Financial Considerations for Divorce 

Did you know that 41% of first marriages in Canada end in divorce?

While many couples divorce for a variety of legitimate and understandable reasons, the procedure is not simply a straightforward dismantling of a wedding certificate.

There are many financial considerations when filing for divorce, and the more prepared you are for that portion of the proceedings, the less you will have to worry about when the divorce is finalized.

Here are some financial aspects you should pay close attention to while proceeding with a divorce:

Marital Assets

When it comes to divorce, financial assets such as cash, bank accounts, stocks, mutual funds and savings bonds must be considered carefully.

Especially because not all assets created equal. It’s impossible to simply split everything down the middle.

Rushing into a settlement without careful consideration can be a financially and emotionally difficult situation to deal with after the divorce is finalized.

Real estate also needs to be addressed when filing for a divorce. This includes your marital house as well as other houses and properties, vacation properties, timeshares, rental properties and business properties.

Because a home is as much a financial investment as an emotional one, it can be difficult to negotiate how the property will be split, whether it is sold or one spouse buys out the other in order to keep the house.

Debt

Even if one spouse agrees to assume responsibility for debts such as mortgage, this does not mean the other spouse has no financial obligation to the joint debt.

Ultimately, both names on the debt, loan or mortgage are held accountable for paying it. Therefore, if the spouse that keeps the home defaults on mortgage payments, both parties suffer the resulting consequences.

A divorce decree cannot terminate financial obligations to creditors.

The only way to protect yourself if your spouse is assuming responsibility for a debt is to contact the lender and determine if he or she can refinance the loan under his or her name.

Otherwise, you have to place trust that he or she will keep up with the payments.

Bank Accounts

Most married couples establish a joint bank account in which all incomes are combined and all expenses are paid from it.

If your income is automatically deposited into a joint account, you will want to have it switched to a personal account in your name only.

Be sure to also take your name off the joint accounts to avoid liability if the account becomes overdrawn.

Although most divorces are amicable, should you suspect that your spouse is going to clear out the account, take your entitled half and put it in a separate account.

Taxes

There are a number of refundable and non-refundable tax credits that are based on the size of your “family net income”. When you’re married, this means the income of both spouses.

Therefore, when you divorce, your family net income is based on only one income. This means that you may become eligible for an increase in tax credits.

For this reason, it’s crucial that you update the CRA (Canada Revenue Agency) immediately after the divorce is finalized so that the recalculations can be done as soon as possible.

If you are separating in lieu of divorcing, you will have to live apart for at least 90 days before you notify the government.

Get the Help You Need

While you may be tempted to navigate the waters of divorce on your own, it is recommended that you seek guidance from a tax professional or accountant.

Our expert and experienced accountants at Liu & Associates can provide you with professional advice when it comes to sorting out your finances during a divorce.

If you are preparing for divorce proceedings, or simply have questions about your finances, don’t hesitate to contact us today!

How to Save Money When Your Income Temporarily Shrinks

Pandemics and recessions – at this point in time it seems our society has seen it all. And the financial impacts on businesses and families is undeniable.

While our world is currently suffering the detrimental effects of COVID-19, experiencing an economic downfall is not unique to this situation.

This pandemic has certainly been unprecedented but families and individuals should always be prepared for a decline in their income.

If you were not concerned about saving money before the downturn on our economy, you are certainly trying to find ways now.

Luckily, our accountants at Liu & Associates are focused on helping people avoid financial disaster.

Here, we’ve put together ways that you can save money even when your income has temporarily shrunk:

Create a Spending Plan

The first step in creating any sort of saving plan is to take control of how you spend your money.

A spending plan is different from a budget: it’s a tool to help you feel in control of your financial decisions. It will also help you find extra income that you can safely tuck away into a savings.

First, look at your reduced income – pay attention to what is coming in and what has to go out. Expenses such as these include rent/mortgage payments, bills and necessities like groceries and gas.

Next, focus on the things you are spending money on that are necessary. Do these things make your life better? If not, consider getting rid of them (such as monthly subscriptions) or stop buying them.

This may seem difficult at first but, remember, you are creating a habit and that takes time.

