The start of a new year is the perfect time to check-in on your financial status and goals. On this episode, we sit down with Chartered Professional Accountants, Matthew Peterson and Curtis Gabinet, to discuss what small business owners need to know. From dividends and wages, to minimizing taxes, this episode is packed with their top advice.
The start of a new year is the perfect time to check-in on your financial status and goals. On this episode, we sit down with Chartered Professional Accountants, Matthew Peterson and Curtis Gabinet, to discuss what small business owners need to know. From dividends and wages, to minimizing taxes, this episode is packed with their top advice.
Curtis Gabinet, CA-CPA joined the True North Accounting team in 2016, and became a Partner just two years later. Curtis connects with people naturally and enjoys building relationships with clients. He is always quick to respond and has a sincere desire to help people. He is a Chartered Professional Accountant (or CPA, formerly known as Chartered Accountant), and has a strong background in small business accounting and tax. Curtis will fight the CRA for you, and work all night to make sure your deadlines are met. He’s patient and happy to explain things to clients several times, making sure no one leaves his office confused. (He’s known for coming up with ridiculous analogies to help.) He genuinely cares about your success and is here to work beside you every step of the way. Curtis is available anytime by phone or email to help you find solutions to problems, big or small.
Matt Peterson, CA-CPA, CBV loves business and sees small business owners as the backbone of Canadian society. He earned his Chartered Accountant (now called Chartered Professional Accountant, or CPA) and his Chartered Business Valuator designations with PriceWaterhouseCoopers in Calgary between 2009 and 2014. He is passionate about business and wants to help small business owners achieve their goals.
Morgan Berna is the host of Olympia Benefits’ podcast, The Small Business Mastermind. Her background is in marketing, journalism, and broadcasting. Passionate about small business, she aims to create content that inspires and educates listeners.
Matthew Peterson: It's a big decision. It's probably the best tax planning opportunity for a small business owner...
Morgan Berna: You're listening to The Small Business Mastermind, a podcast created by Olympia Benefits to help small businesses juggle business, finance, health and wellness. I'm your host, Morgan Berna.
Morgan: Welcome to The Small Business Mastermind and thank you so much for tuning in today. On today's episode, I sit down with two chartered accountants. We've got Matthew Peterson and Curtis Gabinet of True North Accounting which is based out of Okotoks and Calgary, Alberta. We talk all about their top tips for small-business accounting. We talk about when to incorporate versus being a sole proprietor, the differences between taking dividends and wages, how you can simplify your bookkeeping, ways to minimize your taxes and more. Whether you've been in business for years or are starting a new business, this episode will have helpful advice for you. So without further ado, let's dive right in and I will be checking back in with you again at the end of the episode.
Morgan: Two guests in the studio here today we've got Curtis Gabinet and then Matt Peterson, so we'll start with Curtis. Curtis joined the True North accounting team in 2016 and became a partner just two years later. Curtis connects with people naturally and enjoys building relationships with clients. He's always quick to respond and has a sincere desire to help people. He's a Chartered Professional Accounting or a CPA formerly known as Chartered Accountant and has a strong background in small business accounting and tax. Curtis will fight the CRA for you and work all night to make sure deadlines are met. He's patient and happy to explain things to clients several times, making sure no one leaves his office confused. He's known for coming up with ridiculous analogies to help and he genuinely cares about your success and is here to work beside you every step of the way. Curtis is available any time by phone or e-mail to help you find solutions to problems big or small. Welcome, Curtis.
Curtis Gabinet: Thanks.
Morgan: And we've also got Matt Peterson here. So, Matt loves business and sees small business owners as the backbone of Canadian society. He earned his Chartered Accountant, now called Chartered Professional Accounting or CPA and his Chartered Business Valuator designations with PricewaterhouseCoopers in Calgary between 2009 and 2014. He's passionate about business and wants to help small business owners achieve their goals. While earning a Bachelor of Commerce from the University of Calgary, Matt ran his own lawn care and landscaping company. Understanding a small-business owner's perspective, he can communicate tax and accounting concepts in ways that small business owners appreciate and understand. You will never leave his office more confused than when you entered. Welcome, Matt.
Matthew: Thanks, Morgan. Great to be here.
