of schedule.
Need help with this? You know who to call!!We are here to help.
Well we haven’t had the snow as bad as this picture but I am sure that everyone is feeling the same – what will this Wednesday bring? Surprise – SNOW!!!
It’s February and FINALLY a chance to write on my blog. It has been a VERY busy January. Now we are into year end preparation mode for our clients. The best way to understand your financials and to cut the cost with your tax accountant is to have your year-end financial statements in good order. As I always say your tax accountant should be doing TAX work for you. This is their expertise. If they are spending a lot of time on bookkeeping and have given you a fixed cost on how much your taxes will be to prepare, they cannot take the extra time to look for tax savings. This is what the tax accountant should be doing, what their expertise is: preparing and giving advice on your taxes to keep the amount you have to pay to a minimum. So help make their job easier by having your financial statements as correct as you can make them. How to do that? Here are a few tips (more to follow on future blogs). Let’s start with the balance sheet:
There is a stand-by rule that if you have reconciled and can account for every item in your balance sheet then your income statement should be pretty much correct (although we will review a few items to look for on that as well). Let’s think about this. Your bank account is a balance sheet item. Cheques usually relate to expenses, deposits to sales. If your bank account on your balance sheet is wrong, then the income statement would be as well. Tips on how to review and adjust to ensure your balance sheet is correct:
Bank Account – Limited Companies MUST have bank reconciliations completed. Check for any outstanding items on your bank ledger that should not be there. Are there cheques that have not been cashed that are old (two months or more)? Is there a reason they haven’t been cashed? Could it be a double posting on your part (you have overstated an expense and a journal entry will be required to remove). Are there bank deposits that are more than a few weeks old that have not cleared? This should never happen as bank deposits that are recorded in your financial statements should definitely hit your bank account within a few days. Research and adjustments (if necessary) will have to be done.
Accounts Receivable – Run an aged accounts receivable report. Are there any old invoices that you have sent out that you definitely think will not be paid? If so, write them off to bad debt. This will lower your net income figure and save you in taxes (both business and if you have an HST account, HST $$).
Prepaids – Have you properly accounted for any items that you have paid for in advance, for example business occupancy taxes, insurance, a deposit on an account (that is refundable – e.g. a Utility Deposit). If so and these items have a remaining balance, that will be expensed NEXT year, next years expense should be recorded on this year’s balance sheet in Prepaids. For an example, you paid an insurance premium on October 1st, for $1200. The insurance runs from October 1st to September 30th. Therefore if your year end is December you have paid for nine months in advance. $900 would be posted to prepaids.
Inventory – If you hold inventory an inventory count must be done at your fiscal year end. The adjustment entry to your inventory would be posted to your Cost of Goods Sold.
Get started on these items – more to come next week. If you need help, you know where to find us!
My Final Day in Guyana and I will miss it.
I have learned so much, and yet there is so much to see and learn yet from this country.
On a business side it has been interesting to learn how another country’s political system works. Guyana has a Prime Minister and a President with many ministries. The acronyms I am still trying to remember: RDO, DDO, MLGRD, RDC and the places I have spent the most time: NDC’s – Neighborhood Democratic Councils. There are 60 in all, I have visited 5 this mission of the twelve pilot NDC’s that will be learning QuickBooks and how to incorporate, what I feel, are its many wonderful attributes that will assist NDC’s in time saving, internal controls and reporting systems.
I have designed special receipts that will be used in collecting fees and taxes, through the help of the staff in the NDC’s. As I mentioned before, things here are fluid. What I envision for a client must be malleable to meet the client’s needs. They have graciously sat with me to go over their process and procedures they currently have, so that I can design a system that can meet their particular requirements while at the same time give them so much more. I have come away with an immense amount of knowledge and I hope that the individuals I have trained in QuickBooks and general accounting aspects related thereto have received as much. My vision, NDC Test Company, Documents and Reports, that I brought with me from Canada, have been adjusted and consistently refined thanks NDC Staff. I am very pleased to learn during this past week that NDC staff in various communities already know one another and will be networking their knowledge of QuickBooks to give assistance to each other when needed. Just be sure to follow the QuickBooks NDC Instruction Manual I have prepared for you!
