What Business Expenses Are Tax-Deductible?

Business woman using calculator and writing make note

Do you know what tax deductions your business is eligible for?

When tax season comes around, it’s important to make the most out of eligible deductions to save you money and help your business grow!

However, before you start claiming whatever you can for your business, be sure that all deductions are supported by original invoices and paperwork.

Doing so is the best way to avoid an audit or any issues if you are audited.

Eligible Expenses to Claim

As a general rule, businesses can claim expenses that maintain the business and ensure that it is operational.

And there is a lot you can claim! To maximize your business tax return, be sure to take advantage of these tax-deductible business expenses:

Advertising

You can deduct costs for advertising on Canadian radio and television, in Canadian newspapers, and digital advertising.

Bad Debts

If you have already included an accounts receivable as income during the year, you can claim it as a bad debt if it won’t be paid.

Business Start-Up Costs

Tax-deductible business expenses include those that preceded the operation of your business as long as you operated your business in the fiscal period in which the expense was incurred.

Business and Property Taxes

Be sure to deduct any business taxes incurred while running your business as well as property taxes for the building and land where your business is located.

Business Fees and Licenses

Fees, licenses, and dues related to your business are deductible unless the main purpose of the fees is dining, recreation, and entertainment.

Business-Use-Of-Home

If you run your business from your home, you can claim use-of-home expenses such as heat, electricity, insurance, maintenance, and other expenses.

However, you can only claim a percentage that is dependent on the size of your office compared to the rest of your home.

Capital Costs and Allowance

When you acquire a depreciable property (such as equipment, a motor vehicle, a building, etc.), you cannot deduct the cost of the property because its value decreases over time.

Instead, you can deduct the cost over a period of several years

Delivery

If your business is involved in delivery, freight, and express, you can claim certain expenses on your taxes.

Insurance

Male arm in suit offer insurance form clipped to pad and silver pen to sign closeup

All ordinary commercial insurance premiums can be deducted as a business expense including any amounts incurred on buildings, equipment, and machinery.

Auto insurance claims are made under vehicle expenses.

Interest

When it comes to tax-deductible business expenses, you can deduct interest on money borrowed for business purposes.

Professional Fees

If you employ the services of an accountant, lawyer, or other eligible professional, you can claim those fees.

Maintenance and Repairs

You can deduct the cost of labor and materials when it comes to minor repairs or maintenance done to your business property.

Meals and Entertainment

This business tax deduction applies to meals and entertainment during business-related travel or events. It also applies to long-haul truck drivers who can deduct 80% of their food costs.

Motor Vehicle Expenses

If your business utilizes a motor vehicle to earn income, you can deduct related expenses.

Office Expenses and Supplies

When you run a business, you can claim the costs of office supplies such as pens, paper, and any supplies required to provide your goods and services.

Office expenses do not include capital expenditures.

Prepaid Expenses

Under the accrual method of accounting, you can claim expenses you paid ahead of time such as warranty, contracts, taxes, and workers’ compensation liability.

Rent

If you rent your business property, you can deduct rent for the land and building.

However, if you are claiming rent as a home business expense sense, this is done under business-use-of-home.

Salaries and Benefits

As a business with employees, you can deduct gross salaries and other benefits such as CPP (Canada Pension plan) and EI (Employment Insurance) premiums.

Utilities

Tax-deductible business expenses for utilities include telephone, gas, oil, electricity, water, and internet – as long as you incurred the expense to earn an income.

Ineligible Expenses You Cannot Claim

While there are many tax-deductible business expenses, there are some that you cannot claim on your business taxes:

  • Clothing purchases including special gear
  • Reimbursed maintenance and repair costs
  • Political contributions
  • Governmental penalties and fines
  • Personal purchases

Recent Changes to Deductions (If applicable)

One recent change made by the CRA in 2017 eliminates the ability to claim allowance on eligible capital property.

Property that would have been considered eligible capital property is now considered to be depreciable property and can be claimed under “capital cost allowance.”