Start a Rainy Day Savings

A rainy day savings is money that you put aside “just in case”. This phrase likely originated from the days of agriculture when farmers had to set aside provisions for the rainy days in which they couldn’t work.

It seems like lately our society has hit many rainy days.

For this reason, it seems more important now than ever that you put aside some money in case you run into unforeseen difficulty, trouble or need.

This will help you avoid taking on more debt to handle unforeseen situations.

This form of savings should be your top priority. Ideally, you should have at least 6 months of expenses saved away.

However, for many people this can be impossible. Instead, focus on tucking away whatever free money you can find after creating your spending plan.

Long Term Savings

Even with a shrinking income, if you are able to continue to contribute to your longer term savings and investments, continue to do so.

You may not see the point since fluctuating interest rates are making these savings less rewarding than before, but think about these investments as a long term goal.

If you’re tempted to play around with your portfolio during this economic downswing, it is advisable that you speak with a financial expert.

Recessions Don’t Last Forever

Today’s financial atmosphere may seem hopeless, but history has proven that, despite economical hardship, society always comes out the other side.

One of the defining features of a recession is that they don’t last forever.

The future is always uncertain, as we can all contest to looking back only a few months ago. However, no matter the current global condition of the economy, you should always be prepared to weather the storm.

If you are worried or stressed about your current financial situation, our expert accountants at Liu & Associates are happy to help answer any of your questions.

Please don’t hesitate to contact us today.

Does Paying My Taxes Late Affect My Credit Score?

It’s no secret that paying your taxes late comes with consequences including interest and penalties that could negatively affect your finances.

But will these consequences affect your credit score?

It’s easy to assume that any money owing and debts will be held against your credit score. However, when it comes to late taxes, it works a little differently:

Does the CRA Report to Canada’s Credit Bureaus?

In general, the Canada Revenue Agency will not report to Canada’s Credit Bureaus if you owe a small amount in income taxes, paid your taxes late or received any basic penalties.

Because of the CRA’s privacy policy, they are restricted in the amount of information they are allowed to share with other organizations, including Canada’s Credit Bureaus.

However, there is an exception: If you owe so much in taxes that it results in a court case and a collection agency becomes involved. In this situation, the Canada Revenue Agency is able to put a tax lien on your credit report.

Overall, if your debts owing to the CRA become public information via a court case or collections case, your taxes owing will affect your credit score.

What Should I Do If I Owe Taxes?

An individual will usually end up late paying back owed taxes because they are not in a financial position to do so.

To avoid any late taxes affecting your credit, it is best to deal with it immediately before the debt becomes too large. Ignoring the problem will not make it go away.

In fact, ignoring owing taxes could result in ruined credit and even bankruptcy.

Even a small amount owing needs to be taken care of as soon as possible before interest charges inflate the original debt.

If you do owe taxes, here are some steps you can take to deal with the debt:

  • Contact the CRA immediately. The Canada Revenue Agency doesn’t want to drag you through court cases, so they are often willing to work out a payment plan. If you can prove that you absolutely do not have the means to pay your owing taxes in a short amount of time, you may be able to work out a multi-year payment plan.
  • The Taxpayer Relief Provision. If your tax situation meets certain criteria, your case may be forwarded to the Minister of National Revenue. Should your case be approved, you could receive tax penalty and interest relief.
  • Save and spend responsibly. You should consider establishing a savings account for tax purposes and other emergencies. Being able to pay a portion of your tax bill is better than not paying anything.

What Does Affect My Credit Score?

Knowing what actions affects your credit score is important in keeping your credit score high.

While your taxes only affect your credit if they become a substantial debt, many other elements come into play when determining your credit score:

  1. Payment History. The largest part of your credit score is based on how well you pay your bills and owing amounts on credit products. It takes into consideration late, short and missed payments – which can negatively affect your credit score.
  2. Utilization. Credit bureaus look at how much debt you have versus how much available credit you have. If you continually run your credit cards to their limits, this will lower your credit score.
  3. Credit History. How long you’ve possessed your credit products also impacts your credit score. Debts that you’ve carried, and maintain good payments on, for many years look better than newer debts.
  4. Credit Product Variety. The credit bureaus also like to see a variety of cresot products, not just credit cards. This includes loans, mortgages and lines of credit.