Morgan: Alright. So, just for our listeners out there, we're going to be chatting with both Matt and Curtis today on small business accounting for business owners and then we're also going to be putting out a second episode two weeks from now that will be all about accounting for employees as well. On this episode, we're covering a variety of topics and if there's anything that we talk about here that you would like to hear more about, please send us a message and we can always dive deeper into these topics. I'm going to give quickly a rundown here of what we're talking about today and then we'll start diving into the individual topic. On the board, we've got "incorporation versus sole proprietor", "dividends versus wages", "simplifying bookkeeping and taxes", "apps to make life easier", "right offs", "minimizing taxes", "staying on the good side of the CRA" and "making the most of your accountant." I wanted to ask one of you, we got quite a bit here. What are you hoping listeners leave this episode with?
Matthew: Just a general understanding of what it takes on an annual basis to keep compliant with the CRA. Maybe some tips for minimizing taxes, improving your cash-flow, I guess protecting yourself going forward and yes, just have a long term plan for managing those tax brackets and keeping organized and being proactive.
Morgan: Awesome, and I think when we'd had a call just before this you mentioned the term, "getting financially fit for 2020" which I like, so it'll be January now for everyone listening, that's kind of the goal here, yes.
Matthew: Yes, there's lots of things to think about in January and it's a good time to automate a lot of the tasks throughout the year and really think about what could be done better this year compared to last year and preparing for tax season as well.
Morgan: Perfect. Okay, so that first topic we've got here, "incorporation versus sole proprietor". What is the difference between incorporation and sole proprietorship?
Matthew: Okay. So, a sole proprietor, if you just went and started painting fences, you would be a sole proprietor in the painting business. You don't have to register anything. You don't have to tell anybody you're starting a business really. It's the default. There's no separation between your business and yourself. You just report your business income on your tax return. If something goes wrong and somebody sues you over a job, they're coming after you. They're not coming after your business which is when you incorporate, you're creating a completely separate legal entity.
Matthew: So, this is like "Bob's Painting Incorporated" that's who did the work, not Bob, it's the incorporated company. And if somebody sued Bob for that painting job, they're coming after the assets and the cash that Bob's Painting Incorporated has, not Bob's own retirement savings and car and house.
Matthew: And so, it's really that, having that legal separation between you and your business.
Morgan: So, if you're a sole proprietor and your sitting in a room it's just you but if you're incorporated there's really two "entities" there. There's yourself and your business?
Morgan: Kind of? Okay. And so, what are some advantages of each? Maybe advantages and disadvantages?
Matthew: On the sole proprietor side, just the simplicity and it's not very expensive to start up. You can register a business name.
Matthew: And that just prevents somebody else from taking, like if it's "Bob's Painting" and you want to protect that name, you can do that, otherwise you basically just start in business. And the cons are that exposure to liability, I guess, as well as you pay tax on every dollar your business makes. There's not a ton of opportunity for tax planning and tax deferral and it can be a little bit harder to keep that separation between your household budget and what you guys need to live on personally and how the business is doing and tracking performance and even keeping organized can be a little bit harder when your personal and your business are all intertwined.
Matthew: So, that's the one thing we see a lot with sole proprietors. A lot of people starting out, ask this question, "Should I incorporate? Should I not?" and I always give the, I guess give a couple of examples. Number one, if you're doing anything dangerous or outside, you're working with equipment, somebody could get hurt or if something goes wrong, there could be a lawsuit.
Matthew: So, if you're like a copywriter or something, there's probably not a lot of risk there. So, number one, you want to protect yourself, that's protecting from those lawsuits is the number one reason to incorporate and go to a lawyer, he'll tell you what your exposure is. Number two, you're not going to necessarily going to pay less taxes if you incorporate but there is opportunities for deferring tax and minimizing tax that sole proprietors aren't capable of taking advantage of.
Matthew: Yes, I always say, as soon as you're making more money than you need to live on, that's when you have the opportunity to keep money at the corporate level and then you pay tax on what you spend or, to a certain extent, you can choose how much tax you pay in a year and you can keep the rest of the money in the corporation so you can invest it. You can grow your business with it, you can--
Morgan: So, as we're sort of going through some of these other topics then, are we keeping in mind people who are incorporated? Or will this be sort of applied to both situations?
Matthew: A lot of tax topics are very different, when we're talking about sole proprietors versus incorporations, so I think we'll just focus on corporations.
Morgan: Okay. So, that's the basis then, for anyone listening, is there anything else that people should know before we move on?