FAQs

How do I claim items and services that I use for both home and work, like my cell phone or vehicle?

You will have to figure out the portion that is used for business, create a percentage using the total use, and deduct that from your business taxes.

For example, if you use your cell phone for 25 hours per week for business and 90 hours total for the household, this would equal 27% so you would deduct that percentage of your cell phone bill.

I do all of my business taxes and invoicing online. Do I need to keep paper copies?

While you don’t necessarily need physical copies of this information, you will need to have access to them for at least six years in case you are audited.

How do I deduct business equipment I bought for my staff?

Depreciable equipment, such as laptops, is considered capital costs. You can deduct the value of the equipment over a number of years – this is known as a capital cost allowance (CCA).

I have an office at both my business and my home. How do I claim this?

Typically, you would claim your main office on your business taxes but this would be a great question for a professional accountant who can give you an answer based on your unique situation.

Need More Help Understanding Business Tax Deductions?

Liu and Associates are here to help? 

Our team of professional and knowledgeable accountants can guide you through filing your business taxes to ensure you get the best return possible and avoid any inconvenient audits.

Let’s chat today!

Tax Guide for Small Businesses

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Paying your taxes as an individual is one thing but once you start running a small business, it’s a whole different game!

There are many aspects of a small business to take into consideration when it comes to filing your taxes from what you can deduct to how to manage employee payroll.

But don’t worry, we have you covered! Liu & Associates is a knowledgeable accounting firm with years of experience filing small business taxes.

Let our expertise guide you through the process with this tax guide for small businesses:

Common Deductions for Small Businesses

While there are many deductions you can take advantage of as a small business, there are the common ones you should take into consideration.

Keep in mind that a small business accountant can help you explore all possible deductions for your small business and maximize your tax return!

Rent and Property Taxes

You can claim property taxes that you pay on your business building. However, if you work from home, your property taxes need to be claimed under home office or business-use-of-home expenses.

Likewise, if you rent your business property or home, you can claim this amount as well. Keep in mind for at-home business situations, you can only claim a percentage of your home office compared to the total space of your home.

It’s important to keep a record of rent receipts, lease agreements, and property tax receipts in case you are audited by the Canada Revenue Agency.

Repairs and Maintenance

As a small business, you can also claim expenses related to repairs and maintenance but these need to be carried out in order to increase your business earnings.

Labor costs related to repairs and maintenance are capitalized expenses, meaning that you can only claim a percentage of those costs over a period of time via amortization or depreciation.

Repairs reimbursed through your insurance company cannot be claimed on your small business taxes.

Salaries and Wages

You can deduct the salary and wages you pay to your employees as well as other payroll-related expenses. A small business accountant in Edmonton, such as Liu & Associates, can help you ensure these amounts are properly claimed.

Vehicles

If your small business makes use of a company vehicle, you can write off expenses related to the vehicle such as fuel, oil, insurance, lease payments, parking fees, repairs, maintenance, and registration fees.

These are considered capital cost allowances (CCA) because a vehicle is considered depreciable property.

When you claim expenses related to your company vehicle, the amount your claim is proportional to the amount of business mileage compared to total mileage throughout the year. For this reason, you will have to keep a log detailing both business and personal use of the vehicle.

Home Office Costs

When you run your small business from your home, you can claim deductions on expenses related to your home office space including mortgage interest, utilities, property taxes, home insurance, repairs, and maintenance.

The amount you can write off depends on the size of your office compared to the size of your home.

Accounting Expenses

Fortunately, you can also claim accounting expenses when it comes to your small business taxes.

Having a small business accountant in Edmonton is beneficial since you can claim accounting-related fees on your income tax while ensuring your finances are properly handled!

Important Tax Dates and Deadlines for Canada

If you are self-employed, you do not have to submit your taxes by April 30, which applies to individual tax returns. Instead, you have until June 15th.

For sole-proprietors or partnerships, you must have your taxes submitted by the beginning of May if your fiscal year matches the calender year. Otherwise, your small business taxes are due six months after the end of your fiscal year.

