Business Consulting

Why You Should Hire an Ecommerce Accountant

In today’s digital age, ecommerce businesses are thriving more than ever. With platforms like Amazon and Shopify making it easier for individuals to set up their own online stores, the competition in the market has become fierce. In order to stay ahead and manage your finances effectively, it is crucial to hire an ecommerce accountant.

An ecommerce accountant specializes in handling the financial aspects of your online business. They are well-versed in the specific challenges and unique requirements that are specific to ecommerce platforms. From managing sales tax to inventory management and cash flow analysis, they can provide valuable insights and expertise.

One of the main reasons to hire an ecommerce accountant is their ability to help you save money. They can identify potential tax deductions and credits that you may not be aware of, ensuring that you are not overpaying on your taxes. Additionally, they can also help optimize your pricing structure to increase profitability and uncover areas where you can cut costs.

Hiring an ecommerce accountant is a strategic investment that can greatly benefit your Amazon or Shopify business. With their support, you can focus on growing your business while they take care of the financial intricacies, helping you achieve long-term success.

The Unique Accounting Requirements in Ecommerce Businesses

Ecommerce businesses have unique accounting requirements due to their online nature and the vast volume of transactions they handle. Unlike traditional brick-and-mortar businesses, Ecommerce companies rely heavily on online sales channels, such as websites and marketplaces. This creates a need for specialized accounting practices to handle the complexities of online transactions.

Proper Categorization and Tracking of Revenue

One key requirement is the proper categorization and tracking of revenue and expenses related to online sales. This includes understanding the different revenue recognition methods for different types of sales, such as physical goods, digital products, or services. Additionally, ecommerce businesses often have to deal with various payment options and processing fees, which require accurate recording and reconciliation.

Management of Inventory

Another important consideration is the management of inventory. Ecommerce businesses need to continuously track and update their inventory levels to avoid overselling or running out of stock. This requires implementing effective inventory management systems and properly accounting for the cost of goods sold. Overall, ecommerce businesses must adhere to these unique accounting requirements to ensure accurate financial reporting and to support their decision-making processes.

The Expertise Needed to Handle Sales Tax and International Transactions in Ecommerce

When it comes to handling sales tax and international transactions in ecommerce, expertise is crucial. Sales tax regulations vary greatly across different countries and even within regions of the same country. Understanding the complexities of these regulations can be challenging, especially for businesses that operate in multiple jurisdictions.

In addition to sales tax, international transactions involve considerations such as customs duties, currency exchange rates, and legal requirements. Companies that engage in cross-border ecommerce must be knowledgeable and well-prepared to navigate these issues effectively. This requires expertise in international trade laws, tax codes, and compliance procedures.

Business owners and ecommerce managers must stay up to date with the latest changes in tax regulations and constantly monitor emerging trends and best practices. They may also seek the guidance of tax consultants or employ professionals with expertise in international transactions and sales tax to ensure compliance and avoid costly mistakes. Having the right expertise in sales tax and international transactions is essential for ecommerce businesses to successfully expand their operations globally and maximize profitability.

Reasons to Hire an Ecommerce Accountant

Hiring an ecommerce accountant can offer numerous benefits for online businesses. One of the key advantages is cost savings through efficient financial management. An ecommerce accountant can help streamline the financial processes, ensuring that expenses are properly recorded and budgets are strictly adhered to. By closely monitoring financial activities, an accountant can identify areas of unnecessary spending and find opportunities to cut costs. This can lead to significant savings for the business in the long run.

Prevention of Tax Issues and Penalties

Another benefit of hiring an ecommerce accountant is the prevention of potential tax issues and penalties. Tax regulations can be complex and constantly changing, and it can be difficult for business owners to keep up with all the requirements. An ecommerce accountant is well-versed in tax laws and can ensure that the business is compliant, minimizing the risk of audits, penalties, and fines. They can also help in maximizing deductions and credits, potentially reducing the overall tax burden.

Assistance in Financial Decisions

An ecommerce accountant can also provide valuable assistance in making informed financial decisions. By analyzing financial data and generating accurate reports, they can offer insights that can help business owners make informed decisions about pricing, inventory management, and expansion plans. Additionally, they can provide forecasts and projections that can assist in setting realistic goals and targets for the business.

Reduction of Accounting Errors and Improved Accuracy

Hiring an ecommerce accountant can result in a reduction of accounting errors and improved accuracy. Mistakes in financial records can have serious consequences, including financial losses and damaged reputation. An accountant with expertise in ecommerce accounting can ensure that all financial data is accurately recorded, reducing the risk of errors and discrepancies. Their attention to detail and knowledge of accounting best practices can ensure that the financial records are reliable and reflect the true financial position of the business.

