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!

Business Tax 101: Why/When Do I Need To Apply For A GST/HST Account?

 

In Canada, most goods and services are eligible for at least one sales tax: the Goods and Service Tax (GST)– some provinces are also subject to the Harmonized Sales Tax (HST). Most Albertans mentally factor in the 5% GST charge to day-to-day transactions, but there is more pressure on businesses to follow federal regulations. If you own or operate a business, it is vital that you do not overlook sales tax requirements. Review the Liu & Associates crash course on GST/HST accounts and contact us today with any questions or concerns.

 

WHAT IS A GST ACCOUNT?

In order to track business taxes, the Canada Revenue Service (CRA) maintains a database of business numbers– known in this case as GST numbers. Your number corresponds to your GST account, through which your business will remit taxable amounts and file returns. Collecting and charging GST falls to the business and they are responsible for mistakes, oversights and any resulting consequences.

DOES MY BUSINESS NEED TO REGISTER?

Regarding GST, businesses fall into two categories: those that are small suppliers and those that are not. The following summarizes the small supplier threshold of taxable supplies for various types of business:

  • Most businesses are considered small suppliers if they do not exceed a $120,000 yearly threshold amount;
  • Most charities, public institutions and service bodies are considered small suppliers if they do not exceed a $200,000 yearly threshold amount;
  • Two notable exceptions are non-residents and taxi/ride share operators, who often qualify as small suppliers regardless of threshold.

AS A SMALL SUPPLIER, WHY SHOULD I REGISTER?

Small suppliers are not legally obligated to collect, charge, remit or file any GST amounts. Still, there can be a major advantage to voluntarily registering for a GST account as a small supplier. Think of the taxes your business pays on expenses, raw material costs or the services it uses. Much of this GST can be refunded as input tax credit if you have already started an account with the CRA, regardless of your business’ size.

The details above are only a brief summary of the complex and thorough GST/HST regulations set out by the government. If the growth and health of your business is on the line, always consult with professionals like the team here at Liu & Associates. Contact or visit us today!

Accountant’s Fees Explained

canadian coins

When individuals or business owners consider hiring an accountant, they are likely trying to save money. Often the question arises: if I want more funds, why should I spend my limited budget on an accountant? This could lead to the incorrect assumption that accounting services are only for wealthy people or large corporations. Liu & Associates is here to set the record straight! Read on for our breakdown of typical accountancy fees and why they are worth your investment.

What am i paying for?

This is a common question when looking into an accounting service, especially when you are quoted a specific amount. The “sticker price” could be shocking if you do not know what to expect – but it can be easier to accept once you understand the full contribution of accountancy. More than just a bookkeeper who records necessary numbers, a good accountant will offer financial advice, guide your investments and help avoid costly fees and penalties. Typically you are paying for the accountant’s labour, experience and overhead, as well as the peace of mind that your finances are in good hands.

WHAT SHOULD BE INCLUDED?

Here are some of the services you offered to individuals or businesses by quality accounting firms:

  • Pricing, inventory and workspace advice;
  • Cash flow and budget management;
  • Finance report consultation;
  • Application of financial strategies;
  • Tax returns and prioritizing your taxation obligations;
  • Aid with corporate structure issues (sole proprietorship, partnership or corporation);
  • Help with savings, investments and other methods of building capital.

IS IT WORTH IT?

Unfortunately, this question can only be answered by the individual or business themselves. There are a wide variety of accountants, accounting firms and similar services, but they are not made equal! A good accountant will consult your needs and advise the level of service necessary in your specific situation. For some, a bookkeeper may be enough – while others may require a full suite of accountancy services to ensure their finances are handled properly.

If you are unsure about what you or your business requires, contact or visit Liu & Associates today! Your first consultation will be comprehensive and hassle-free, no matter what your needs. Our friendly staff will help guide you to an appropriate level of service, while keeping your financial future as our first priority.

Retail Tax Preparation Services vs. Accountants

tax preparation concept

There are three main tax filing options for you to consider: do-it-yourself, a retail tax preparation service or an accountant. Read on as we dive into the differences between retail tax preparation services and accountants and how you can decide which one is right for you.

Experience

Tax Professionals

Tax preparation services employ ‘tax professionals’, not certified accountants. This is not to say that employees are not qualified to help you with your taxes, as training for these positions is usually quite rigorous; however, they do not possess a degree in accounting or the level of experience an accountant would bring to the table.

Accountants

There are two types of accountants you will run into: independent and CPA. An independent accountant has graduated with a related bachelor’s degree, while a CPA (Certified Public Accountant) has not only completed a bachelor’s degree in accounting, but has also achieved CPA accreditation. CPA accreditation requires additional coursework and experience requirements, as well as passing an exam.