Responsibilities for Payroll and Employees

If your small business has employees, you are required to collect and remit deductions from your employee’s pay as well as make contributions in addition to employee deductions.

You must also report your employees’ earnings and pay tax on the income you earn.

Deducting Employee Tax from Payroll

As an employer, you are required to deduct income tax as well as CPP (Canada Pension Plan) contributions and EI (Employment Insurance) premiums. You must also match the CPP amounts deducted and contribute to your employees’ EI premiums.

The amount of deductions and contributions depends on the employee’s income. To find out how much you have to contribute or deduct, you can always refer to a small business accountant in Edmonton to help you with corporate tax planning or contact the CRA.

Reporting Employee Earnings

When reporting employee earnings, you are required to fill out special forms to report salaries, wages, and taxable benefits. You must also fill out a T4 to provide to your employees by the end of February for their individual tax returns.

Deadlines

When remitting income tax that has been deducted from your employees’ pay, the deadline is generally the 15th of the following month. If the 15th falls on a weekend, payment is due by the next business day.

If you do not remit these deductions on time, penalties may apply.

However, some small businesses are allowed to do this on a quarterly basis but you have to apply for this program through the CRA.

Getting Help From an Accountant or Bookkeeper

When it comes to corporate tax preparation for small businesses, there are a lot of moving parts and not filing your taxes correctly can result in penalties and interest.

This is why it’s important to have a small business accountant in Edmonton by your side! Our team at Liu & Associates can help you prepare your small business taxes from start to finish.

Our expertise means that your finances will remain in order throughout the year, ensuring that tax time is a breeze!

If you’re ready to get started, feel free to contact us today. Our dedicated team is ready to answer all of your questions regarding small business taxes.

We look forward to hearing from you!

Corporate Tax Planning: 5 Things To Know

Top view of Finance business people or accountants point to the graph and use a calculator to calculate company income, expenses, taxes, and employee bonuses

When you own a corporation, proper tax planning plays an essential role when it comes to making strategic decisions.

The main goal is to increase your business’s tax efficiency and remain competitive in your industry.

Incorporating proper tax planning into your regular operations ensures that your company is run legitimately. It also allows you to reduce your tax costs and benefit from higher earnings.

Unlike personal tax returns, which are relatively simple to prepare, corporate taxes are complex, and not planning them properly, or trying to do them yourself, could result in costly mistakes.

What is Corporate Tax Planning?

When it comes to planning your corporate taxes, it involves more than estimating your end-of-year tax liability to know how much you should budget to pay your taxes.

Proper planning involves looking at your entire financial situation so that you can pay the least amount of taxes possible.

It takes into account expense planning, the timing of purchases, and how you pay yourself as well as dedication and credit opportunities.

Corporate tax planning also helps you choose the best investment and retirement plans to complement your business’s financial strategy and filing status.

1. You Can Take Advantage of Grants and Subsidies

The government offers grants and subsidies to help corporations receive rebates when buying depreciable property. This allows you to subtract the amount of the grant or subsidy from your property’s capital costs.

For instance, there is the “input tax credit” which is a form of government assistance that allows you to deduct the amount of the credit from the cost of a company vehicle.

There are other incentives you can apply for from non-government agencies when it comes to purchasing a depreciable property.

You can always contact our team of professional accountants at Liu & Associates for more information about grants and subsidies for corporations.

2. You Can Save Money and Grow Your Company

enior managers thinking and meeting with business teamwork at office.Team join forces for project.

As we mentioned above, one of the main objectives of corporate tax planning is to reduce the amount of tax your business pays by taking advantage of as many deductibles as possible.

When you know your tax liabilities, you can then reinvest your savings back into your business to facilitate its growth!

Corporate tax planning also provides insights into your business so you can assess the bigger picture such as whether or not the structure of your business needs to change and where your potential profit areas are.

3. How You Pay Yourself Can Save You On Taxes

When you own an incorporated business, you need to determine the optimal mix of dividends and salary to pay yourself.