An ecommerce accountant can provide significant benefits for online businesses. From cost savings through efficient financial management to preventing tax issues and penalties, the expertise of an accountant can contribute to the success and growth of an ecommerce business. Their assistance in making informed financial decisions and reducing accounting errors can further enhance the financial health and stability of the business.

Key Tasks Performed by an Ecommerce Accountant

An ecommerce accountant plays a crucial role in managing the financial aspects of an online business. One of their key tasks is managing and reconciling online sales platforms and payment gateways. This involves closely monitoring sales channels, such as Amazon, Shopify, or eBay, and ensuring that all transactions are accurately recorded and reconciled with the corresponding payment received.

Tracking Sales Data

They are responsible for tracking and analyzing sales data to identify trends and opportunities for growth. By analyzing sales patterns, an ecommerce accountant can recommend strategies to increase sales and improve profitability. Moreover, ecommerce accountants also handle multi-currency transactions and international tax compliance.

Currency Conversions

As online businesses often cater to a global customer base, they frequently deal with transactions in various currencies. The accountant ensures that all currency conversions are accurately accounted for and that any associated tax obligations are met in accordance with applicable laws and regulations. This requires a thorough understanding of international tax compliance and the ability to navigate complex regulations.

Cost of Goods Sold

Ecommerce accountants are responsible for managing inventory and cost of goods sold (COGS). They closely monitor inventory levels, ensuring that the business has sufficient stock to meet customer demand. By keeping track of COGS, the accountant can determine the profitability of each product or category and make informed decisions regarding pricing and inventory purchasing. Accurate inventory management is essential for a successful ecommerce business, as it helps to prevent stockouts and minimize the carrying costs of excess inventory.

An ecommerce accountant performs vital tasks that are crucial to the financial health and success of an online business. From managing sales platforms and analyzing data to handling international tax compliance and inventory management, their expertise ensures that the business operates efficiently and effectively in the digital marketplace.

Choosing the Right ecommerce Accountant

When choosing an ecommerce accountant, there are several important factors to consider. First and foremost, it is essential to evaluate the qualifications, experience, and industry knowledge of potential candidates. Ecommerce accounting requires specialized knowledge and expertise, so it is crucial to ensure that the accountant has a deep understanding of the unique challenges and requirements of this industry. It is also important to consider their experience working with ecommerce businesses, as this will indicate their familiarity with the specific nuances and intricacies of this field.

Look for Referrals

Seeking referrals and checking client testimonials can be a valuable way to gather information about the reputation and track record of potential accountants. Talking to other ecommerce business owners or seeking recommendations from trusted sources can provide insights into the quality of service and customer satisfaction levels. Reading client testimonials or reviews online can give a sense of the accountant’s ability to meet client expectations and deliver high-quality results.

Communication Skills

Another important aspect to consider is the communication skills of the ecommerce accountant. Effective communication is crucial for a successful working relationship, as the accountant will need to understand the unique needs of the business and be able to explain complex financial concepts in a clear and concise manner. Being able to communicate effectively with the accountant ensures that both parties are on the same page and can work together toward achieving the business’s financial goals.

Availability

Availability for consultations should be evaluated when choosing an ecommerce accountant. Timely advice and support are essential in managing the financial aspects of an ecommerce business effectively. Therefore, it is important to choose an accountant who is readily available to answer questions, provide guidance, and address any concerns that may arise. This ensures that the business has access to the necessary financial expertise when needed and can make informed decisions in a timely manner.

When choosing an ecommerce accountant, it is important to consider qualifications, experience, and industry knowledge, seek referrals and check client testimonials, evaluate communication skills, and assess availability for consultations. Taking the time to carefully evaluate these factors will help ensure that the chosen accountant is the right fit for the specific needs of the ecommerce business.

Does this all sound overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion, and get you on the right path. Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

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9 Steps for Small Business Owners Financial Planning

Owning a small business is a dream for people looking for the freedom to be their own boss and work to better themselves. Owning a small business can be very rewarding yet challenging at the same time. To succeed in the current economic climate, an equal amount of effort must go into a small business owner’s financial planning alongside running the business itself. As we have seen, especially in recent years, times can change in an instant and have lasting effects on people and companies. Understanding what it takes to plan for not only running the daily operations of a business but planning for any potential circumstances is required for small businesses.

Small Business Owners Financial Planning is a foundational part of business

Richardson Miller LLP works hand in hand with clients of all shapes and sizes to help them strategize, prepare and manage all aspects of their financial needs. We wanted to share our experience with those individuals looking to do it yourself when beginning the adventure of creating their businesses.

Our 9 steps for small business owners’ financial planning will help you to make sure your business succeeds in the present while preparing for the future.

