Taxesm7grpNo Comments

Filing taxes for an incorporated business? Here’s what to watch for

Keep these four things top of mind when preparing your T2 return effectively!

Once you incorporate your business, there are also a different set of tax rules to follow when filing your year-end taxes.

As tax season approaches, the biggest difference between an incorporated business and an unincorporated business is how you will file your business’ tax return. For starters, incorporated businesses must set their filing date, which is six months after the business’ year-end. So, if your fiscal calendar closes on Dec.31, you have until June 30 the following year to file. Here are four other things to look out for when filing for your incorporated business:

1) KNOWING WHAT TO FILE

Many businesses will bill for work that is in the midst of being completed but may not yet be finished by the time the filing deadline rolls around. Or perhaps the work has been completed but the payment has yet to be received. In both cases, the payment in question must still be filed on the business’ T2.

2) MISSED DEDUCTIONS

One of the more frequent missed deductions are in the form of the amounts that have been expended and not been properly accounted for.

It can happen in situations such as if you record an asset that perhaps was a one-time purchase with a minimal shelf life—as opposed to the required lasting life of more than one year to qualify as a business expense, such as a new laptop.

The capital items are not immediate deductions, as you need to amortize the amount over time. That is complicated by the Income Tax Act’s many rules regarding the timing and required amounts for writing off capital expenditures, which makes errors common.

3) PHANTOM DEDUCTIONS

Phantom deductions do not exist. If there are instances of missed reporting, it’s because something was not properly declared, such as whether an automobile is truly a business expense versus a personal expense. This is where people with incorporated businesses may mistake what can be deducted, especially if lines are blurred between filing their T1 and T2.

We always tell entrepreneurs, start with everything that you’ve spent money on and think about whether or not that’s a business expense or personal expense. And then you won’t miss anything.

 

4) CONSIDER AN ACCOUNTANT

While tax-filing software is handy, nothing beats the expertise of a tax accountant. Avoid common mistakes and ensure compliance with our help.

The most common (FILING WITHOUT AN ACCOUNTANT) mistake is missed reporting of revenue because a lot of people don’t understand how they have to record revenue. Anyone defined as a professional must include income work in progress – and this is often a point that gets missed.

Another complication when using a corporation is determining how the owner-manager will receive funds from the corporation to pay for their personal expenses. Often, these funds will be paid as a salary or dividend, or perhaps even both. We at M7 Group can help you determine the most efficient remuneration strategy based on your personal circumstances and to ensure all the compliance steps are completed. A salary or dividend has to be reported on a T-slip and source deductions are required on a salary.

 

At M7 Group, we offer the expertise and support necessary to ensure your T2 return is prepared effectively, maximizing deductions while maintaining compliance with the regulations.
With our assistance, you can to know that your financial affairs are in capable hands!
book a call
Taxesm7grpNo Comments

How to avoid tax penalties and fees

Filing your taxes accurately and on time in Canada is crucial to avoid penalties. For assistance, consider consult us and choose from our range of plans. Stay organized and meet deadlines to manage your finances effectively!

 

Why could you end up paying tax penalties or fees?

There are a few common reasons why you could be charged penalties or fees related to tax filing:

  • If you file your return late.
  • If you owe taxes and have not paid them or have still not paid taxes owed from previous years.
  • If you failed to report all of your income on your tax return or have repeatedly failed to do so.

It’s important to file your tax return on time, to avoid late filing penalties. There are also additional penalties and fees for failing to pay taxes that you owe.

What are the tax penalties you could face?

The penalties and corresponding fees you may have to pay CRA include:

1. Penalties and interest fees for filing your taxes late

In Canada, the tax filing deadline is April 30 every year for most people. There are different dates for self-employed people and the dates may vary for filing a deceased person’s return.  

If you file your tax return after the deadline and also owe taxes, the Canada Revenue Agency (CRA) will charge a late-filing penalty. It calculated as 5% of the amount of tax you owe, plus 1% for every month your return is late, for up to 12 months. You could end up having to pay a maximum of 17% of the tax you owe.

If you file a late return again in the next three years, the penalties are doubled. You’ll be charged 10% of the balance you owe, plus an additional 2% you owe for each full month that your return is late, to a maximum of 20 months.

 PenaltyMonthly feeMaximum
First time filing late5%1%12 months
Filing late again (within three years)10%2%20 months

You’ll also be charged interest on taxes you owe, at the prescribed interest rate. That means that the longer you wait to pay the taxes owed, the larger your total bill will be — plus you will still owe the late filing penalty. Interest is compounded daily. The prescribed interest rate can change every three months.