In some cases, dividends may receive preferential tax treatments or allow you to pay yourself tax-free.

In others, it could be more beneficial to pay yourself a salary.

There are many factors that affect this decision that is based on your business’s unique operations. Again, an expert accountant can help guide you when making this decision.

4. There Are COVID-19 Relief Funds You Can Tap Into

While many COVID-19 relief programs offered by the government have ended, there are still others available that you can take advantage of when planning your corporate taxes:

  • THRP (Tourism and Hospitality Recovery Program): This program provides support to businesses in the tourism industry when it comes to wages and rent. 
  • HBRP (Hardest Hit Business Recovery Program): The HBRP provides up to 50% of rent and wage support for eligible businesses.
  • Lockdown Support: If your business has to close due to a public health lockdown and causes significant revenue loss, you can apply for this subsidy.

If you do take advantage of COVID-19 relief funds, keep in mind that some of these benefits are considered to be taxable income. 

5. An Expert Accountant Can Make the Process Easier

The process of filing a corporate income tax return is significantly more complicated than filing a personal tax return. Hiring an accounting firm will give you peace of mind that the process is handled correctly.

Accountants do more than simply handle money. They are professionally trained in tax preparation and have a full understanding of tax laws and how to organize your corporate income.

Plus, accounting experts know what additional tax credits your business can take advantage of in order to secure you a larger return!

So when it comes to planning your corporate taxes, there are innumerable benefits to having a professional accountant organize your finances to help your business save and grow.

Plan Your Corporate Taxes With a Tax Professional

Investing in a professional accountant can help you save money and avoid costly mistakes including penalties and tax audits.

For more information on how you can get started with your corporate tax planning, contact our expert team at Liu & Associates.

Tax Implications of the Canadian Emergency Wage Subsidy (CEWS)

The COVID-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of losing revenue and long-term closures. Luckily, in Canada, the government stepped in and offered the CEWS in order to help businesses keep their heads above water.

Now that these relief programs are in full swing, many individuals and business owners are wondering how this benefit money is going to affect their 2020 income tax return. The simple answer for business owners is: The CEWS is taxable income. When it comes to filing time, this money will be included in your business’ income. However, there is more to claiming the CEWS than simply including it in your taxes.

Read on to learn what the CEWS is, how it will affect your return and what to do if your business is audited in relation to this wage subsidy:

What is the CEWS?

In order to help businesses during the COVID-19 shutdown in 2020, the Canadian government offered the Canadian Emergency Wage Subsidy (CEWS) to help cover part of their employee’s wages due to drops in business revenue.

The subsidy was designed to help employers re-hire workers, prevent further job loss and ease their business back into normal operations.

The CEWS was available to taxable corporations such as individuals, non-profits, registered charities and other eligible entities and was provided over a 12 week period, divided into three qualifying periods.

Is the CEWS Taxable?

The CEWS, as a wage subsidy, is considered to be government assistance and therefore must be included in the employer’s taxable income.

The amount of CEWS received by an employer for a qualifying period will be included in the employer’s income. 

Employers will be entitled to a deduction for the amount of remuneration paid to employees but the amount of CEWS received will reduce any remuneration expenses eligible for tax credits calculated on the same remuneration.

Eligible remuneration for the CEWS includes salary, wages, fees, commissions and other remuneration such as taxable benefits – basically, anything subject to income tax withholdings.

However, this excludes retiring allowances and stock option benefits.

Claiming the CEWS on Your Income Tax Return

When it comes to the wage subsidy, there are no special withholding requirements on behalf of the employer.

All amounts paid to employees through the CEWS are considered regular employment income that is subject to regular withholdings such as income tax, CPP (Canada Pension Plan) contributions and Employment Insurance Premiums.

To accommodate for government relief programs during the COVID-19 pandemic, the Canada Revenue Agency (CRA) has published new T4 reporting requirements for the 2020 tax year.

The CRA will be using a new code system to identify employment income made to eligible employees during particular CEWS periods.