Curtis: There is a little bit more to consider, I guess, with the corporate structure. Since it is its own separate legal entity you've got a separate corporate tax return. You got to open a separate bank account. You've got a few other things that have to get done, separate sets of filings, different deadlines to consider but all of that kind of opens the door to extra tax planning opportunities, so it's good to understand, "Okay, I am now incorporated, what are my filing requirements? What do I have to do? What are these extra set of filings that I need? I've got to pay tax at the corporate level and then the personal level." So, there's more to know but at the same time it does automatically give that separation from personal to business and just opens up a lot of other options.
Morgan: Yes, and it's sort of like the two biggest distinctions are how much you're earning and how much risk your business has?
Curtis: Yes, when it all boils down, the more you're earning, the more potential the corporate structure usually has. Everything's a case-by-case--
Morgan: Got an asterisk--
Curtis: Everything's different, yes, asterisks inside everything.
Morgan: --on this whole episode. [laughter] So, then let's move on to "dividends versus wages". What's the difference between taking wages and taking dividends as payment?
Curtis: This is something we explain to people constantly, whether they're brand-new, whether they've been a business for 10 years, a lot of people just don't know. And maybe they just haven't adequately been explained what it means or what the differences are or they don't care but it's good to have a general understanding, because ultimately there's two ways as an owner to get money out of your corporation into your own pocket, and you can pay yourself a dividend, you can pay yourself a wage, those are ultimately the two ways you're getting it out. There's pros and cons to each. Dividends, ultimately dividends, you're just extracting cash from the company.
Curtis: And you're just taking it out as you please. You don't really need to do anything. There's different ways you can structure it, obviously, but more often than not you’re just month-to-month, week-to-week just pulling cash out of the company and at the end of the year, you kind of tally that up and your dividend is showing up on a T-5. There's tax planning opportunities in between but it's simple, straightforward and really easy but there's also, I guess, cons to it. A dividend is not a write-off to the company, so the company doesn't see any tax savings because on the opposite side of wage is a write-off to the company. So, because it's not a write-off to the company you get taxed a little more favorably in your own hands personally, so you get this T-5. You use that when filing your personal taxes and you will owe a chunk of tax depending wherever you fall in the tax system. So, you're not paying into CPP, nobody's withholding income tax for you, like a T-4, like a regular employee.
Morgan: Oh, okay.
Curtis: You're just taxed on the grossed amount at the end and everyone has a different view on what CPP is going to look like when they retire but I've seen circumstances of people coming to us as a new client. They've been a business forever and they're heading into retirement, they're like, "Well, I don't have any-- I'm not going to get CPP, what do I do?" It's like you've been paying yourself dividends the entire last 30 years and nobody every explained this to you. You haven't contributed to CPP.
Morgan: Can you still contribute to CPP with dividends or do you need to kind of just do your own pension planning at that point?
Curtis: You need to take extra precautions, I guess. Ultimately you don't want to just rely on CPP as your retirement income, right?
Curtis: But you want to focus more on alternate methods, RRSPs, other things like other forms of investment. Service Canada has different options to go out of your way to contribute yourself to still contribute to it, but it's not quite as simple and straightforward as just having it come right off your wage.
Curtis: Another thing that's usually unknown to people or we commonly see it as a shock is dividend income personally isn't considered earned income, and I'm putting air quotes around that, but the tax system says it's not earned income whereas a wage is earned income.
Curtis: And the key to that is earned income is what increases your RRSP contribution limit. So, if you only draw a dividend your whole life, you start a company right out of high school, you only draw a dividend, you can't put anything to your RRSPs.
Curtis: You don't have any RRSP room because you have never had earned income. There's these other qualitative factors more than just the taxes you're paying. On the flipside, a wage it's-- there's more involved. You have to withhold, especially from your employees from yourself, it can be handled a little different if you're the owner but realistically you're withholding income tax and CPP if you're owner not EI because you're likely going to be EI exempt but you're remitting this every single months so you've got another task, there's deadlines for payroll to keep in mind to dodge interest and penalties from CRA. Then you're getting a T-4 from your own company, so the wage that you're paying yourself in a very simplistic scenario is a write-off to the company. You've just brought your company's net income down. You saved the tax for the company and you file your personal tax return with your T-4 and you've already withheld your own income tax and CPP and you're contributing to CPP. You're increasing your RRSP contribution limit. Most cases, there's always variables in every scenario. Everything's different, but in a very cut and dry scenario, the overall tax between yourself and the corporation combined, whether you choose dividends or wage, is usually really close.
Curtis: If there was a clear-cut winner, everyone would do it.
Curtis: So, sometimes it's more understanding what each means and what fits your lifestyle and your goals going forward.