Why Take the Chance?

Any amount owing in late taxes, whether it be a large amount or small one, can spell trouble for your finances.

Contact Liu & Associates today for more information on how you can avoid interest and penalties when you owe money on your taxes.

COVID-19 Canadian Tax Information

With the recent changes due to COVID-19, many clients and small businesses are feeling financial pressure.  Please know we are deemed an essential service and will continue to serve you.  If you are affected financially by this pandemic, Liu & Associates is here to help.

To help ease financial burdens of taxpayers and small businesses, the Government of Canada is providing options to defer tax payments and is extending the tax deadline.  Read more about financial help for Canadians affected by COVID-19; a hub of benefits the federal government, provinces and territories are offering to people financially affected by the coronavirus.  For more information on how this can help you, your business and your employees, please see our resource section below or call us at 780-429-1047.

You can also visit Government of Canada’s coronavirus disease or call their information line (1-833-784-4397),  available from 7:00 a.m. to midnight (EST) seven days a week.

Our team will continue to update this page as more information becomes available.

Last updated: May 26, 2020

Our Response Plan

The team at Liu and Associates LLP wants to assure you we are closely monitoring the COVID-19 situation from a financial standpoint and recognize it is truly a global crisis and is constantly changing. This is an unprecedented time for all of us, and we feel the need for everyone to work together to weather this storm.

To ensure the health and safety of our clients and staff, we are taking extra precautions in our office – read our blog post about how our office protocol has changed.

External Resources

City of Edmonton

  • The City of Edmonton has launched a new website for business support in response to the COVID-19 pandemic. This website will be updated regularly by the City.
  • If you have any business related questions, contact the City of Edmonton directly: businessinfo@edmonton.ca
  • In an effort to contain the spread of COVID-19, the City of Edmonton is taking immediate action following the direction of Alberta’s Chief Medical Officer of Health.

Surrounding Areas

For up-to-date information related to other surrounding communities, please follow the following links:

Alberta

Canada

The Government of Canada is rolling out constant updates that affect both individuals and businesses.

APPLICATIONS are now being accepted for Canada’s Emergency Response Benefit Program.

The Government of Canada has launched a COVID-19 APP; to download yours visit APPLE  OR  ANDROID

 

Prime Minister Justin Trudeau announced $350 million in emergency funds for community groups and national charities.
Individuals

 

Businesses

For more information, please contact Liu & Associates LLP.

The Benefits of Taking a QuickBooks Training Course

Your business may be small but, even if you don’t feel you need a CPA (Certified Public Accountant), you do need to keep accurate financial records.

This task can be overwhelming but it is vital to the success of your business.

Luckily, there is accounting software available to help small business owners manage their finances as well as many other aspects of business.

Liu & Associates understands the value of being able to take care of business matters. Because of this, they recommend and offer training for an amazing accounting program called QuickBooks.

What is QuickBooks?

QuickBooks is accounting software geared toward small and medium sized businesses.

Some features of the software include:

  • Track income and expenses
  • Capture and organize receipts
  • Track mileage
  • Manage bills and payments
  • Send invoices
  • Maximize tax deductions
  • Accept payments
  • Track sales and sales tax
  • Payroll
  • Track inventory
  • Run reports
  • Send estimates

QuickBooks is designed to support multiple users as well as connect with third party apps.

Why Do So Many Small Businesses Use QuickBooks?

QuickBooks provides a do-it-yourself solution for small business accounting.

The interface is user-friendly and customer-oriented. With a QuickBooks training course, anyone can master this program.

The software also helps small businesses easily manage their taxes, which ensure that taxes are filed properly along with all the necessary information.

QuickBook’s integrated tools help businesses to increase their efficiency and productivity. They also regularly update and improve the software in order to keep the program up-to-date.

Most importantly, QuickBooks offers automated backup services, meaning that all of  the business’s information is safe from data loss.

What Are the Benefits of Taking a QuickBooks Training Course?