1. Draw the Line Between Personal and Business Goals

Before you begin to create your financial plan, you have to set clear boundaries for the goals you have in mind. Small business owners have a detrimental tendency to go all-in when trying to create their own business from the ground up. While it is important to put extra effort and time into your new venture, financial goals need to be separated.

Be prepared for the possible outcome that you will not operate your business indefinitely. All good things come to an end. Business ventures are not immune from this fact. Separating your business and personal finances and business finance will protect yourself and your family. Protecting both personal and business finances is a key part of small business owners’ financial planning.

2. Set Your Long Term and Short Term Goals

Business goal setting requires you to look to the future while understanding the steps you need to get there can be even more valuable. A proper business plan will set quarterly, yearly, and future goals beyond.

  • Quarterly goals or 90-day goals are the small steps that will lead your business down the path to future success.
  • Yearly goals are set to make sure you are on the path you want to be on to reach your financial plan.

Whether you want to build your business into a franchise, build to sell, or provide a specific service to a localized area, creating and meeting the goals you set are the markers on the map to make sure you are on the road you want to be.

3. Build Liquid Assets

Business assets are important for your financial health. While accumulating assets, you should be careful to keep a large number of assets in liquid options. Liquid assets are assets that can easily and quickly be converted into cash on hand.

Having the majority of your assets in liquid form buffers your business from any short-term emergencies that might arise. Whether it be an unexpected cash shortage or unexpected bills, having a cash cushion available to cover you and your business is crucial to keep your business alive.

4. Track your Cash Flow

Understand the nature of your business. Taking time to analyze your cash flow and using the information to plan what to expect each month will save you time and stress in the future. Businesses work in cycles. Taking the time to sift through your cash flow histories, you will eventually be able to build a pattern so you can prepare both how to staff your business and understand when short weeks might occur.

For example, a lawn care business is a typical seasonal business where the incoming cash flow will inevitably slow down during the winter months. Understanding the cash flow, the owner can plan and set aside money from high-grossing months to cover costs and expenses during the winter months. This is an extremely high-level example, however, you can see the point to be made.

5. Prepare for Tax Season

Tax planning is one of the two inevitabilities in life as the old saying goes. Unfortunately, they can be very complicated for small business owners. You can take the DIY route for preparing your taxes, but our recommendation is to seek the services of a trusted and reliable certified public accountant. Outsourcing tax preparation and planning saves you hours and hours of accounting while also protecting yourself knowing all your tax documents are backed by a qualified professional.

Certified public accountants are trained and continue education on tax laws for your area. Tax laws can constantly change and have a major impact on your business’s financial situation. Richardson Miller LLP. offers tax and other financial services for any size business.

6. Identify Potential Risks

Business risks can lurk around every corner. Preparing for financial risks will protect you and your business from potentially major incidents. Besides cash flow shortages, there are several issues that might arise without warning. Common business risks to plan for include:

  • Employee injury
  • Legal Action
  • Property Damage and Theft

Having emergency funds and contingencies prepared for any possible outcome will keep your business afloat and running smoothly no matter the situation. A risk management plan does not have to be a pile of conspiracy theory outcomes, but a general plan set aside for instances covering multiple risks can be the best option at times.

7. Have Plans for Emergency Situations

Sometimes a situation can be more than a small bump in the road. These unfortunate outcomes can lead to business closure or even be caused by the death of the owner. Having a business succession plan and exit plan will be sure you are prepared for even the worst possible outcomes.

A business succession plan is a strategy set in place for the transfer of business ownership in extreme circumstances. You may want the business to transfer to a family member or trusted partner. Having a plan to make sure your business ends up in the right hands will help your business survive no matter the outcome.

People change and so do their goals. Small business owners might decide it is time to move on from their current business venture or lose passion for operating their current field. Developing and maintaining an exit plan will protect your financial situation despite parting ways with your business.

8. Plan for Retirement

Retirement planning is not only for small business owners, but can often be overlooked by them. Small business owners tend to put everything in their business without considering retirement savings. A structured retirement plan will make sure when the time comes to retire you will be able to live comfortably.

9. Review your Plans and Goals

Once you have created your complete business plan, the planning does not simply end. You need to constantly review and reassess your goals and plans regularly to take into account any changes in the economic climate and your business. Time for reflecting on if your goals were met will help light a fire or set you at ease so your business is on the track you envision. These comprehensive reviews are suggested yearly, at minimum, if not every quarter.

If this sounds overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion and get you on the right path. Having clean, up-to-date books will make tax time so much easier for you!

Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

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Top Accounting Mistakes of Ecommerce Businesses

The events of 2020 and 2021 have caused a significant push for businesses to pursue the E-Commerce route. It’s tough to sell your product if your retail location is forced to close. It’s also tough to sell your handcrafted items if the markets are closed… or if you find your customers are just opting to stay home. The World Wide Web is a fantastic way to reach your customers in each of the 168 hours in a week. You now have customers across Canada… or perhaps the world. Congratulations! Perhaps it’s time to take a step back to make sure you’re not falling into some common E-Commerce mistakes.

1. Failing to calculate the true costs of your product.

You’ve got an awesome product to sell online. Do you know the TRUE cost of selling that item? What is the total cost to get your product into your customers’ hands? Calculating this true cost is a critical step in determining your business viability any sort of profitability analysis. Are these business efforts worth it? Or would it make more money taking that part-time minimum wage job?

Consider the following:

  • Foreign exchange rates and potential for fluctuation.
  • Shipping costs: Any import costs plus the cost to ship your product to your customers.
  • Sales fees: Does your sales platform take a cut of your sales? Credit Card/merchant fees?
  • What about your time? You’ve started a crafting venture. Have you considered the value of your time in making these products?

2. Failing to report income

The Canada Revenue Agency requires you to report your earnings from your e-commerce ventures. It may be tempting to omit these online earnings. Did you know that CRA is able to request payout reports from various online e-commerce platforms? That’s right. CRA is able to obtain your earnings reports. Don’t be fooled into thinking that CRA is only concerned with the “big fish” business owners out there. The fact is that the little guys are more likely to simply pay their tax assessments… so are perfectly content in pursuing small business as well. You’re far better off to report the earnings and related expenses from the start and don’t attract their attention.

3. Failing to register for GST/HST and PST

Put very simply, if you’ve got annual sales of goods and services in Canada of $30,000 or more, you should be registering for GST. This means you’ll need to charge sales taxes to your customers and remit them to the related government body.

Do you need to register for PST in the various provinces?

You’ve got customers in British Columbia? Saskatchewan? Manitoba? Quebec? Each province is different. Call me lazy (or considerate of your time), but I think the best advice I can offer here is to research each province based on your situation. Some provinces have fairly simple and straightforward guidelines… but others have very specific rules. Some PST publications read as though you have to register for PST… unless you happen to sell purple widgets to lefthanded people.

Check out the links to these publications:

As a final check of your understanding, go ahead and call the 1-800 numbers to the provinces. Talk to someone from the related sales tax department to gain more comfort to your responsibilities to their province.

Authors note: unlike the CRA helpline, the provincial bodies tend to provide great advice and service.

4. Failing to charge GST/HST and PST properly

Not charging sales taxes properly is an extremely common mistake in E-Commerce. It’s critical that your sales platform/website is set up correctly to navigate this. If you’ve got customers across Canada and the United States, do you fully understand who has to pay sales taxes and at what rate?

GST/HST- if you are registered for GST/HST, you must charge it based on the ship-to address.

  • Not registered for GST or PST? DO NOT CHARGE IT. This is considered fraudulent.
  • Customer in Ontario? Charge 13% HST
  • Customer in Alberta? Charge 5% GST
  • Customer in New Brunswick? Charge 15% HST
  • Customers in the United States? Do not charge GST/HST

A very common mistake for businesses in Alberta is to simply charge the 5% GST to everyone. It’s a painful realization when CRA reviews their invoices to see that they should have charged a customer 15% and suddenly their profits disappear by way of their GST/HST filing.

5. Failing to enlist a professional accountant tax filings

An experienced, qualified professional accountant can assist you with your various filings, tax and sales tax obligations.

  • What expenses can you reasonably deduct?
  • When should you be registering for sales taxes?
  • How do you file sales taxes?
  • When should you consider incorporating your business?

If you don’t yet have a trusted accountant, we’re happy to help!

 

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Top Six Tips for Negotiating Your Commercial Lease

Negotiating and signing your commercial lease can be a substantial investment for your business. It’s critical that you’re aware of what you are committing to. While it’s tempting to save the professional fees on this process, a poorly written lease can end up costing you thousands more in the end.

The Accountant Perspective Can Help You When Negotiating Your Commercial Lease

Most commercial rental agreements are written so that you pay a base amount for the area plus a percentage of the occupancy costs of the building. These occupancy costs can include property taxes, insurance, repairs and maintenance, management fees, etc. It is this occupancy cost portion that can present your greatest financial risk.

1. Beware Management Fees

It’s normal to see some sort of management fee included in your occupancy costs.

What would be a fair fee to charge you based on the services that they provide by collecting your rents and ensuring that the building is safe and in good repair?