Curtis: Some people just say, "I don't want to worry about anything, I'm just going to pull money out and I don't care about the other factors." Payroll seems daunting for some business owners, like, "I don't know how to do payroll, I don't understand it." But there's a lot of programs, apps, that can just simplify and automate and just make it one of those-- you spend five, 10 minutes a month, make it a routine and simplify.
Morgan: When you have the T-4 income, are there more taxable benefits you can get from that?
Curtis: It's treated differently. It's viewed different from CRA. Childcare Benefit, if you pay childcare you get normally on your personal taxes, you get a tax deduction for that but that can only be if you only have dividend income you can't claim that because it's claimed against employment income. Sometimes there's other factors obviously If it's just owner operator and you're paying into a form of medical benefit, something like that, CRA views it differently if it's employment income because you're paying into an employee-sponsored type of plan. They want to see employment income or employment expense from the corporation. I've seen it handled different ways when it boils down to a review or an audit from CRA. If you do have a wage of 3500, there's no CPP that needs to be remitted on it. So, sometimes just paying yourself a wage of 3500, you don't need to do a CPP remittance. You don't need to do any remittance to CRA and it's a way to-- if you want to do mostly a dividend way of paying yourself then, you could still do a small wage where you don't have a remittance if you keep it low enough. And then you have employment expense. You have employment income. You can hit some of the boxes that need to be hit in order to tick the boxes and the tax systems.
Matthew: I guess, the only thing I would add is, generally, wages if you set it up and you automate your payments each month and you're on it, you're getting your business to pay your taxes for you. Just like as if you are an employee, that generally sets you up for retirement a little bit better because you're contributing to CPP and if you're making RRSP contributions, you're just consciously investing in your retirement. With dividends, you're going to have a tax bill at the end of the year, so you're going to have to save 20 to 30% of the dividend you receive personally to pay your taxes. At the end of the day, you probably get a little bit more cash in your pocket when you go dividends. And for a lot of small-business owners that have been around for a long time, couple decades, same accountant, it's basically rule of thumb is dividends all the way and it's really hard to just blanket say, "Dividends are better." Yes, they might be a little bit cheaper, but every year the federal government is playing with these rates, trying to drive behavior one way or the other. A few years ago, Trudeau was worried that CPP was underfunded, so he kind of changed that up a little bit, made wages a little bit more attractive than dividends.
Morgan: Oh, okay.
Matthew: But now the CPP rates are changing starting in 2019. And then, yes, they're creeping up over the next seven years, I think. We invite our clients every January, February to come in and walk around the numbers based on their specific scenario, what tax brackets they're in and just show them, "If you do all wages, this is what your total tax bill is going to be. And if you do all dividends, this is what it will be. And if you do a mix of the two." And then we find out what their priorities are and let them choose what's the best way for them.
Matthew: It's a big decision. It's probably the best tax planning opportunity for a small business owner, just how much to take, is it dividend is it wage, when to take it, because you can declare it in your business, but then not pay it until the next personal tax year so you get a little bit of tax deferral there. So, yes, it's one of the biggest conversations we have with our clients every year. It's an important one.
Curtis: And there are parts of, I guess, understanding the rules so you kind of know how to play CRA's game a little bit. Because nobody's situation is the same, right? Everybody has a different situation, different goals, other factors at play so just understanding the basics and how it works and then once you kind of know how it works, you can apply that the basic concepts to your own situation and then pick what's best for you.
Morgan: What are some common bookkeeping errors that could be fixed by simplifying the process or just things you just see all the time that could be avoided?
Matthew: We see a lot of people come in and they're like, "Oh, we have a QuickBooks online account, I've been tracking all my receipts." And it's like, "Okay, great but in order for that--" we just need to make sure it's set up right and that they're going through the proper reconciliations. If their bank transactions aren't feeding into their accounting software like QuickBooks online or Xero or FreshBooks and they're just manually entering in receipts, they're probably not getting all their expenses. They're missing write-offs, something like bank fees. You don't get a receipt for that. Something like insurance premiums, yes, you'll get a statement once a year but are you entering that in? So, the way bookkeeping is done has completely changed over the last few years with the, I guess, invention of cloud bookkeeping, cloud accounting software, those terms are pretty interchangeable.
Morgan: Yes, I was searching this, by the way, to just see what's out there and there's dozens and dozens.
Matthew: Oh, yes.