Therefore, employers will be required to provide additional information in order to help the CRA validate payments under the CEWS, CERB (Canada Emergency Wage Subsidy) and the CESB (Canada Emergency Student Benefit).

This information, in addition to reporting regular employment income in Box 14/Code 71, employers will need to use these new codes in the “Other Information” section at the bottom of the T4 slip according to the period in which they apply:

  • T4 Code 57 – Periods 1 and 2 – March 15 to May 9, 2020
  • T4 Code 58 – Periods 3 and 4 – May 10 to July 4, 2020
  • T4 Code 59 – Periods 5 and 6 – July 5 to August 29, 2020
  • T4 Code 60 – Period 7 – August 30 to September 26, 2020

The CRA may release new codes to cover the additional periods in the extended CEWS program.

These new T4 requirements apply to all employers, not just those who collected the CEWS.

When it comes time to prepare your 2020 taxes for your business, Liu & Associates will be available to help you navigate this new filing process.

Contact Our Team

Preparing for a CEWS Audit

Beginning in September of 2020, the CRA began issuing audit request letters to businesses who had been claiming the CEWS.

Their intent with these audits was to identify the types and levels of non-compliance in preparation for larger-scale audits.

When performing a CEWS audit, the government is looking to make sure the relief benefits went to companies that were eligible for them.

These “mini-audits” required that companies provide the government with pertinent information within a timeline of 10 days.

While larger-scale audits may end up operating differently, it is worth it for you (and your business) to always have the following information ready and available:

  • Documents from the employer’s minute books (i.e., anything related to the CEWS claim).
  • 2019 tax information (revenues, general ledger, revenue journal entries).
  • 2020 tax information (same as above)
  • Information used to compute the CEWS revenue decline percentages.
  • General payroll information (source deductions, contracts, proofs of payment, etc.).
  • Information related to other subsidies/government programs (i.e., Temporary Wage Subsidy).
  • A signed copy of the CEWS Attestation Form.
  • Documents that support any exceptions or elections utilized for CEWS.
  • Remuneration exclusions.
  • Qualifying revenue exclusions.

These requirements can be complex and extensive and failure to provide full compliance can result in a “gross negligence penalty” – which can be up to 50% of the difference between the amount of CEWS claimed and the amount of CEWS entitled.

If your business does receive an audit letter in relation to the CEWS, it is highly recommended that you consult an expert accountant to help you identify and organize CEWS calculations, claims and filing processes.

To get more information on how to handle a CEWS audit, please contact our expert accountants at Liu & Associates.

Don’t Leave Anything to Chance

While the CEWS was a life-saver for many businesses, it is certainly going to cause some challenges and confusion at tax time.

Don’t leave the health of your business to chance! It is recommended that you consult with a tax expert to ensure that your taxes, especially in relation to employee remuneration, are filled out properly and accurately.

Feel free to contact Liu & Associates with any questions you may have!

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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.

Does Declaring Corporate Bankruptcy Affect Me or My Credit?

Bankruptcy may seem like a golden ticket when you are looking at clearing debts from your creditors – but there are many things to think about before you file for bankruptcy, especially if you are doing so for your corporation.

One such concern is whether or not declaring corporate bankruptcy will affect your personal credit.

When it comes to owning a corporation, as opposed to a sole-proprietorship or partnership, you are not legally responsible for business debts. However, there are exceptions for which you can be personally liable. Before explaining these exceptions, it’s best to understand the difference between corporate bankruptcy and personal bankruptcy.

Corporate Bankruptcy versus Personal Bankruptcy

Because both individuals and corporations can own assets, they are both able to file for bankruptcy under the Bankruptcy and Insolvency Act.

The process is fairly similar, which a few key differences:

  • When declaring personal bankruptcy, all assets and liabilities are considered personal.
  • When declaring corporate bankruptcy, an incorporated entity is considered a legal “person” according to the Bankruptcy and Insolvency Act. This means that while some debts may be eliminated under bankruptcy, there are those exceptions that you may be held personally liable for.