1. The Program Can Be Overwhelming

Because QuickBooks incorporates so many wonderful and helpful features, it can take some time to figure it all out. Even with a user-friendly interface, it can be a challenge to easily navigate the software upon first use.

A QuickBooks training course will guide you through using these features and help you gain the confidence to do so in a professional setting.

2. You’ll Learn its Full Capabilities

Even if you are able to grasp how to use QuickBooks, there are some features you may not be aware of. A QuickBooks training course will help you take full advantage of the program’s full capabilities.

QuickBooks’ full array of features are designed to increase the effectiveness of a small business’s accounting department. Understanding how to use them all is valuable knowledge.

3. It’ll Show You How to Apply Your Bookkeeping Skills

You may have plenty of experience as a bookkeeper but it may be difficult to transfer your practical skills to the QuickBooks software.

A QuickBooks training course can teach you how to combine your know-how with the program’s many features.

4. You’ll Make Yourself a Competitive Job Candidate

QuickBooks is quickly becoming the leading accounting software for small businesses. Knowing how to fully use the program is a valuable skill to add to your resume.

Having experience and training with QuickBooks can open the door to jobs in a variety of organizations, including:

  • Small businesses
  • Not-for-profit organizations
  • Government agencies

Businesses appreciate efficiency and productivity, which you can offer with your knowledge of using QuickBooks.

Ready to Step Up Your Business’ Accounting Game?

Liu & Associates is happy to offer comprehensive QuickBooks training!

Whether you are looking to introduce your staff to accounting, or train a new employee, Liu & Associates can tailor a QuickBooks training program to suit your needs. We offer one-on-one or group training sessions.

We work with your schedule to accommodate your QuickBooks training.

Contact us today for more information!

New Guidance for COVID Programs

As we are striving to bring you up to date information as quickly as possible, we are now providing you with further guidance from the www.Canada.ca site for COVID programs and benefits in relation to the Canada Emergency Response Benefit (CERB).

For those individuals who have received non-eligible dividends from corporations in which they held shares as the means of remuneration, the Questions and Answers section of the CERB application has been updated to address the qualification of this type of income in the application for CERB. Please note that non-eligible dividends are indicated in box 10 of any T5’s you would have received. The update is as follows:

Are self-employed small business owners eligible for the CERB?

Yes provided they meet the eligibility criteria including that they stopped working due to COVID-19 and do not earn more than $1000 in a period of at least 14 consecutive days in the first benefit period and for the entire four-week benefit period of any subsequent claim.

Small Business owners can receive income from their business in different ways, including as salary, business income or dividends. In determining their eligibility for the Canada Emergency Response Benefit:

  • Owners who take a salary from their business should consider their pre-tax salary;
  • Owners who rely on business income should consider their net pre-tax income (gross income less expenses);
  • Owners who rely on dividend income should consider this as self-employment income provided it comes from non –eligible dividends (generally, those paid out of corporate income taxed at the small business rate).

Income Requirements

What counts towards the $1,000 in income I can earn?

The $1,000 includes employment and/or self-employment income. This includes among others: tips you may earn while working; non-eligible dividends; honoraria (e.g., nominal amounts paid to emergency service volunteers); and royalties (e.g., paid to artists).

However, royalty payments received from work that took place before the period for which a person applies for the Canada Emergency Response Benefit do not count as income during that specific benefit period.

Pensions, student loans and bursaries are not employment income and therefore, should not be included in the $1000.

Applications will be verified against tax records to confirm income.

What income types count towards the $5,000 in employment and/or self-employment income?

The $5,000 includes all employment and self-employment income. This includes among others: tips you have declared as income; non-eligible dividends; honoraria (e.g., nominal amounts paid to emergency service volunteers); and royalties (e.g., paid to artists). If you are not eligible for Employment Insurance, you may also include maternity and parental benefits you received from the Employment Insurance program and/or similar benefits paid in Quebec under the Quebec Parental Insurance Plan.

Pensions, student loans and bursaries are not considered employment income and should not be included.

Does the minimum income of $5,000 have to be earned in Canada?

No.

The income does not have to be earned in Canada, but you need to reside in Canada.

If I am in receipt of dividends am I eligible for the CERB?