Today is an important day. I am meeting with officials from MLGRD – the Ministry of Local Governments and Regional Development. Members of CRIP (Caribbean Road Improvement Program) will join me. The past two days I have gone from training staff at NDC’s back to the hotel to work on the presentation. I hope my 23 hours I have spent on power point, creating a test NDC for reports and forms (to be handed out) will be well received.
It has been a rough few days here in Guyana. It is their rainy season, but they have received much more rain than normal. For the past three days the rain has only subsided a little. The flooding in Georgetown has been grave, and yet people continue on with daily life as normally as they can. What struck me the other day: school children who were walking to school in calf high water, bare feet, caring their good school shoes with them. The brightly colored and smartly done school uniforms I will never forget.
Thank you to all the staff in the NDC’s I have met. You have been more than gracious towards me and I am honored to have met you. Hopefully we will meet again in a few months to continue the work we have started.
Take care of ALL of the animals I have seen during my travels to your communities. I assure you not all Canadians are as fanatical as I am about them. I will miss the donkeys, horses, cows, steers, horses, foals, sheep, many dogs and the one parrot I have seen either along or on the road.
It is less than two months away until Christmas. If you are like me, everyday living can be expensive enough without the addition of Christmas costs. Now don’t get me wrong I LOVE giving gifts, but I like them to be the appropriate and appreciated. So how can you do this on a budget? Well for next year my advice is this, no matter what time of year, wherever you are, if you see something that reminds you of a loved one, that you buy for at Christmas – get the gift when you see it. Doesn’t matter if it’s February! My tickle trunk is full of little treasures I have found over the year. Close to Christmas I open it up, see the loot (am thrilled with the little odds and ends that I know people will love) and just purchase the few extras I need. Keeps the joy in Christmas (it’s not all about shopping and deflating your pocketbook) and gives you spare time to do other “Christmassy” tasks.
Another idea is to have a savings account where you put a certain amount of money away every month towards Christmas so credit cards can be paid off in January.
However it is this year, not next (when you can implement my ideas) and we all have expenses every month, so how to keep the Christmas costs down? If you are a regular reader of my blog you know I read the Canadian Finance Blog to get some of their ideas. In their blog three weeks ago they had some great thoughts on how to cut costs. Some of these are intermingled with mine:
DO NOT go overboard on stocking stuffers. The Dollar Store is a great place to find little stocking stuffers.
This was an idea from my daughter this year: she only wants to open up a stocking on Christmas Day this year and save the actual shopping (where I will set her budget) for AFTER Christmas when all the sales are on and we are not paying FULL price. Saves me money, she actually gets what she wants and needs, instead of me trying to decide, and prevents standing in a long return line. It’s a great way to have a mother / daughter shopping day too!
Shop online: Shopping online can save you money, especially if the gift needs to be delivered out of your city. Shopping online allows gifts to be sent to the loved one you are shopping for, saving a lot of postage costs.
Avoid extended warranties: Usually the item will break prior to the end of the standard warranty period anyway. Extended warranties should be used on very expensive items only.
Gift Cards: Gifts cards are not always the greatest idea. Stats show that approximately 10% of all gift cards are never redeemed. Also the receiver of the gift card is bound to shopping at the store you chose.
Receipts: Keep all receipts in one envelope in case of returns. Whenever possible get a “gift receipt” it doesn’t show the cost of the item but allows the receiver to return the goods if necessary.
Homemade Gifts: Homemade is VERY appreciated. Homemade jam, cookies, sweets, crafts, etc. Go to Pinterest to get further ideas. One that my mother loved is a scrapbook of a trip we took to Europe. I saved all the little tickets and mementoes from places we visited and did up a scrapbook. She loved it!
Have a photo that’s meaningful to the person you’re giving the gift to? You could get it enlarged and framed, or even put in on a mug or mousepad. Many places can do this within a day, but check to make sure as some special items could take longer.
If you have quite a few photos’ you’d like to give, create a DVD slideshow of them. Google’s Picasa is free and can do the job.