Matthew: Oh, yes. And there's more popping up every day and they're getting smarter like Xero, that's what we use a lot. They are playing around with AI and machine learning. With this softwares, they connect to your bank, they're bringing in your credit card transactions and your business bank transactions on a daily basis and then it's just asking you to code this transaction to one of your accounts. So, like a four-dollar bank fee, Xero wants you and QBO wants you to code that to your bank fees account, and once you do that once or twice, it then recognizes like, "Okay, when this is a RBC bank fee labeled in the Pay E column of the bank transaction." It's like, "Okay, I'm going to remember that, this goes to bank feed." And you can also set up rules, a common one would be gas stations if it has Esso, Shell, Petro-Canada, Centex, then put it to vehicle expense or restaurants if you frequent the same coffee shop or lunch spot that you take clients. So, it learns and you can teach the software to really make it more efficient. We, try to get all of our clients to just give us their bookkeeping and then there's a lot of efficiencies when the bookkeeping and the accounting is done under the same roof, especially for small one, two-person, small businesses, consultants and professionals and tradesmen that that group of people. It doesn't make a lot of sense to have a bookkeeper and an accountant. And if you're doing it yourself, just get set up right.
Morgan: Could an accountant set this up for a business and then kind of let them do their thing or would you suggest working with the accountant overtime to just make sure it's working properly?
Matthew: Oh, yeah. We love setting up a Xero account, importinh our chart of accounts, getting their invoice set up connected to their Stripe or their PayPal account, setting up their bank feeds, doing some bank rules for them, and then just letting them-- it doesn't take that long to do 50 transactions, which may be like a typical month, and then you can just watch them code these 50 transactions and it maybe takes an hour but then they have a pretty good grasp, they can do 90% of the bookkeeping from there on out. And then they can leave their accountant comments too. Like if there's a transaction like one payment is paying off a loan or something like that. It's not really an expense. "Where do I put this?" You're not sure. You can just leave a comment like, "Hey Curtis, I don't know how to treat this. Can you go in there?" And then we get a notification, we go in there, make sure it's done right. The other common mistake is the GST accounts not being set up right on the chart of accounts. So that's a big one for any small business that follows GST.
Curtis: Yeah, getting it set up from the get-go is really important if someone's doing themselves. A lot of these the web-based, the cloud-based accounting ones, also have the ability to share a user invitation to your accountant or to your bookkeeper or to your spouse or whoever else is helping. That way you can if you run into a roadblock, it's really easy to see the same thing as someone else sitting in an entirely different city possibly, and just work through it immediately, and just defeat the roadblock and move on and keep going. I guess that we're talking about how to simplify bookkeeping and taxes. So that cloud base is making it a lot easier to do that. There can be other like if you're not ready for that, or you're not quite at that level or you have enough transactions to make to justify paying for a program, there are other ways to simplify your bookkeeping and your tax situation. Just whether it's you're going from a paper ledger to an Excel ledger, something as simple as that, or just understanding how to keep organized. Like some people just have a shoebox, right? We still see a box of dirty receipts in a shoebox getting dropped off, and your accountant doesn't like that, believe me. So just understanding how to simplify the organization to help yourself or whoever is doing the bookkeeping, whether it's month by month separate file folders or category by category separate file folders. Whoever's doing the bookkeeping is going to-- it's so much simpler to find something to if you have to go back, if you are involved in any kind of like CRA review, or you just have to dig something up. It's, you know the month, you can find the statement that it says was paid on, you can find the receipt right behind it. There's different ways to keep yourself organized to simplify. If you're not even-- if you're not quite at that level to get to cloud base.
Morgan: You said you use Xero. Are there any others you recommend?
Curtis: Xero's good. QuickBooks Online is a big one. It's probably the biggest out there, especially in Canada. FreshBooks, we see. There's some more industry-specific ones. There's a few other ones specific to certain types of professions. I know some medical type industries and psychologists, and so there's ones tailored directly to them. So it never hurts to Google programs similar to QuickBooks Online with maybe your profession in the search field and download a trial copy, and try out a couple and just see what when you like the best.
Morgan: Alright, let's talk about online banking functions and apps to make your life easier. So I think everyone will be happy to hear things to make their life easier, it sounds good. What are some apps you'd suggest business owners are using things help money-- manage their money, manage their business?