I’d suggest having the formula for these management fees spelled out in your lease. This formula would depend on the level of service that your landlord provides. Ideally, this formula would be based on a percentage of base rents that you pay. Simply stating that you will pay for management fees means that your landlord can pick any number they like and add it to your invoice.

2. Building Improvements VS Repairs

Does the occupancy cost section detail what is considered a building improvement vs basic repairs and maintenance?

Yes, it is reasonable that you pay for cleaning, snow removal, some light bulbs in common areas, and other reasonable maintenance costs. If your landlord decides to upgrade from commercial-grade carpet to marble tile, will you be responsible for paying for it?

Review this wording very carefully.

I think of my mechanic client that was looking to rent a condo bay. I reviewed his draft lease that would have put the tenant open to the liability of paying their portion of the Taj Mahal if the landlord chose to renovate.

3. Rights to Review the Details

Make sure that you have the right to request the details of what your landlord is charging you. I’ve encountered many horror stories where a landlord will pay service fees to their various relatives at a rate far more than the fair market value for the task. Picture paying $6,000 for someone’s child to plant a dozen petunias. Let it be known that you’re onto that game and won’t be paying for it.

1. Evaluate your business needs

Do a little homework before negotiating a lease. List your company’s current and expected future space needs, and determine your budget and preferred location.

“Ask yourself what you want to get out of moving,” Prikker says. “You can then negotiate a lease that covers everything off.” If you’re uncertain about near-term needs, consider a shorter lease (for example, two or three years). “You may pay more per square foot for a shorter lease, but at least you can walk away more easily if you need to,” Prikker says.

Source: bdc.ca

4. Review Your Rental Space

Believe it or not, landlords don’t always have an accurate handle on how much space they are renting to you. This is particularly true in larger high-rises or older buildings that have seen many renovations.

When is the last time that space had been measured or certified?

5. Personal Guarantees

Avoid them if you can. If you’re new to business your landlord may insist on you signing a personal guarantee. If this is required, ensure that this guarantee has a limit. Ensure that there is a clear maximum that you can be liable for. When you negotiate a commercial lease renewal after the first term, have them remove this personal guarantee.

6. Do Not Assume Your Landlord is Right

Your landlord likely does not have an accounting background. The people preparing your occupancy cost statement at the end of the year may or may not actually know what they are doing. They may or may not be preparing that statement in accordance with your lease. I found a prime example of this earlier in the year. The annual occupancy cost statement arrived in the form of a bill with $60 additional fees owing. Upon inspection, they were charging an incorrect management fee and the leasable area was overstated. The true result was a $3600 refund of the monthly occupancy costs paid. Examine your statement and compare it to your lease.

How to Negotiate Commercial Leases That Favor Tenants

If a landlord or leasing agent simply tells you the terms, ask for something showing the terms in writing before you submit a counteroffer. If they are reluctant to offer a letter, ask for an email or a copy of the listing for space (which will contain at least the basic leasing information).

Why is it so important to have initial terms in writing? A leasing agent acts on behalf of the interests of the landlord. If an agent either misunderstood or attempted in any way to alter the landlord’s directions, having terms in writing can show you a landlord that your counteroffer was made in good faith based on information from the leasing agent.

It is also possible that you could misunderstand lease terms if they are not in writing. This could lead you to counter too high or too low based on the information you misunderstood.

Another reason to have the terms in writing is that it allows you time to research more about the lease, to ask an attorney about the terms, or even to compare terms to any other leases you are considering.

Asking for terms in writing is not in any way a legal commitment on your part to move forward. You always have the option of countering the terms or simply turning them down outright.

Source: thebalancesmb.com

The horror stories are endless. Have your lawyer and accountant review your draft lease to make sure you are fully aware of what you are signing. Remember to protect your interests while negotiating your commercial lease!

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Covid Holiday Parties

Covid Holiday Parties

How does Covid-19 Impact Your Company Holiday Plans?

December 2020 corporate celebrations will be drastically different than previous years. Would you typically host a party for your staff and their spouses?

These types of events are either going to be:

1. Illegal due to size restrictions, or
2. Not a wise business decision if your entire staff end up in quarantine because of exposure.

I believe that holiday celebrations (in some form) help contribute to the culture of your organization. These events help your staff to feel appreciated and offer an opportunity to create bonds (aka loyalty) to others in the group. If you needed another reason, holiday staff parties are 100% deductible for tax purposes. Canada Revenue Agency permits up to six of these 100% deductible events annually where all staff are invited. Normally, meals and entertainment are only 50% deductible for tax purposes.

If you can’t meet in person in the tradition sense, what are your options? It’s time to get creative. Here are some of my favorite ideas:

Virtual tasting experiences
There is a chocolatier in Edmonton that will deliver their product to you at home and then lead a private online tasting event for small groups. Several local businesses are offering such services for their products.