Depending on how complex your tax return is, you may seek out different levels of experience to help you get the most out of your return.

Time

Retail tax services offer a convenience that accounting firms can’t always accommodate. Accountants work on an appointment basis, while retail tax services give you the ability to just drop in whenever you have time. Retail preparation centers also usually offer extended hours to maximize convenience.  

Cost

Each tax preparation option comes with a different price tag. There are many online tax softwares that are free for users. Retail tax centers are the next most economical option, and an independent accountant will usually charge less than a CPA. Again, depending on complexity, the cost of an accountant can far outweigh the time and possible mistakes you might make doing it on your own. A person with one T4 for the whole year may find it a piece of cake to file online, but a self-employed contractor who also owns a rental property might not find it quite so simple.

How you choose to file your taxes should be based on the complexity of your return, your desire to take on the task, and your budget. While hiring an accountant may cost more than a retail tax preparation service, it will ensure that you’re getting the most up to date tax knowledge and the best return possible. If you’re looking for some tax help, contact the team at Liu & Associates. Our accountants are equipped to handle both corporate and personal tax solutions.

Should I File My Own Taxes or Hire A Professional?

tax concept

When it comes to the question of whether or not it’s better to hire a professional to handle your taxes versus doing it yourself, unfortunately, there is no single right answer. Read on as Liu & Associates discusses some key factors that will help you determine what path you should take next tax season.

When to DIY

Your Taxes Are Simple

If you have had only one job in the past tax year, have no dependants and no investments, consider filing on your own by using a free online tax software.

Your Financial Situation Hasn’t Changed

When you purchase property, get married, or have a child, new deductions and credits become available to you and it can be beneficial to have a professional to help inform you of these. If you haven’t made any big changes in the past tax year, you probably are aware of the deductions and claims already available to you and can stick to the DIY route.  

It’s Not in the Budget

Doing your own taxes will absolutely save you money. There are lots of free online tax filing softwares that will guide you through the process.

You’re Willing to Do Research

If you’ve done a great job of keeping everything organized over the year (receipts, forms, etc.) and you enjoy doing a bit of research, you can learn a lot about the different deductions and claims that you are eligible for. While time consuming, if you enjoy learning about these things it’s a great way to save some money!

When to Hire a Professional

Your Taxes Are Anything but Simple

If you are a business owner, are holding multiple investments, doing freelance work, etc., you will benefit from hiring a professional. The reason being is that there are lots of deductions associated with these areas, and a tax professional is going to be able to help you identify these and ensure you’re getting the most out of your return.

Your Financial Situation Has Changed

Any big changes in your life (marriage, divorce, purchasing property, etc) will open up new deductions and claims for you to take advantage of. Again, having a professional on your side will allow you to maximize your return and make sure you are utilizing what is available to you.

You’re Willing to Pay

A tax professional’s prices can vary between $70-$200. Depending on your return, the initial investment may be worth it!

Yuu Don’t Want to Do the Research

Many people simply don’t want to spend their time researching tax laws, and that’s okay! Passing the work along to a professional can allow you to spend time on other, more enjoyable things.

Looking for Tax Help?

If you’re looking for help on your next personal or corporate tax return, contact the team at Liu & Associates. Let our tax experts get you the most out of your return while you rest easy knowing your return is in knowledgeable hands. Get in touch today!

Ways to Avoid a Small Business Tax Audit

tax audit concept

Small businesses, due to their very nature, are under close scrutiny by the CRA. While there is no way to ensure you’ll never be selected for an audit, there are some ways you can decrease your chances. Read on for five ways to keep the auditors at bay.  

1. Avoid Revenue Discrepancies

When submitting your business revenue, consistency is key. If there are any discrepancies in your business income across any tax forms, that is a big red flag for the CRA and will usually warrant a further investigation.

2. Understand Industry Risk

If you are in an industry that deals with a lot of cash (restaurants, bars, other retails businesses), the CRA is going to be keeping an extra watchful eye right from the start. To combat this, it’s important that your records are organized and complete so it’s quick and easy for you to send along supporting documentation if asked.

3. Stick With the Norm

If your business reports an income that is largely higher (or lower) than other businesses in your industry, it could tip off the tax man. Now, this point comes with a disclaimer: honesty is always the most important factor when it comes to your tax return, so if your company ends up legitimately bringing in an income that widely deviates from your competitors, that’s okay! Just ensure your paperwork and supporting documents are in order, as you may be prompted for further information.  