Matthew: Yeah, so outside, like the main bookkeeping software, like Xero and QBO. My favorite app is MileIQ. It's a like mile, M-I-L-E I-Q. It's for tracking your kilometers, and so it has an iPhone or Android app that it just recognizes when you're traveling in a vehicle. And then it uses your GPS to know your starting point and your ending point, and then it tracks that trip once a week, once a month, whatever you go through all your trips. And just you swipe left if it's for personal, and you swipe right if it's for business. It has everything that the CRA would want if they audited your vehicle expense, which this has been a big year for vehicle expense. This is something that every business owner should have and it's free. It's free for up to 20 trips a month, which is just below the useful point.
Curtis: Of course.
Morgan: Of course.
Matthew: But if you have one every weekday, or every workday, that's two trips a day, that's 40 trips at least, but then it's 5.99 a month after that. Doesn't use a ton of data and it just makes it super easy. That's a good one. Hubdoc is like it's a good Canadian tech, I guess, success story there in Toronto, and it's like a digital filing cabinet. But they got some really neat features like it will-- you teach it how to log into your bank and it will go and download your statements every month. You can teach it to log into your TELUS account and it will save your cell phone bills, or your Amazon account and it will just save all your Amazon purchase receipts right there.
Morgan: Oh, so you just have them all in one place online?
Curtis: Yeah, and they're all digital. It's in the cloud, it's safe, and yes, a lot of people will save their like life insurance documents there and their will because their accountant has access to it.
Morgan: So you can grant access to different people similar to the programs?
Morgan: Okay, cool.
Matthew: And then so if something happens to you, your account has all that. So those are two. Receipt Bank is another one that's good for just snapping a picture of a receipt. The CRA accepts digital copies of all this paperwork now. So if you take a picture of that lunch receipt, there's a number of apps you can do that with, but you can then just crumple it out, throw out that receipt, and you can go paperless. Yeah, I guess those were-- those three are the big ones.
Morgan: Alright, so our next topic is write-offs and minimizing taxes.
Curtis: Minimizing taxes is what you're after at the end of the day, no matter what. If you’re incorporated or not, you want to pay less tax or just capitalize on every chance to get a write-off you can. So again, you’ve got to start the building blocks of, "Okay, what can I write-off? What does that mean? What should I look for?" If you can boil it down to pulling out the right card at the point of purchase, you really simplify what happens after the fact. But first, you got to know what because if it's personal, you're going to pay with your personal card, if it's business you pay with your company card. The CRA has, it's a very gray general description, but a write-off is any costs you incur in an attempt to earn income. So it's very broad. Okay?
Morgan: Okay. Yeah.
Curtis: What you have to-- I oftentimes, I'll tell someone, "If you're sitting across from a CRA agent, and you've got that write-off in your hand, whether it's a meal receipt or a parking receipt, can you explain to the CRA auditor why it was a business expense? And if you can, and it's very easy, like, "Oh, I drove to this podcast interview right now and I paid for parking, so it's to do with our business." I'm going to include this parking receipt as a write-off there. I just justified it. Sometimes some people want to push things, some people want to remain on the low-risk end where if it's questionable, like, you go out for dinner with a few friends and colleagues and you could make the argument that you talk business and it was you were taking people out and it did benefit your business. You could justify it if you wanted to argue that, but some people choose, "No, I don't even want the risk. I'm just going to pay for this one personally." But really any cost, anything you're paying for during the course of operating your business is a write-off. There's most of the time, it's very straightforward. It's just 100% is directly for the business [crosstalk]
Morgan: Yeah, like equipment.
Curtis: Yeah, it's so clear and concise. Then you get into there's a bunch of different gray areas where it's your home office expense. Most people with a small business operate out of their home office. And so then you're looking at a split between personal and business, and you have to think, CRA uses the word “reasonability” all the time. So what's reasonable? And like a home office, the classic example CRA says, "Use your square footage of your home office, compared to your house." You'll get a percentage, maybe 10%. You apply that against all of your different home costs, your mortgage interest your utilities, and you get to claim a portion. That's like saying, "Okay, 10% of the cost of my house is actually my business." Vehicles, similar, were again tracking mileage back to what Matt was saying before. Tracking your mileage and every business owner has at some point been tracking mileage or been hounded by an accountant to track their mileage. And so finding out what portion of using your personal vehicle is business versus personal, and then that percentage, you can claim right off for, as well. Things like home internet, cell phone. Most people don't have a second cell phone if they have a business. If they are their business, if it's a small business, you're just using your phone, right? You're probably paying for that personally. Maybe you're paying for the business because it's so heavily leaning towards the business side but sometimes you just do what's reasonable, 50:50 split between myself and the business and then you-- Just understanding what is the write-off, make sure you can start trying to capitalize on claiming them all and dropping your taxes.