Skip the Dishes/online gaming
Have dinner delivered to your employees’ home and host a Jackbox party.

Online cooking classes
The ingredients and recipes are delivered to your employees’ home and the culinary instructor leads an interactive online cooking class. This could be a fun “date night” for your employee and their spouse.

Socially distanced experiences
Some hotels/restaurants are getting creative with offering Covid-19 friendly activities. While you still need to follow local Covid-19 protocols, one particular hotel I know of is offering a package that includes a three course meal (a separate table for each couple), dancing lessons (participants keep in their designated square in the ballroom), and a night at the hotel. With travel restrictions still tight, hotels are suffering and would probably be open to suggestions if you came up with a similar idea for a private function. I think that these types of events will become more common with people craving a unique staycation.

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Creative Gifts for Employees

The holiday season is fast approaching. With 2020 providing us ample opportunity for re-evaluating our values and priorities, have your corporate holiday plans changed? What are your plans for gifting to your employees?

Here are the rules:

  • Canada Revenue Agency allows you to give your employees gifts costing up to $500 annually without tax consequence to your employee. This could include a birthday gift, a gift for the birth of a child, holiday season, etc. It’s worth noting that small items such as coffee mugs, the clothing with your company logo on it, coffee and tea don’t count toward this $500 total. If your gifting exceeds the $500 limit, the overage is a taxable benefit to your employee. A $700 annual gift would result in a $200 taxable benefit for your employee.
  • Cash and gift certificates are considered to be a form of compensation that results in a taxable benefit to your employee. While our employees may enjoy the freedom of cash stuffed in a Christmas card, they would likely prefer if they didn’t have to pay tax on a gift. With gifting cash, there is the added possibility of a denied deduction as there is zero proof of where the cash went.
  • Event tickets or vouchers qualify as non-taxable benefits as they are redeemable for a specific thing. For example, a voucher that entitles you to a Widget at XYZ Store doesn’t offer much choice to the recipient and therefore qualifies as a gift. Now that we know the parameters, the big challenge is to come up with thoughtful, creative and non-taxable gift ideas. Think about what your employees stress about. What gift can make their lives just a little bit better?

Meal subscriptions
Let’s be honest. Deciding what to have for dinner is the absolute worst part of adulting. Imagine taking a bag of ingredients out of the fridge and simply following the step by step recipe to create a decent meal. THIS is far more relaxing to me than a spa treatment. We’re talking ONGOING stress relieve here!

House cleaning service voucher
This one speaks for itself.

Online cooking class/or tasting experience voucher
Many folks are craving “date night” with their significant other. With Covid-19 restrictions (travel, social outings), many couples are struggling to find opportunities to reconnect. Here is a great Covid-19 protocol compliant date night.

Subscription to a (cool product) of the month club
People like receiving mail that isn’t a bill. It’s a gift that keeps on giving!

Support local
Check out some locally crafted gifts/experiences. Support a small to medium business in your own back yard. The Greater Edmonton Area has some fantastic:

  • Craft Breweries
  • Distilleries
  • Chocolatiers
  • Ciders
  • Cookies
  • Jewelers and crafters
  • Woodworkers
  • Artists
  • Olive oils, sauces, spice blend merchants
  • Soaps and lotions
  • Many many more.

If you’re struggling to come up with a brilliant idea, you could always ask your employees for input. Small to medium business owner-operators often know their employees really well. If this is the case, ask them what they’d like. Perhaps you could give them a budget and a catalog/website to peruse. This would take some of the gifting stress off of your shoulders; the employee receives a non-taxable gift that they actually want and you get a deduction for tax purposes. Win, win, and win.

Taxable versus non-taxable benefits can be difficult to sort out. If you have got any questions about how to show your appreciation to your staff, feel free to reach out. We’re always happy to help!

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Working From Home

The COVID-19 pandemic and resulting lockdowns have brought on a huge shift for people to work from home. Several business leaders have determined that having employees work from home is entirely possible and a great way to reduce overhead costs. Why would you force your employees to drive across town and sit in an office when they are just as productive (if not more) in their own homes? This trend has impacted our household. My husband’s automotive expenses are a fraction of what they were a year ago. On the other hand, our utilities, unlimited highest speed internet requirements, toilet paper and coffee costs have increased substantially. How does this trend impact your tax filing obligations?

Information for Employers:

If you have required your employees to work from home at least 50% of the time, they can claim some of their home office expenses on their personal tax returns. When you hand out your employees T4s, provide a completed T2200 Declaration of Conditions of Employment form. Indicate on the appropriate sections that the employee was required to work from home.