Yes as long as the dividends are non-eligible dividends (generally those paid out of corporate income taxed at the small business rate) and you meet the eligibility criteria.

Non-eligible dividends count towards the minimum $5000 in income required for eligibility. Non-eligible dividends also count toward the $1000 income threshold for a benefit period.

Do artists’ royalties count as employment or self-employment income with respect to the CERB?

Yes, in some cases. Artists’ royalties would be considered payments received as self-employment income if they were received as compensation for using or allowing the use of a copyright, patent, trademark, formula or secret process that is a result of their own work or invention. These royalties count towards the $5,000 income threshold, as well as towards the $1,000 that claimants can earn per month while receiving the Benefit. However, royalty payments received from work that took place before the period for which a person applies for the Canada Emergency Response Benefit do not count as income during that specific benefit period. Other royalties (i.e., from investment activities) do not count with respect to the Benefit.

To read this and more about the qualifications in order to make an application for CERB. Please go to: https://www.canada.ca/en/services/benefits/ei/cerb-application/questions.html .

 

For more information, please contact us today.

What Do I Do After Declaring Personal Bankruptcy?

Did you know that the average Canadian household owes close to $1.78 for every dollar earned?

It’s no wonder debt is a financial issue for Canadians, with many of them facing owing amounts so high that there is no hope of paying it off.

If you find yourself in this type of financial crisis, bankruptcy is an option for clearing your debts. However, it comes with certain obligations you are expected to fulfill.

What is Bankruptcy?

Bankruptcy is a legal process for individuals who seek relief from some or all debts when they cannot repay these debts to creditors.

Filing for bankruptcy requires a licensed insolvency trustee, who files the bankruptcy and sends a notice of bankruptcy to the creditors.

The creditors then cannot proceed with any lawsuits, garnishes or payment requests.

After filing for bankruptcy, you are eligible for discharge from the trustees after 9 months. However, the bankruptcy itself remains on your credit report for at least 6 years.

What Happens After My Bankruptcy is Filed?

Once the bankruptcy is filed, you are required to fulfill a few obligations with the trustee.

Your responsibility during the bankruptcy includes:

  • Sending your trustee proof of your income and a monthly budget once a month.
  • Notifying your trustee of any changes with your work or income.
  • Attending 2 credit counselling sessions. During these sessions, a credit counsellor will guide you through budgeting and money management techniques.
  • Making monthly bankruptcy payments to the trustee.

During this time, you can expect to no longer have to deal with creditor calls. When your bankruptcy is filed by the trustee, an “automatic stay” is forwarded to the creditors.

An automatic stay indicates to the creditors that they are not allowed to take collection action against you.

What Should I Do After I File Bankruptcy?

Once your bankruptcy is discharged, you will no longer be required to deal with the trustees.

However, although your obligations to the trustee are compete, there are measures you can take to protect yourself from future bankruptcy and rebuild credit.

1. Check Your Credit Reports

Even though filing for bankruptcy clears your debts, you want to make sure nothing was missed on your credit report before beginning to reestablish credit.

About 3 to 6 months after your discharge from bankruptcy, you should check your credit report.

This is not the same as checking your credit score, which you can do for free now through most bank’s websites and apps.

According to Canada.ca, you can order a copy of your credit report through Equifax Canada and Transunion Canada without affecting your credit score.

2. Start a Budget

The reason bankruptcy proceedings require you to attend credit counseling is to try to prevent a bankruptcy from happening in the future.

You should continue what you learned from the credit counseling even after your bankruptcy is discharged.

Additionally, before you begin to build credit again, you want to make sure you can afford payments on a credit card.

Healthy financial habits will help you avoid a future bankruptcy as well as help you rebuild your credit quickly.

3. Build New Credit

Although the bankruptcy remains on your credit report for a minimum of 6 years, you can begin to build credit again immediately after your discharge.

While some financial institutions will deny you credit due to your bankruptcy, many lenders will look at you as if you have never had credit before, since bankruptcy essentially clears your credit status.

In order to reestablish credit, you should begin with a low limit secured credit card. Secured credit cards, as opposed to prepaid cards, offers you revolving credit.