The process of declaring bankruptcy is similar as well. The individual or corporate business owner must meet with a Licensed Insolvency Trustee (LIT) to file for bankruptcy. Once the bankruptcy is filed, creditors are notified and not permitted to contact you regarding the debt.

From the date of filing, you are eligible to be discharged from the bankruptcy after 9 months. However, the bankruptcy will remain on your or your business’s credit history for at least 6 years.

Before making any decisions about bankruptcy, talk to a trusted advisor at Liu & Associates to consider alternative solutions to your financial problems.

How Corporate Bankruptcy Can Affect Your Personal Credit

As mentioned above, there are special circumstances in which filing for corporate bankruptcy could affect your personal credit. These circumstances include making personal guarantees on loans or credit and the company’s tax liabilities.

Personal Guarantees

It’s possible that when you apply for a loan or credit, the lender or creditor will require the corporate business owner to sign a personal guarantee for the credit. This is an agreement that you, as an individual, will take full responsibility for the payments.

Should you file for corporate bankruptcy, this debt then becomes your financial responsibility. If the debt is unpaid, it affects your personal credit.

Business Taxes

Unpaid business taxes are not typically cleared through corporate bankruptcy. This includes any taxes withheld from employee salaries or sales tax (also known as trust fund taxes). You are personally responsible if you collect these taxes but fail to forward them to the taxing authority. This unpaid debt will directly affect your personal credit.

Bankruptcy As a Last Resort

Before you file for corporate bankruptcy, it is recommended that you seek professional assistance to discuss all of your options.

Even if you have no debts that could be held against your personal credit, there are considerations that should be made before declaring corporate bankruptcy:

  • The business will be finished.
  • Your employees will lose their jobs.

If your corporation has run into financial difficulties, there may be an alternative to your situation. Our expert accountants at Liu & Associates can review your corporate finances to determine if there is a better path for you, your business and your employees.

Contact us today to discuss your options. We are more than happy to help you save your business!

What Does It Mean To Incorporate a Business?

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If you run a small business but want to develop your company into a serious enterprise, you should consider the process of incorporation.

While incorporation involves a whole new aspect of accounting and tax preparation, as well as an application process, there are innumerable benefits to incorporating a small business.

What is Incorporation?

Incorporation, often abbreviated as “inc.” in the United States and Canada, is the legal process of forming a legal entity, or corporation, which is then recognized by law. This process then separates a company’s assets and income from those of the owners and investors.

How To Incorporate a Business

To incorporate your business, use the following steps:

Choose a name for your corporation

Be sure to choose something distinctive and not misleading. You can use the NUANS® Search System to compare your proposed corporate name with databases of existing corporate names. This comparison determines any similarities that may exist between your chosen name and existing names.

Complete the articles of incorporation

The articles of incorporation establish the structure of the corporation. This form needs to be signed by an incorporator. Incorporators are typically the owners of the business but can also be members of the law firm handling the incorporation process.

Establish an initial office address

This is the address in which all of the corporation’s records and documents will be located. The board of directors should also be established and their addresses provided in application as well.

File the proper forms

The proper forms must be filed and the necessary fee paid. There are two forms which are necessary to incorporate: Form 1 (Articles of Incorporation) and Form 2 (Initial Registered Office Address and First Board of Directors). Other forms may be necessary depending on the situation – you can find them here.

Wait for the application to be processed

If the application is incomplete, it will be returned with an explanation as to why it was invalid. A completed form may also be returned if there is pertinent information missing.

Otherwise, a completed and accepted application will be processed and the applicant will be notified of its success.

The Benefits of Incorporating a Business

While incorporation may seem like a lengthy and complicated process, there are significant benefits to incorporating your business.

Here are a few advantages to incorporating your business:

Protect the Owners and Investors Assets from Company Liabilities

Corporation owners exists separately as individuals from the company entity. Any debts or liabilities held against the company do not personally affect the owners and investors.