If you owe taxes from previous years, the CRA will keep charging you interest compounded daily on taxes you owe. Any tax payments you make will be applied first to your taxes from previous years.

It’s important to file on time, even if you are owed a refund (and so do not owe any tax payment). If you file late, you may interrupt payment dates for any tax benefits such as the GST/HST credit or Canada Child Benefit.

You can find information about your tax return and benefits in your CRA MyAccount. If you have not signed up for MyAccount, you can do so for free any time.

2. Penalties for making a false statement or omission

If you knowingly make a false statement or omission on your tax return, you can be charged a penalty. This means if you gave incorrect information when you filed your taxes you may have to pay a penalty. The penalty amount will be the greater of:

  • $100, or
  • 50% of the difference between the understated tax (or overstated credits) related to the amount you failed to report, and the amount of tax withheld related to the amount you failed to report.

If you fail to report an amount on this year’s return and you also failed to report an amount in any one of the previous three years, you may have to pay a federal and provincial penalty. The penalty is the lesser amount of:

  • 10% of the amount you failed to report (federal and provincial/territorial), or
  • 50% of the difference between the understated tax (or overstated credits) related to the amount you failed to report, and the amount of tax withheld related to the amount you failed to report.

Learn more about interest and penalties.

What can you do if you want to fix an error in your tax return?

The Voluntary Disclosures Program (VDP) grants relief on a case by case basis to people who voluntarily come forward to fix errors or omissions in their tax filings, before being contacted about it by the CRA. If you apply through the program, they may waive some of the penalties.

To qualify for the Voluntary Disclosures Program, you must meet these four conditions:

  1. You must approach the CRA yourself. If the CRA discovers the oversight and contacts you, you will not qualify for any relief.
  2. You must offer complete and full information.
  3. You must be facing a penalty.​
  4. In most cases, the outstanding information must be more than one year overdue.

To disclose your situation, complete Form RC199 and include any supporting documents. Even if the CRA waives the penalties, you’ll still have to pay the taxes plus interest.

Learn more about the CRA’s Voluntary Disclosures Program.

What if you can’t pay your tax bill?

It’s important to file your taxes on time even if you can’t pay all of the taxes you owe. This way you will avoid any late-filing penalties.

If you can’t afford to pay your taxes, there are steps you can take. If you can’t pay your balance in full, you can ask CRA a payment arrangement. This is a plan to help you pay your taxes. But you will still be charged daily compound interest on any unpaid balance (starting May 1) until you pay it in full.

Learn more about setting up payment arrangements with the CRA.

The CRA may waive or cancel penalties and/or interest on your unpaid taxes in certain circumstances. This is known as taxpayer relief. This may happen if:

  • You lose your job — or suffer some other financial hardship.
  • There are circumstances beyond your control — for example, disasters like fires and floods, disruptions like a postal strike, a serious illness or accident, or serious emotional or mental distress, such as a death in the immediate family.
  • The CRA made an error — for example, processing errors, errors in CRA publications or incorrect information provided to taxpayers, and unreasonable processing delays.

To request taxpayer relief, you can submit this request online using MyAccount, or by filling out a PDF form by hand. The steps include:

  1. Complete Form RC 4288 to apply for relief within 10 years of the tax owing.
  2. Give the facts and reasons why the charges should be cancelled or waived.
  3. Include all relevant supporting documents and information.

What happens if you don’t pay what you owe?

If you don’t take steps to resolve your unpaid taxes, the CRA can take legal action against you. This could include garnishing your income, bank account, seizing assets, or other means to collect the amount you owe. Before starting legal action, the CRA must do the following:

  • Make three attempts to give you a verbal legal warning by phone.
  • Send you one written legal warning letter.

A legal warning is valid for 180 days. The CRA can start legal action at any time during this period.

Caution

Beware of phishing scams pretending to be the Canada Revenue Agency. If the CRA takes legal action against you, they would contact you verbally by phone, and by letter. They will not send you text messages or robo-call you. The CRA also does not send you text messages to notify you about refund or benefits.

Learn more about CRA scam alerts.

Bookkeepingm7grpNo Comments

The importance of a Personal Tax Accountant

Navigating the complexities of personal taxes can be a challenging task for Canadian residents. In this blog, we’ll explore why hiring a personal tax accountant is a wise decision and how it can benefit both your financial well-being and peace of mind.