Drinks: As long as the person you’re shopping for enjoys the occasional drink, it’s hard to go wrong with a nice bottle of wine, gift set of beer or a fancy liqueur.
Memberships: Membership to an organization is a great Christmas idea. My daughter – a student – was very appreciative of her CAA membership. A membership to Costco is also a good idea.
Donations: The person who has everything could appreciate a donation to a charity. I recently did this for a relative; purchased a goat for a community in Africa.
Re-gifting: Did you receive something at a gift exchange or office party in the past month that you haven’t opened and won’t use? Re-gifting might solve your shopping stress, save you money and hopefully the person you give it to will truly enjoy it more than you.
I hope this blog has given you some food for thought. Remember Christmas is NOT all about shopping. It is about family and friends and the time we spend with each other during the season.
If you have a great idea, please share. Love to hear from you!
Getting paid in a sole proprietorship or partnership has very different impacts on your personal taxes and income than taking a paycheque through a corporation. In this post, you can see the difference between paying yourself in a Sole Proprietorship VS a Corporation.
Owners of a sole proprietorship do not normally earn salaries, bonuses or dividends. The net income of your business (or your share of the net income of a partnership) is considered your personal income; you will take money from the business by way of a “draw”. If you earn a profit from January to December this profit is in actuality your “T4”. The “draw” is shown on your balance sheet, NOT the Income Statement.
“Source deductions” such as income tax, Canada Pension Plan (CPP) and Employment Insurance are not withheld from draws.
You and your partner’s make your own CPP payments and quarterly tax payments.
Net losses of the business are deductible against other sources of income, such as employment, rental and investment income
A business owner (shareholder) can receive regular salaries and bonuses, like other employees.
Source deductions such as CPP and tax must be withheld from salary and bonus payments (an owner does not usually deduct EI).
Business owners may also receive dividends, which represent a share of the company’s after-tax profits. Dividends received personally on a Canadian based corporation have a much lower tax rate than a paycheque an owner would take from the company.
The net earnings (profits) of an incorporated company are taxed at combined federal-provincial corporate tax rates. Manufacturers and companies with net income of $300,000 or less pay lower rates.
So an overview – The owner of a sole proprietorship will only pay personal taxes and CPP, where the owner of a corporation will ALSO pay corporate income tax as well as personal.
The government of Canada Revenue Agency provides the following information regarding Automobile and Motor Vehicle Allowances:
“An allowance is any payment that employees receive from an employer for using their own vehicle in connection with or in the course of their employment without having to account for its use. This payment is in addition to their salary or wages. An allowance is taxable unless it is based on a reasonable per-kilometre allowance.
If you pay your employee an allowance based on a per-kilometre rate that we consider reasonable, do not deduct CPP contributions, EI premiums, or income tax.
The type of vehicle and the driving conditions usually determine whether we consider an allowance to be reasonable. The per-kilometre rates that we usually consider reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations. Although these rates represent the maximum amount you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable.
We consider an allowance to be reasonable if all the following conditions apply:
When your employees complete their income tax and benefit return, they do not include this allowance in income.
Reasonable allowance rates
For 2013, they are:
In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre for travel.
For prior-year rates, see “Automobile allowance rates.” on the CRA website.
You can claim the HST on the amount that an employee charges the company. For example: an employee charged 100 km. Cost to the company is $46.96 in mileage expense and $7.04 in HST ITC’s
Instead of mileage you may give you employees a reasonable flat rate for car allowance (again based on the estimated mileage used) if, in order to fulfill their job description they are constantly travelling for the business. In this case a T2200 form must be completed at the end of the year. A PDF of the form can be found: http://www.cra-arc.gc.ca/E/pbg/tf/t2200/t2200-12e.pdf . With a car allowance it is included in the employee’s’ remuneration and HST is not claimable.
Please note that this much of this information was obtained and copied from the from the CRA website and for more information you should visit the following CRA link:
In QuickBooks there a specific methods to track mileage and to add the amount of mileage for a specific job onto an invoice. Something to consider!