Morgan: Are there any ones that people miss the most?
Curtis: People miss vehicle write-offs all the time. Sometimes, they might just have to whip together an estimate or backtrack and try and pick it up at the time of kind of filing their company corporate return and financials. But meals, people often don't capitalize on meals or buying a computer. That's a lot of times, they buy it personally because they don't see it as a business expense, even though they end up using this laptop 90% of the time for their company right?
Matthew: Along the same line, like headphones and iPad, like anything that could be used for business. Christmas gifts for your vendors and your staff, businesses get a $500 tax-free gift every year for employees. So that's something they should take advantage of, and it can be cash, it can be gift cards. But yeah, those are the main ones. But just understanding like the rules around group functions of everybody's invited to lunch, it's 100% write-off. If it's just you and a client or you and a colleague, it's 50% a tax deduction. Home internet, like a lot of people lump that into a home office, and they only take like 10% of their home internet.
Morgan: That's what I would have thought after what you’d said. But and it's different?
Matthew: Have we ever had 50% kind of denied?
Curtis: Like a cell phone, yeah 50-- No, never.
Matthew: Or like 50% of a cell phone is standard but there's a lot of guys working up around Fort Mac or Grand Prairie that have a $300 cell phone plan, and if they weren't working up there their cell phone plan be like 80 bucks. So, 80 bucks cut in half is 40 bucks personal, 40 bucks business. So I would probably take 240 of that bill as a business because they only need the extra data because they're now in that remote area.
Morgan: Yeah, because they're now in that area.
Matthew: So they need lots of roaming, there's not a lot of Wi-Fi. Yeah, so those are the big ones.
Morgan: Alright, so we've got the next topic down on CRA representation and keeping on their good side. So first of, you can let me know why would someone need representation and do accountants represent their clients before the CRA?
Curtis: Some do, some don't. We see we see it both ways. If you in court your lawyer rep-- you're innocent until proven guilty and you have a lawyer representing you. In front of CRA, you're guilty until you prove yourself innocent, and your accountant is often your representative similar to your lawyer in court. So it depends. We see some becoming their representative, some don't. But it's really a quick form that gets signed and filed that says that your accounting firm is able to represent you and file forms for you. And you can log in and access information, file GST returns, look at past transactions and balances outstanding and do adjustments to returns, talk to the CRA on their behalf. If you get a question there, there's a review of your vehicle expenses for your corporation which, like Matt said, we've seen a lot of. It's really easy for the person, if you pick up a phone call on CRA, and they're like, "Oh, we're auditing you for vehicle expenses for 16 and 17." You can say, "Well, call my representative." That's why I have them as my representative. And then oftentimes, CRA, if they do call you and they're questioning you, they're not just asking simple questions that you can answer. They're fishing and they're trying to almost set you up to say the wrong thing. You might think it's perfectly legitimate to just answer, but it's-
Morgan: Oh, I mean, you might not need to.
Curtis: Right, right. You might not need to tell them that you have only one vehicle or two vehicles, or one vehicle owned by the company. Every scenario is different, but it's a lot easier to just say, "Hey, call my accountant." And then we can filter it and get back to you and deal with the problem for you. It's good to have some on your side and dealing with them. If you get a call from CRA You're not going to be happy, right? You're automatically probably upset, they're probing you. You want to speak to them in the right fashion to keep them on your side. A happy CRA agent, it can make a big difference a lot of the time whether they click the button to send you to collections or they don't, they can make a difference.
Matthew: Yeah. Like we deal with the CRA agents every day. We speak the same language as them. We know when they're asking kind of a feeder question. We know what they're trying to get at, especially around payroll or vehicle expenses, something like that. They're trying to see how you came to that expense, but yeah, just being responsive is the number one thing. The other thing with having your accountant as your CRA representative is you don't have to deal with these scam callers. Like no CRA agent is going to call you and demand payment immediately or you're going to jail. Nobody's going to demand Bitcoin as payment.
Morgan: Yeah, I have been-- I keep getting calls telling me I'm going to jail. CRA scam calls really yeah, getting crazy.
Matthew: All you got to do when a CRA agent calls is say, "Sorry, I'm busy, call my accountant." And if we're on their file, they call us. If it's a scam caller, they don't see that we're your representative so they stop calling.
Morgan: What are some easy ways to stay on their good side?