 

While it’s beneficial to attract customers through enticing financial incentives, it’s crucial to emphasize the value our accounting services bring to their businesses. Encouraging clients to choose our company goes beyond monetary advantages, emphasizing the unparalleled expertise, personalized attention, and strategic financial insights that set us apart in the realm of accounting.

Expert Tax Knowledge

Expert tax knowledge is invaluable when navigating complex tax laws and regulations. Tax professionals, such as CPAs or tax attorneys, can help you optimize deductions, credits, and tax strategies, potentially saving your business money and ensuring full compliance with tax authorities. Their expertise is particularly essential in situations involving tax audits or complex financial transactions.

Time Efficiency: Accounting Services

Hiring a personal tax accountant provides access to a professional with in-depth knowledge of the ever-changing tax laws and regulations. They can identify opportunities for tax optimization, ensuring you take advantage of deductions, credits, and exemptions to minimize your tax liability while remaining fully compliant with tax laws.

 

Tax Accountant’s Audit Support 

When you have a personal tax accountant, you gain the advantage of having a knowledgeable advocate in case of tax audits or inquiries from tax authorities. Your accountant can guide you through the audit process, help prepare documentation, and represent your interests during interactions with tax authorities. This level of support can alleviate the stress and uncertainty that often accompanies tax audits, ensuring you have a trusted professional to navigate the complexities of the situation on your behalf.

 

Financial Planning

A tax accountant can significantly aid in financial planning by providing expert guidance on optimizing your tax strategies, identifying tax-efficient investment opportunities, and ensuring you take full advantage of available deductions and credits. They can also assist in structuring retirement and estate plans to minimize tax implications, offer insights into budgeting, and provide year-round financial advice, ultimately helping you achieve your financial goals while staying compliant with tax regulations.

 

Stress Reduction

Engaging a personal tax accountant can save you significant time and reduce stress during tax season. They handle the complex tax preparation process, freeing you from the hassle of navigating forms and calculations. This allows you to focus on your other financial and personal priorities while having confidence that your taxes are being handled accurately and efficiently.

Hiring a personal tax accountant is a strategic investment in your financial future. Their expertise, time-saving benefits, error prevention, financial planning guidance, and stress reduction can significantly enhance your financial well-being.

If you’re looking for expert assistance in managing your personal taxes and achieving financial peace of mind, then contact M7 Group Our personal tax accountants are here to help you navigate the complex world of taxation.

 

Get in touch with us today

Taxesm7grpNo Comments

What is the TFSA Limit for 2024?

The Canada Revenue Agency (CRA) has announced the 2024 Tax Free Savings Account (TFSA) contribution limit is $7,000. This is up from the 2023 contribution limit of $6,500.

Want to learn more about this investment option? Read on to learn the ins and outs of TFSAs – from finding your limit to accurately tracking your contributions.

 

What is a TFSA?

Since 2009 TFSAs have helped Canadians earn tax-free income on investments.

Set up as a registered investment or savings account, TFSAs can hold a variety of investments, including cash savings, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates (GICs), and bonds.

As the name indicates, all income earned in a TFSA remains tax free and allows Canadians to build up tax-free savings over the course of their lifetime.

What is the TFSA limit for 2024?

The annual TFSA limit for 2024 is $7,000, which is an increase from $6,500 in 2023.

That means you can contribute $7,000 to your TFSA this year. Since you can carry forward any unused contribution room, you may be able to contribute even more.

It also means that starting on January 1, 2024, eligible Canadians will now have a cumulative lifetime TFSA contribution limit of $95,000 (see “What is the lifetime contribution limit for TFSA?” below for examples and charts).

 

What is my TFSA contribution room?

While you’re limited with how much you can contribute each year, the good news is that your TFSA contribution room grows every year (minus any withdrawals).

Your contribution room is made of:

  • Your yearly TFSA dollar limit
  • Plus any unused contribution room since 2009
  • Plus any withdrawals made in the previous year*

*Any withdrawals from your TFSA will be added back to your contribution room at the beginning of the next year.

So, if you withdrew money from your TFSA in 2023, you could reclaim that contribution room in 2024.

You can open as many TFSAs as you want, but the amount of money you can contribute is limited, no matter how many accounts you have.

 

What is the lifetime contribution limit for the TFSA?

If you’ve never opened a TFSA before, you can deposit a hefty chunk of change to the account – $95,000 total (as long as you were 18 or older in 2009).