This means that personal assets, such as houses and cars, cannot be seized in relation to the company’s debts and responsibilities.

That being said, a corporation can own property which is not protected against liabilities.

Allows Company to Raise Capital Through Stock

When you incorporate a business, you have more opportunities to raise money in order to grow and develop your company. Corporations can incur debt but they can also raise money by selling shares.

This is known as “equity financing” and is highly beneficial to companies since it does not have to be repaid and incurs no interest.

The only caveat is that issuing shares reduces your percentage of ownership in the company.

Corporations Have Unlimited Life Spans

As owners and shareholders pass away or move on, their shares are transferred to their heirs or sold. This means that as those in charge of the business are no longer involved, the corporation itself passes on through inheritance or sale.

Incorporating Makes a Business Credible

Incorporation provides credibility to a business by projecting a serious nature to potential investors, lenders, suppliers, customers and employees. It distinguishes a company as one that is long-lasting and committed to continuing into the future.

Take Your Business to the Next Level

Our professional accountants at Liu & Associates can help you navigate the process of reorganizing your accounts and taxes if you decide to incorporate your small business.

Feel free to contact us today for more information!

Common Tax Mistakes Small Businesses Make

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Small businesses are taking the world by storm as more and more people opt to work for themselves and create their own legacy. With growing businesses come growing pains and many small business owners are prone to making many mistakes – especially when it comes to taxes.

If you are a small business owner, or are thinking about starting your own business, avoid the hassle of tax-time headaches by avoiding these common mistakes:

1 Not Keeping Receipts

If the CRA sees any amounts on your claim that seem a bit too high or suspicious, they are entitled to perform an audit on your return. This would require that you provide receipts as proof of expenses so the CRA can compare the totals to those on your return.

Some businesses make the mistake of relying on their credit card statement as a record of expenses for their company. Unfortunately, the CRA does not accept credit card statements as evidence of expenses.

To avoid any potential issues with receipts and expenses, keep all receipts related to your business. Maintain an organized system by writing exactly what the receipt was for on the back.

2 Claiming Personal Expenses

When certain aspects of your personal life are used to run your business, it is important that you make a clear distinction of what percentage is business and what percentage is personal. When you fail to divide the usage, filing your taxes will become a confusing mess that will need to be sorted out.

For instance, you may use your personal vehicle for business purposes. By tracking the amount of time you use your vehicle for business, and comparing it the time you use it for personal reasons, you can generate a percentage that you can then apply to vehicle-related expenses.

3 Inaccurate Payroll Records

Many small business owners take it upon themselves to manage payroll to their employees. However, a disorganized payroll system not only creates a nightmare when preparing to file taxes but can also result in some hefty penalties if not done correctly.

Speak to a professional accountant about how you can best organize your payroll system and properly classify your employees to avoid tax related issues.

4 Forgetting to Charge HST

When your small business makes less than a $30 000 annual income, a registered HST number is not necessary. Some businesses, however, find themselves experiencing an increase in income and surpass the $30 000 mark before realizing they have yet to apply for an HST number.

It is recommended that all small businesses, despite their annual income, register for an HST number right away. This will ensure that you are prepared should your annual income surpass $30 000. Otherwise, you may be penalized for not charging taxes if your annual income is greater than that amount.

5 Failing to Report Cash or Trade Payments

Some small business owners believe that if a transaction is not recorded on paper then there is no need to claim the payment as income. This is very illegal and all cash and trade exchanged for product or work must be reported.

If not, the CRA may impose severe penalties that include charging interest, court fines and possibly jail time. It is best for all small business owners to report all income and keep copies of receipts made out to customers and clients.

6 Being Disorganized

Overall, the biggest mistake small business owners make is being disorganized. Tax time is the worst time to play catch up on your record keeping.

An experienced accountant can help you keep all your records organized as well as aid you in preparing your taxes.

Contact Liu and Associates today with any questions you may have about organizing your small business and preparing for your tax return.