This means that you can borrow against the card as long as you keep the balanced paid. Secured credit cards require a security deposit.

Be sure to use the card responsibly and only spend what you can afford to pay off each month.

Is Bankruptcy the Right Option For You?

Whether bankruptcy is the right choice for you or there is another viable option to help with your debt, you should speak with a professional accountant to ensure you are heading down the right financial path.

Contact our experts at Liu & Associates for more information about bankruptcy and other debt-solving options.

 

New COVID-19 Protocols

With the COVID-19 Pandemic is having unforeseen implications on Canadian taxes, we will be exercising extra precautions for the safety of our clients and staff.

We are asking our clients to follow these steps while in our offices:

  • There are clearly marked lines for social distancing for clients when speaking with reception;
  • We will limit face to face meetings when possible and use Teams/Facetime or WhatsApp to video chat with clients instead;
  • Clients will be guided directly to boardrooms when they come in for meetings;
  • Whenever possible, information to clients will be by email rather than mail or in person;
  • We will log all client visits for contact tracing purposes should it become necessary;
  • Clients will be prescreened before their appointments to ensure they are healthy and safe to visit our office. At the time of screening, we will give our message of encouragement to wear a mask for the appointment;
  • We have hand sanitizers and disposable masks for clients visiting the office;
  • We have trained our staff for distancing and COVID safety and have set up procedures to ensure we can effectively distance ourselves;
  • We require our staff to self-quarantine during illness and after illness for 14 days as well as for travel to hot spots or out of province;
  • We have a safe procedure for the dropping off of materials as well, materials stay in a holding area for 48 hours before handling;
  • Our high traffic areas are sanitized daily except for the reception area which is sanitized between client visits;
  • We are a mask friendly firm for our staffs much as for clients (We have homemade non-surgical masks for our staff and disposable masks for our clients);
  • We have been rotating our staff to mitigate risk;

We thank you for your assistance and cooperation in this matter.  Please feel free to contact us should you have a special circumstance and require special arrangements.

To assist our clients, we have compiled a list of resources for both businesses and individuals. 

We thank you for your assistance and cooperation in this matter.

Please contact us if you have any questions about our services during this time.

 

Updated 06/02/2020

COVID-19 Tax Implications

The team at Liu and Associates LLP want to assure you we are closely monitoring the COVID-19 situation and recognize it is truly a global crisis and is constantly changing. This is an unprecedented time for all of us, and we feel the need for everyone to work together to weather this storm.

We want you to know you have our commitment to continue providing you with the services you depend on, including up to date economic information.

You are not alone; we are in this together. So, how are we working together to support each other?

Health & Safety

First and foremost, our plan ensures the health and safety of our employees and our clients. We have implemented special protocols and continue to update them to support our team and to ensure we maintain our ability to serve you, for the long term.

We are being very cautious and have put in place precautionary measures to limit the potential spread of the virus including:

  • Frequent hand washing, supplying hand sanitizer, and masks if needed.
  • By requesting any staff member who has been out of the province to self-isolate for 14 days.
  • Maintaining social distancing within our office.
  • Working remotely wherever possible and using specific software as a unified communication and collaboration platform combining workplace chat, video meetings, file storage, and application integration.
  • Taking steps to limit our outside contact and discouraging in-person meetings as much as possible by asking our clients to provide us with their tax or financial information electronically, and if that isn’t possible, to please make an appointment in advance for an in-person meeting.
  • Materials physically coming into our office are being quarantined, and our intake staff are using precautionary measures.

Monitoring

Our senior leadership team remains vigilant and is monitoring the situation in real time and responding swiftly as conditions evolve.

Please view our most recent update on our COVID-19 protocols.

Tax Changes

We undertake to keep you up to date on changing tax deadlines or government directives, as follows:

You may already be aware of Canada Revenue Agency’s (CRA) announcement to extend the personal tax filing deadline. So instead of an April 30th filing deadline for the 2020 tax filing season, Canadians will have until June 1st to submit their income tax return to CRA. The deadline to pay off any outstanding balances interest-free will also be extended, this time, to July 31st.