4.  Avoid Outstanding Balances in Shareholder Loans

Changes in shareholder loans can be a red flag for the CRA. Any money taken from the company needs to be reimbursed or reported as personal income to ensure the proper tax is being applied. Failure to do so can even result in double taxation under subsection 15(2) of the Income Tax Act. Ensure that any shareholder withdrawals are completed properly. To learn more about this process, speak to an accountant!

5. Stay Realistic (and Honest)

There are certain deductions (home office, car, etc.) that are commonly abused by small business owners, and therefore, are under close watch by the CRA. Claiming 100% business use of your vehicle is simply not realistic, and the CRA agents know this! If you are claiming these type of deductions, ensure that you’re keeping the proper paperwork to ensure your claim gets accepted!

Liu & Associates Can Help

Honesty and diligence are the two best ways to minimize your chance of being audited. Even more, if you do happen to be selected for an audit, the amount of stress you experience will be much less, because you’ll have nothing to hide! Keep thorough records, and you’ll have no reason to worry. If you have questions about your business tax return, don’t hesitate to contact an accounting professional. Having your taxes completed by a professional will help to maximize your return and minimize errors. If you are looking for help filing your business tax return, or are currently facing an audit, contact the team at Liu & Associates for honest, professional advice.

What’s a Tax Audit?

tax audit concept

While the auditing process is meant to help maintain public confidence in the fairness of Canada’s tax system, it can be a stressful and onerous experience on a taxpayer. There are two main types of tax audits: business audits and personal audits. Read on to learn a bit more about each type, what you can expect if you’re selected for an audit of your own and how Liu & Associates can help.

Business Audits

A business tax audit is a process in which the CRA closely examines small and medium-sized businesses’ books and records to ensure they are complying with their tax obligations. Audits are also used as a way to ensure the business is receiving any monetary amounts they are entitled to.

How Are Businesses Chosen?

The business audit selection process is based on a risk assessment system. When choosing businesses to audit, the CRA will also look at any information it has on file and may compare it to similar files.

What Does an Auditor Look at?

A tax auditor will look at the company’s books, records and documents. Examples include but are not limited to:

  • Previous tax returns
  • Business records
  • Personal records

Personal Audits

Personal audits are very similar to business audits. The selection process and the documents that are reviewed are all of similar nature – the difference is that the focus is on personal taxes rather than company taxes. Again, the purpose of an audit is to ensure that your assessment is accurate. If you’re selected for a personal tax audit, the CRA will ask for you to submit certain receipts and records. Sometimes the submission of these documents will be enough, and other times an auditor will be sent out to complete a more thorough check. The audit may take place at a CRA office, or at your home.

Results of an Audit

Throughout the audit process, the auditor will openly identify any issues and discuss them with you. You are also welcome to raise any concerns you may have as well. At the end of an audit, one of three things will occur:

  • No adjustments will be made to your assessment
  • A reassessment will result in you owing more tax
  • A reassessment will result in you receiving a refund

Don’t Sweat It

Audits may seem like a scary process, but if your documentation is accurate and in order there shouldn’t be any major issues that come up. Most errors that arise are honest mistakes that are easily amended. The best thing you can do to prepare for an audit is to keep track of your records for a minimum of six years.

If you or your company is selected to undergo an audit, contact the experts at Liu & Associates. Our team will ensure that your rights are observed and work to minimize any consequences. We act as a buffer between you and the CRA to minimize the time and stress that is so commonly associated with an audit. Give us a call today!

Why You Should Consider Hiring an Accounting for Your Startup

man working on computer

Many startup owners will choose to manage their own accounting in order to save money wherever possible. However, if you aren’t experienced with business accounting, you could be making mistakes that could potentially affect the success of your business. Read on to learn how outsourcing your business accounting can save you time and stress.

What Can an Accountant Help With?

Accountants can offer their expertise at all business stages, from starting up to expanding.

Business Formation

During your startup’s early days, an accountant can help you with steps like:

  • Selecting the proper business structure from a tax and legal perspective
  • Setting up your expense tracking procedures
  • Helping you establish a startup budget
  • Advise on financial planning
  • Setting up invoicing systems

Day to Day Administration

There are a lot of financial responsibilities when it comes to running a business. Having an accountant can help you with things like:

  • Payroll
  • Tax preparation
  • Reconciling bank statements
  • Managing audits
  • Accounts payable & accounts receivable

Expansion & Growth

When it comes time to grow and expand your business, your accountant can help with:

  • Financial forecasting
  • Budget creation

When Should I Hire An Accountant?