Listed below are the cumulative and annual limits since the program began, as well as how withdrawals from TFSAs are accounted for:

  • If you were 18 years old in 2009 and have not contributed to a TFSA at all, using the table below, your maximum contribution in 2024 would be $95,000
  • If you turned 18 any time after 2009, your lifetime TFSA contribution limit begins the year you turned 18

 

Where can I find my TFSA contribution room?

You can confirm your TFSA contribution room through logging into CRA MyAccount for Individuals or by calling the Tax Information Phone Service (TIPS) at 1-800-267-6999. If you have an authorized representative, they can also get these details for you.

The CRA can provide you with a TFSA Room Statement to confirm your contribution limit and a TFSA Transaction Summary to confirm the contributions and withdrawals the CRA has received from your TFSA issuer(s).

Tip: It’s a great idea to track your own transaction records of withdrawals and contributions. The CRA determines your available TFSA contribution room based on information provided annually by TFSA issuers, so it’s in your own best interest to ensure that your records align with that of the CRA.

 

How do I qualify for a TFSA?

Any resident of Canada who is 18 years old with a valid Social Insurance Number (SIN) accumulates TFSA contribution room each year (since 2009), even if they do not file a tax return or open a TFSA.

Yearly contribution limits are set by the federal government. However, even if you do not max out your TFSA in one year, the unused contribution room will carry forward into the following year as part of your lifetime contribution limit.

Notable exceptions

As stated above, TFSAs are available to any Canadian resident 18 years of age or older with a valid SIN.

The only exception to this rule is if you live in a province or territory where you cannot enter an agreement or contract – which would be necessary to open a TFSA – until the age of 19. In this case, your contribution limit for the year you are 18 rolls over to the following year.

Non-residents who are over 18 years old with a valid SIN are also eligible to open an account. However, if you contribute while you are a non-resident, you will be taxed 1% for every month you keep your contribution in the account. For more information about non-residents, please see the CRA website.

 

What is the penalty for going over my TFSA limit?

If you go over your TFSA contribution limit, this excess amount will be subject to a 1% per month penalty tax for as long as that excess amount remains in your account. For example, if you over contribute $3,000 in a year, you will pay $30 per month, every month you remain in excess – that’s $360 in penalties in one year alone.

This is why it’s so important to review your TFSA contributions, annual withdrawals, and limits before you add additional funds in the year.

Virtual CFOm7grpNo Comments

What is a fractional CFO? (And who should hire one?)

A fractional CFO is a financial expert with years of experience who provides the job functions of a Chief Financial Officer but on a part-time basis. They often work with multiple clients on a subscription or project-basis rather than working for one company.

What is the difference between a fractional CFO and the services a traditional bookkeeper or accounting firm can provide?

Why would a business want to hire a fractional CFO? The answer is pretty simple. Many small and mid-size businesses are not ready to hire an in-house Chief Financial Officer on their team. Maybe the business doesn’t have the funds available to make a full-time hire, or maybe they just don’t have enough work to warrant a full-time employee joining the team. Either way, a fractional CFO (also referred to as a virtual CFO, outsourced CFO, or a part-time CFO) is a finance professional who provides businesses with outsourced financial services designed to help them reach business goals and improve profitability.

Fractional CFO vs. Traditional Bookkeeper or Accounting Firm

What is the difference between a fractional CFO and the services a traditional bookkeeper or accounting firm can provide? This is a question we at M7 Group provide advisory services. What is the difference between a fractional CFO and the services a traditional bookkeeper or accounting firm can provide? This is a question we at M7 Group get quite often. The answer is an advisory relationship. Fractional CFOs don’t just help you file your taxes and prepare basic financial statements. A fractional CFO helps you with data-driven decision-making, based on forward-looking financial reporting.

Fractional CFO vs. Virtual CFO vs. Interim CFO

If the term fractional CFO and virtual CFO are often used interchangeably, is there a difference between the two? Sometimes, fractional CFO is used to refer to part-time CFOs that visit their clients physically in-person. These financial professionals may visit clients in their office buildings or even work part-time in the office.

Virtual CFOs, on the other hand, deliver services in an entirely remote environment. They will log into Zoom, Teams, or other video conferencing software to meet with clients. This remote work environment allows for flexibility for both clients and virtual CFOs because services can be delivered anywhere internet access is available.

However, it is important to note that remote, part-time CFOs are often referred to as fractional CFOs, as well. Make sure you verify the mode of interaction a financial professional uses when considering hiring them for your financial needs. That way, if you have a preference for in-person or virtual services, you are aware of a candidate’s business model before hiring or signing contracts.