Businesses will also have more time to pay their taxes. The CRA will allow all businesses to defer, until after August 31st, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020 including tax balances due, as well as required instalments, under Part 1 of the Income Tax Act.

No interest or penalties will accumulate on these amounts during this period. For more information, please see the statement from the Department of Finance. 

The CRA continues to monitor the evolving situation closely, in collaboration with other government departments and agencies as well as our provincial and territorial partners.

The Government of Canada is taking immediate, significant and decisive action to help Canadians facing hardship as a result of the COVID-19 outbreak. Today, March 18, 2020, the Prime Minister announced a new set of economic measures to help stabilize the economy during this challenging period.

These measures, delivered as part of the Government of Canada’s COVID-19 Economic Response Plan, will provide up to $27 billion in direct support to Canadian workers and businesses. For detailed information please visit their website.

Moving Forward

We are following the guidance of major public health organizations, including the Public Health Agency of Canada, local health authorities, and the World Health Organization, and will continue to do so as the situation unfolds.

To protect ourselves and the communities around us, we can’t stress enough to please follow all the protocols for COVID-19 including frequently washing hands, regular cleaning of work surfaces, and avoiding public or crowded places whenever possible.

Best of health, be safe, and take care of yourselves.

Your trusted financial team at Liu and Associates LLP

How Incorporating Your Business Can Affect Your Taxes

You own a small business and you’re ready to take it the next level. Incorporating your business carries many benefits including easier access to capital, enhancing your business’s credibility and creating an enduring legal business structure.

It also provides protection from personal liability, meaning that you can safely separate your personal assets from the business.

Does this mean you can protect your personal taxes as well?

Read on to learn how you can avoid having your taxes negatively affected by your business’s activities as well as tax benefits from incorporating and how to file your corporate income tax return:

What Does Incorporating a Business Mean?

When you incorporate a business, it means you are turning a sole proprietorship, or general partnership, into it’s own legal business structure. This business structure is set apart from the individuals who founded it.

Incorporation creates a separate legal entity in order to transact business.

Can Incorporating My Business Affect My Personal Taxes?

Because of the limited personal liability that incorporation offers, your personal assets are protected from tax-related issues.

There is an exception if you fail to deposit taxes withheld from wages. For those, you are held personally liable.

Also, if you treat the corporation as an extension of your personal affairs instead of as a separate legal entity, you could be held personally liable for financial issues. For example, you may be considered using your business as an extension of your personal affairs if you fail to follow routine corporate formalities.

As the owner, and as an individual, you are otherwise expected only to pay personal taxes on your income like any regular employee.

The corporation pays taxes on residual income after salaries, bonuses, overhead and other expenses are paid.

Can I Save Taxes By Incorporating?

In general, corporate tax rates are lower than personal tax rates – so there is opportunity to save taxes by incorporating.

However, in order to benefit from lower tax rates, the company would have to generate a substantial profit.

You can take advantage of lower tax rates if you earn more than you need to live on. Should your profit exceed what you require as a living wage, you can leave the difference in the corporation and pay a reduced income tax rate.

Otherwise, you can take advantage of income splitting in order to save taxes with your corporation. This involves splitting the business income with family members.

Income splitting can create tax advantages more beneficial than reduced tax rates.

Liu & Associates can prepare and file your corporate income tax return for you as well as take advantage of any and all tax benefits. Contact us to find out more information.

How Do I File Taxes for Incorporation?

Corporations are expected to file a T2 corporate tax return every year within six months of the end of its fiscal year. A fiscal year can be the same as the calendar year or it can begin in any months and end twelve months later.

You can file a corporate income tax return electronically with tax preparation software certified by the CRA.

The T2 corporate tax return is more complex than a personal income tax form. It is recommended that you have your corporate tax return prepared by a professional tax accountant.

If your corporation owes taxes after filing a return, the balance can be paid through the CRA online services, from the business’s bank account or by cheque.

Put Your Corporation In Good Hands

Navigating the world of taxes once you incorporate your business can be tricky and complicated.

Avoid making costly mistakes by contacting our expert accountants at Liu & Associates. We can help you properly prepare and file your corporate taxes so that you can experience all of the benefits of incorporating your company.