Exactly when a company decides to bring on an accountant varies greatly. While there isn’t one correct answer, here are a couple of instances where it’s highly recommended you hire an accountant:

  1. You have raised an initial round of funding. If you have raised a Series A, a larger SEED round, or a larger convertible debt round, it’s definitely time to reach out to an accountant.
  2. You’re starting to see a significant increase in your expenses. Once you start having increased expenses to keep track of, or start hiring employees, it’s nice to have an accountant to help you keep track of your finances.

Other Reasons You Should Consider Hiring an Accountant for Your Startup

You’re Busy

If you’re currently operating your startup as a one-person show, you have a lot of different roles to play! Outsourcing some of your work to an accountant will make your life easier, and ensure that your finances are being taken care of properly.

Investors like Accountants

Investors are looking for more than a good pitch, they want to see the numbers to back it up. Having an accountant on your team will be an invaluable resource when it comes to creating a solid financial report.

Even if you have the best business idea, your company is going to have a hard time succeeding if you aren’t properly managing your finances. Gain some peace of mind knowing that your business’ financials are in the safe hands of an experienced accountant. If you’re looking for some help with your corporate accounting, contact the team at Liu & Associates today!

Corporate vs. Personal Accounting: What’s Right for You?

Difference between corporate and personal accounting

If you are looking to start your accounting career, one of the main decisions you’ll need to make early on is if you’d like to work in a private or public accounting setting. While similar in some regards, the two areas differ in a number of aspects. Read on to learn the difference between the two, and see which one suits your personality best!

Private (Corporate) Accounting

Private accountants (also referred to as corporate accountants) are employed by an individual company and look after accounting needs for that company only. Private accountants will generally need to have some background knowledge about the industry they are looking to work in (as well as knowing industry standards).

Benefits of Corporate Accounting

  • Specialization – having only one client allows corporate accountants to really get a deep understanding of the inner workings of that particular company.
  • Consistency – many people like the idea of knowing exactly what they are going to be doing each day, and corporate accounting allows for this! With one client, things are going to remain more or less the same day to day, year to year.

Public (Personal) Accounting

Public accountants (also referred to as personal accountants) work for a company that provides accounting services to a multitude of clients. Public accountants need to be able to analyze accounting systems to determine whether a business is running efficiently.

Benefits of Personal Accounting

  • Diversity of knowledge – working at a public accounting firm opens you up to a wide range of experiences with a wide range of clients. Public accountants will gain experience working on both personal and corporate accounts and will learn about many different industries.
  • Diversity of tasks – because public accountants work with many clients, their day to day tasks regularly differ as each client has unique needs.

The area of accounting you pursue should be based of your interest and personality. If you are a CA or an accounting technician with three to five years experience, we’d love to hear from you!

Will My Small Business Taxes Affect My Personal Taxes?

Man and woman in business attire sit in front of laptop computer

A common question among small business owners is “How will my business’ taxes affect my personal tax’s, and vice versa?”. While owning a small business does not exempt you from paying personal tax, the type of business structure you choose will have an effect on your business taxes. Read on to learn about some of the most common business structures, and how they impact both your personal and business taxes.

Sole Proprietorship

Running your business as a sole proprietorship means that you are your business. Your company has no legal identity separate from yourself. In the eyes of the government, a sole proprietorship does not exist as a taxable entity. Instead, the CRA deals with you directly. In a sole proprietorship, all company profit is to be reported as personal income.

Pros

  • You do not pay federal business income tax

Cons

  • Because you’re reporting all income as personal, you’ll be paying twice the usual amount of self-employment taxes
  • There are some liability risks that are associated with sole proprietorships

Incorporated Businesses

When you incorporate your business, you add on a layer of protection against liabilities and debts resulting from the operation of your business; however, it also adds on a layer of taxes. In an incorporated business, you have to pay taxes on any profits that your company makes. While this business structure is usually only considered by larger companies, if your business is a fast growing start-up, setting up your business as a corporation may be a good idea.

Pros

  • Company has a separate identity from yourself as the owner.
  • Liability and debt protection

Cons

  • Have to pay business income tax

Limited Liability Company

A limited liability company (LLC) allows you to receive many of the benefits of being a corporation when it comes to protecting your personal assets, while still allowing you to claim all business profit as personal income. Similar to a sole proprietorship, you and your company are considered to be the same entity. LLC’s are one of the most common business structures for small businesses.

Pros

  • Some financial and legal protections
  • Do not have to pay business income tax

Cons

  • Since you’ll be claiming all income as personal, you will be paying extra self-employment tax

Questions? Call Liu & Associates

If you are a small business owner with questions about business and personal tax, give the team at Liu & Associates a call! Our expert accountants can help make sure that you are setting yourself, and your business, up for success.