Consequences Of Not Filing Corporate Tax In Alberta

The hands of two accountants working on paper using a calculator

By not filing your corporate tax return on time (or at all), you’re opening yourself up a number of different penalties from the Canadian Revenue Agency (CRA). Join Liu & Associates as we highlight a few of the penalties below. Keep in mind this list below is by no means exhaustive. For a complete list of corporate tax penalties, visit canada.ca.

Failure to File

Corporate tax filing deadlines vary depending on your corporation’s fiscal year end, as well as what type of corporation it is. A corporation has to file their return within six months after their taxation year end, and payment is due either two or three months after taxation year end.

Generally speaking, the penalty for late filing is 5% of the unpaid tax that is due on the filing deadline, plus 1% of the unpaid tax for each month that the return is late, for up to 12 months.

A larger penalty will be charged if the CRA issued a demand to file the return and assessed a failure to file penalty in any of the previous three tax years. This penalty is 10% of the unpaid tax when the return was due, plus 2% of the unpaid tax for each month that the return is late, for up to 20 months.

Instalment Penalty

When the installment interest is more than $1,000, the CRA may charge an installment penalty. The penalty amount is calculated by subtracting the greater of $1,000 and 25% of the installment interest calculated if no installment has been made for the year. The difference is then divided in half to get the final penalty amount.

Large Corporations

A corporation is considered to be a “large corporation” is their total taxable capital employed in Canada at the end of the tax year by it and its related corporations is over $10 million. You can identify yourself as a large corporation on your T2 form.

If a large corporation fails to file their return, a penalty can be charged for each month that the returns are late, for up to 40 months. The penalty is calculated by adding up 0.0005% of the corporation’s taxable capital employed in Canada at the end of the year and 0.25% of the Part VI tax payable by the corporation (before deductions).

False Statement or Omissions

The CRA can charge a penalty if a corporation, either knowingly or due to gross negligence, makes a false statement or omission on their corporate tax return. The penalty for a false statement or omission is the greater of either $100 or 50% of the amount of understated tax.

The Exceptions

It’s good to note that the CRA will sometimes consider waiving penalties or interest if the reason for a late filing or not paying is beyond the taxpayer’s control.

Liu & Associates Can Help

If you need help with your corporate tax return, give the experts at Liu & Associates a call. We will work with you and your company to make sure your corporate tax matters are as smooth and cost-efficient as possible.

SR&ED: 5 Things To Know

Sr&ED 5 Things to knowScientific Research and Experimental Development is a mouthful, but shortened to SR&ED or “shred” it may be familiar to business owners. A federal program designed to incentivize industry with tax credits, SR&ED and its benefits are enforced by the Canada Revenue Service (CRA). Most of the time, claims and reviews are a simple process– but the following are five brief tips from the experts here at Liu & Associates.

#5 Who can apply? Individuals, trusts and foreign-owned corporations are all eligible for SR&ED and its incentives. Canadian-owned private corporations can claim these benefits at an even higher rate thanks to lawmakers’ efforts to encourage local innovation.

#4 Prescribed proxy amounts (PPA) are used in case you are not prepared to claim all SR&ED overhead and expenses (traditional method). Using the proxy method, your PPA is calculated against the salaries of all staff involved with SR&ED.

#3 Supporting documentation may be needed if your business’ SR&ED claim is flagged for review by the CRA. Always keep any documentation that could support your claim, including but not limited to accounting records, prototypes, financial records and even photographs.

#2 Investment tax credit (ITC) is what is generated by a successful SR&ED claim– it can reduce your business’ taxable income. Select cases may even be eligible for partial refunds paid for by ITC.

#1 Tax deduction is tied directly to what your company spends on SR&ED. Third party payments; overhead and material budgets; salary, wages and contracting costs… All of these could result in a tax credit or an ITC refund.

These tips are only a summary of the details surrounding Scientific Research and Experimental Development. As a federal tax credit program, there are intricacies that should only be handled by your business’ chief financial officer or a trusted accountant. If you have any questions or concerns about SR&ED, contact or visit us today at Liu & Associates!