Matthew: Filing your tax returns on time. When you don't file your tax returns, they-- like if it gets two, three years down the road, they just make up a number and send you a letter like, "Oh, we think you owe us $100,000 and it's up to you to file your tax returns and prove that it's not that much." That's such a low hanging fruit even if you owe, like you even if you know you're going to owe but you can afford it, still file your tax returns because it just minimizes that future balance owing because you're just going to keep incurring penalty after penalty. And those are 10% each plus interest, which can be a percent a month. File them, as long as they know what they're dealing with, they're a lot easier to deal with.
Morgan: Yeah. Okay, so the last topic we've got for this episode, and then, in case anyone missed at the beginning, we're going to be chatting a bit more with Matt and Curtis about employee finances. So our last one here is how can a business owner make the most of their accountant? So some things I sort of curious what are maybe the basics and accountant handles, but then also some of the things that a business owner might not even know their accountant could be helping them with?
Matthew: Yeah, so I guess just setting up like we touched on it in when we were talking about bookkeeping.
Matthew: And it goes for any apps around tracking mileage or receipt organization. Just lean on them. Get your accountant to instruct you on what apps to use, how to use them, help them set up your QBO or your Xero file or your invoice, get them to look over at or do like a dry run for sending an invoice. It's stuff they see every day. Tax planning, like be proactive. When your taxes are done and your accountant calls you or emails you the PDF, it's easy if you're busy to just like sign off and pay your taxes and not really have a conversation around it. Take advantage of that meeting to just ask like even if you get everything from the year before like you made this much and you know that much, whatever. Ask them how you can make this year easier or you can save tax. Yeah, there's always like proactive thought and conversation around that can go a long way. Yet, like as accountants, we have a few hundred other small business owners. So there's a network there that you can leverage. Like you can-- it's not something that anybody really takes advantage of, but yeah, we have 10 plumbers and a bunch of dentists and there's just a good community of small business owners that we can share connect people to.
Morgan: Yeah, I mean, I saw in your newsletter you sent out today that you put a list of a bunch of local businesses for shopping local and stuff, which was pretty cool to see that there is that network of all the small businesses for you.
Matthew: Yeah, totally.
Morgan: What about just helping with business development, business growth, business planning?
Matthew: Growing a business is tough, takes a lot of cash. You got to plan that out if you need to really keep on top of that as you're growing and making sure you can make payroll. Just relying asking for reports like management report, or a Cash Flow Statement, or send us your budget for the year and we can plan out your wages or your payroll, and really leveraging your online banking to schedule those installment payments, schedule your payroll. It's all stuff you know at the start of the year and it's just a matter of entering it in through your online bank and then you don't-- it's like set it and forget it and you're good and you don't miss any deadlines. You're not incurring penalties or interest. That's an easy one.
Curtis: And just some of like to circle back to the other topics we've talked about, make the most of your account and like you don't want to be completely oblivious to some of this stuff. You want to understand it. And sometimes it takes year after year after year of slowly understanding it, but ask the questions, get a response and make sure the response is something that you actually understand. Like, "Why am I drawing a dividend instead of a wage?" If you don't know, you should probably know the difference, and why you're doing it or why the accountant is guiding you that way? Maybe there's a reason or maybe it's just easy, right?
Curtis: So ask questions and get answers you understand because they're often the questions and answers that are really, really, really important. It's not like what, "Where should I go for dinner tonight?" It's, "Why am I paying $10,000 more in tax this year than I was last year?"
Matthew: On that same topic just before any major financial decision, just run it by your accountant and just get like if it's buying a vehicle, if it's buying a cabin, or cottage for those at least, whatever. RSPs, anything like that, just rely on them.
Curtis: I've had phone calls from people in a dealership parking lot looking at trucks, saying, "Do I buy this personally or through the company?" And, like any big major decision probably, especially if you're a business owner, has a tax implication.
Morgan: Thank you so much for tuning in to this episode of The Small Business Mastermind. If you'd like to be notified when future episodes are made available, you can visit olympiabenefits.com/the-small-business-mastermind to join our notification list. I'm going to make this link available in the description as well. And in case you weren't aware, this is just part one of a two-part episode we're doing with Matthew and Curtis. On the second part, we're talking all about personal finance, ways to really make the most of your money and get financially fit for this new year. That's going to be available shortly if it's not already, depending when you're listening. So be sure to stay tuned for that, and that's all I've got today for this episode. Thanks so much for tuning in again, and I'll talk to you very soon.