I’d also like to note that both fractional CFOs and virtual CFOs are very different from interim CFOs. While fractional CFOs, as well as virtual CFOs, offer ongoing services, an interim CFO only works for a business for a short time. An interim CFO is exactly as it sounds, a CFO that replaces a former CFO while a business looks for a permanent hire.

 

 

What Does a Fractional CFO Do?

We previously mentioned that a fractional CFO provides accounting services and is a trusted financial advisor. Your virtual CFO will provide you with their expertise and viewpoint of your financials so you can make calculated decisions to get you closer to your business goals.

How a fractional CFO does this is through a mix of financial strategies and strategic planning. They will provide “basic” accounting services that a bookkeeper or a traditional CPA firm provides like:

·       month-end close

·       financial statements

·       scheduled financial meetings

·       revenue recognition

·       management of banking relationships

These services are designed to make sure you are in “good financial standing”.

However, there are many unique fractional CFO services that a traditional bookkeeper wouldn’t provide. Fractional CFOs will use the previously listed services to gather information used to develop long-term financial forecasts, short-term forecasts, cash flow management, scenario plans, and company-wide KPIs.

These last services will help you understand where your company is currently sitting financially, and how your company can make changes to achieve certain business goals. For example, your CFO can use a forecast to show you how certain business decisions will impact your future numbers. From there, you could see if you would have the money to make a new hire or if you may have to scale back a certain product line that isn’t doing well. One of the major benefits of a fractional CFO is that they help entrepreneurs understand the financial and non-financial metrics that drive their business, in other words, the things an owner can control, like whether to grow their team, use freelancers, or change their pricing.

A fractional CFO can also provide other services like:

·       incentive plans (phantom stock, esops and variable pay)

·       performance by project

·       team member performance evaluations

·       department performance evaluations

·       customized department reports.

Taxesm7grpNo Comments

Want taxes to be easy? Work on them year round, not last minute.

The way to make your annual taxes a good experience is to do your work now instead of waiting until right before they’re due. Here’s why.
 

Trust Your Money With Us

Taxes aren’t just a once-a-year phenomenon. Filing taxes begins with a plan and a daily routine. If your goal is to learn a language so you can visit a foreign country, learning in small, easy-to-digest segments makes it easy to absorb and retain. When you finally take your trip, it’s that much more rewarding.

The same is true of taxes. Attacking them in the handful of days before they’re due is a formula for stress, error and failure. Breaking down tax-related recordkeeping and related tasks into smaller segments, such as reviewing receipts and invoices an hour a week, makes the process more manageable and less overwhelming. Keeping taxes on your radar all year can even be good for your overall finances.

Make a regular tax thing

Have you ever skipped mowing your lawn for a few weeks? Suddenly, it’s up to your knees, the grass gets stuck in your blades and it takes way longer than it should. The same is true of handling your tax-related finances. If you document and file your receipts and invoices when they’re fresh in your mind, they’re easy to account for properly. That’s why you should look at them regularly — how regularly will depend on how much work there is. I recommend looking at everything at least once a month, but if you’re doing a lot of business, you may want to do it every two weeks or even weekly. Just make it part of your routine.

An excellent way to handle that is to write down an appointment in your business calendar. Writing it down will help in multiple ways. You should also physically write down what you must address at each session.

 

When you do that, you can also use the information to look forward. This can be really useful if your income differs from month to month. By seeing what you brought in in the past month, you can:

  • Get a better idea of what your year-end income will be.
  • See whether you may fall short and address that before it’s a severe problem.
  • Know which clients are your best.

When you know whether your year-end income looks like it will be much different from your previous year or what you expected, you can make plans to have money ready to pay at the end of the year or make adjustments to your estimated tax payments.

If you find you’ll have more money than you expect, it also provides an opportunity to make investments. You can buy something that will help the business — or even take a larger share home.

 

Don’t lose the paperwork

Your routine attention to tax-related paperwork will pay off at tax time. This is true whether you’ll be doing the filing, an employee will or a tax accountant will. Record the expenses that will count as deductions at your regular session closest to when they happen. This will include regular outlays such as rent; variable outlays such as utilities or internet (note the Internal Revenue Service rules if you’re declaring the costs for a home office versus a traditional office or facility); and your business phone. One of the easiest expenses to lose track of is business mileage. Entering mileage and the reason for travel will make things easier when it’s time to file.