Based on the size of their home office, your employees will be able to claim a percentage of their expenses. This percentage is calculated by dividing the workspace area by the total finished area of the home. Expenses to track include: Utilities (heat, electrical, water), and maintenance (cleaning supplies, paint, plumbing, etc.) and rents. If your employee is paid commissions, they may also claim their insurance and property taxes. If home office specific expenses are incurred (fax line, increased internet capacities, office space only maintenance), the entire expense may be deductible. For example, if your household normally spent $50 per month on internet and now you spend $150 so that your ZOOM calls don’t freeze, one could argue that the $100 extra should be deductible. Similarly, if you revamped a spare room to create an office oasis (paint, shelves) you may (within reason) claim 100% of these costs.

Ensure that your employees are aware that employment expenses are often reviewed by Canada Revenue Agency. Encourage your team to keep their receipts/invoices/statements to be able to prove their claims.

Information for Business Owners:

Whether you are incorporated or a proprietor, you may also claim some home office expenses. The portion claimable is calculated in the same manner as for employees (office space divided by total finished area of your home). In calculating this percentage, it’s tempting to say that a significant portion of the home is used for business purposes. As a general rule, it’s best to keep the percentage around 10%. Any more than that and Canada Revenue Agency can argue that your home was a revenue generating property and you put your Principal Residence Exemption at risk… meaning tax implications on any gains when you sell your house. Also note that if you rent a secure commercial space, you likely cannot claim your office as well.

Keep track of your rents, heat, electricity, insurance, mortgage interest, property taxes, security monitoring fees, and maintenance costs. You can claim the calculated portion of those expenses. Consider office specific costs: the portion of internet required for the smooth running of your business, a fax line, office décor, desk, shelves, chair, chair mat, WIFI booster, etc. These office specific costs may be considered 100% for business purposes and expensed accordingly. Larger items such as furniture, computer, printers, and other office equipment would be expensed over a period of time via Capital Cost Allowance.

Ensure that your claims are reasonable and justifiable. Would it pass the sniff test for Canada Revenue Agency? Was it an expense incurred to earn business income? I think my favorite COVID-19 home office question so far has got to be: With the shortage of toilet paper, do you think I can justify expensing the entire cost of the bidet seat for my toilet? This client won tons of points for creativity and making me laugh out loud during a particularly stressful time in the accounting world. My advice: I would stick to the 10% household repairs and maintenance write off on this one.

If you have any specific questions or concerns about home office expenses for either your employees or yourself as a business owner, I’m always happy to chat. Send me a message at angela@rmllp.ca.

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COVID 19 Update

We’re still open and here to help.  We are just not taking face to face meetings.  We can do a lot via email and our secure online portal.

With the extended tax deadline, we’d encourage people NOT to wait to get their personal taxes done.  Most families are getting refunds due to the Climate Action Incentive rebate.  That money is worth a lot more in YOUR pocket.  ***I seriously got to call a client (who has been hit hard as of late) to inform them of a $10K family tax refund… I’m pretty certain they are happy to have filed sooner rather than later***

Stay up to date

The latest information from Canada Revenue Agency is available at www.canada.ca

If you haven’t already signed up for My Account with CRA, do so as soon as possible.  This will be the best avenue to apply for EI benefits and notifying CRA of any changes to your situation.  It will not be easy to get through to a CRA agent by phone any time soon.

Available to businesses

 

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What Can I Expense Through My Corporation?

What constitutes a business expense?

I get this question ALL the time from my business clients.

As a general rule, expenses must be incurred with the purpose of earning business income. The expenses must be reasonable and justifiable. I’ve compiled a list of the more common expense questions with the answers to perhaps paint a clearer picture.

Are haircuts a business expense?

This is a solid NO.

Personal grooming costs are not deductible… even though you may have to look presentable and professional to meet with customers and clients. Let’s be honest, almost everyone who is working with the general public should be somewhat groomed. This is a human thing—not a business expense.

What about clothing?

Canada Revenue has a stance that unless the clothing is considered a uniform, it is not deductible. A loose definition of a uniform is something that a normal person would not wear to a mall. (I purposely did not mention Walmart here). This means that your business suits are not deductible. There are occasions where clothing may be permitted as an expense.

  1. Clothing that is specifically required safety gear is a reasonable and justifiable deduction.
  2. Clothing that contains your logo for advertising purposes would also be considered deductible.

Go ahead and order your next golf shirt, jacket or hoodie from a promotional supply store and be a walking billboard (I personally think this would be hilarious if you had a numbered company with no real logo).

Is a home office a business expense?

If you are working out of your home, yes, a portion of the expenses can be expensed. If you are paying rent at an official business location (or own the space), you likely cannot also deduct for your home office. If you are expensing a portion of your home for business purposes, do be careful not to be too aggressive with those claims.

I’d be hesitant to claim more than 10% of your homes’ costs (mortgage interest, property taxes, repairs and maintenance, utilities, insurance, security system, etc.).

If you’re claiming more, Canada Revenue Agency deny a portion of your principal residence exemption when you go and sell your home. In other words, if you claim 40% of your home expenses for your business, CRA would argue that 40% of your home was for not for personal use and therefore, you’d have to report 40% of any gains on sale as income on your taxes.

How are telephones a business expense?

If you still have a landline in your home, you cannot deduct this for business purposes… just the specific charges for any long-distance calls related to business. Your business cell phone can be deductible. Communicate with your cell phone provider that you have a business as certain carriers have special pricing for business owners.

What about conferences?

Here is a brilliant way to make your next trip to Vegas a business expense! Find a conference that is somewhat relevant to your business operations. You can deduct up to two conferences per year.

Paying your children or spouse a wage.

This one boils down to the expense has to be reasonable and justifiable.

  1. Can you pay your 3 year old $10,000 a year for sweeping out the garage?
    • No. This is not reasonable.
  2. Can you pay your husband $150,000 per year for sorting receipts?
    • Likely no—because you wouldn’t pay someone you weren’t related to that kind of amount.
  3. Can you pay your teen minimum wage for sweeping out your shop? Or pay your spouse fair market value for administrative work?
    • Yes. This would probably be considered reasonable.

Keep a detailed timesheet to document and justify the expense…just as you would to any other employee that wasn’t closely related to you or sharing your bed.

How do meals and entertainment factor into business expenses?

Yes, these are deductible expenses… but don’t go too crazy.

  • Go for lunch with that potential referral partner.
  • Buy a coffee for the potential new client.
  • Take the staff out to celebrate completing a major project.
  • Order dinner in house when key staff are staying late to get the job done.

Don’t try and expense every single meal you eat through your company. Similarly, your personal groceries are not deductible. Again, these expenses need to be reasonable and justifiable.

For example, an oilfield contractor would have a tough time justifying how Oilers season tickets were a legit expense to earn business income. On the other hand, if you typically dealt with many customers and relied on referrals, perhaps you could deduct some of those hockey tickets because you gave them to clients or associates as a thank you for referring new business. Documentation is key in this case. Who got the ticket and why?

Every business is unique. If you have specific questions of what types of expenses would be considered reasonable and justifiable for your operations, feel free to contact us.

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Choosing Your Accountant

Choosing the right account is important.

In a previous article, I discussed what CPA means and why it is important to choose an accountant with the CPA designation. Now I want to talk about other considerations when choosing an CPA that is the right fit for you or your company.

Does your accountant have relevant experience?

First, I would like to talk about experience.

  • How long have they been working in public practice?
  • Have they been around for many years or did they just decide to open up shop one day and may be gone the next?
  • What about the type of clients and industry they have past or current experience with?

When meeting with a potential new accountant, you should feel free to ask how long they have been in practice. You should also ask about their existing client base to find comfort that they have experience in your industry.

What is the accountant’s availability and communication like?

Another important consideration is availability.

  • Does your accountant return your phone calls and emails in a timely manner?
  • Do they have a partner or staff that can assist you with urgent matters if they are on holidays?

It is imperative to know that if something unforeseeable happens that prevents your accountant from continuing their practice that there is someone available to assist you.

Does the accountant have a strong professional network?

It can be beneficial to clients when an accountant has a team of people that they can rely on to take care of the needs of their clients.

  • What about their contact sphere?
  • Do they have other professionals they trust and work with regularly that you may also need?
  • If you find yourself in need of a new bookkeeper or a corporate lawyer, does your accountant have connections that may help you?

Are you comfortable discussing hard topics with the accountant?

Now let’s discuss comfort level.

You only need to talk to your accountant once a year so it doesn’t matter if you like them and feel comfortable with them, right? Wrong!

Your accountant should know all your confidential financial information and you should be comfortable to discuss this with them. The more your accountant knows about you, the more likely they will be able ensure that you are utilizing all the tax credits and deductions available to you. The more comfortable you are with your accountant, the more likely you also are to ask questions if you do not understand something.

It is important for a taxpayer to have some basic understanding of their financial statements and income tax return.

The partners of Richardson Miller LLP Chartered Professional Accountants have a combined 35 years of experience in public practice in several different industries. Our clients are important to us and we pride ourselves in our client relationships. We know that the world of tax is complex and confusing, so we aim to educate our clients in a way that is understandable and relevant to them.

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