1. What is tax planning?
Our tax system in Canada is very complex. There are many different ways to structure a company and the payments shareholders and employees receive. Tax planning is finding the right combination of items that reduces your tax and follows the rules. Efficient tax planning can often result in hundreds of thousands of dollars saved over a person’s lifetime. Speak with a professional tax accountant to gain expert advice.
2. What is a financial plan? Should I have one?
Have you ever wondered if you are saving enough for retirement? A financial plan allows you to stop wondering and know for sure. Of course, we need to make assumptions about the future (investment rates of return, inflation, etc.), so nothing is guaranteed, but it’s the best we have to go on.
A financial plan is the documented financial trajectory that you are on. It shows where you are at today and where you are going to be throughout your life. It is a critical planning tool that allows you to make decisions today that you won’t regret down the road.
Contact Modi Accounting and Tax to speak with Kent Greaves.
Click Here to see more details on our financial planning tool.
3. Accountants seem expensive; is there a DIY option to file my taxes?
There is always a do-it-yourself option. You need to ask yourself two questions: (1) Are you going to spend the time to learn the rules? (2) Do you trust yourself to get it right?
For your personal taxes, if you have a very simple scenario (i.e. one T4 slip and one RRSP contribution) then the DIY option will make the most sense for you. However, anything more complex should be done by a professional as the deductions available to you are constantly changing (there are changes every single year).
From a corporate standpoint, Modi Accounting and Tax strongly discourages the DIY option, as even the simplest of corporate tax returns require a significant amount of training. Furthermore, the tax program alone will cost $1,200 (or more). Speak with a professional Kelowna Accountant like Kent Greaves to gain an expert accounting opinion and save yourself money and exposure to risk.
4. A friend told me to incorporate so I can pay 11% tax. How does that work?
While this statement is true (a corporation earning active in come in fiscal 2019 in BC will pay 11% tax on any net profits), this would mean not withdrawing any of the profits personally. Most folks who operate a company plan to withdraw some if not all of the profits. When you withdraw money from the company, the company’s tax position can change depending on whether you pay yourself using dividends or salary. Additionally, you will trigger personal tax when you declare dividends or salary. Only a professional tax accountant can provide expert financial advice based on your current situation.
5. What is the difference between a book keeper and an accountant?
A book keeper data enters all the transactions and makes sure that all the transactions are properly reflected in the books of the company. There are several 2 year college courses that you can take to become a certified book keeper.
An accountant in BC prepares a tax plan, financial statements, and files the year end tax return. The training program to be a Chartered Professional Accountant is roughly 7 years and involves a significant amount of education.
Modi Accounting and Tax offers professional bookkeeping for Kelowna and Area Businesses.
Click Here to learn more.
6. The CRA won’t audit me so I don’t need to follow the rules…right?
Unfortunately, we all have met someone who is bragging about breaking the rules and not paying their fair share of tax. This makes us contemplate if we should also break the rules. The reality is you are likely to be in business for a very long time and if you break the rules you will constantly be wondering if you will be caught – do you really want to live that way?
Additionally, it has been my experience that the CRA does audit with enough frequency that you are likely to have some kind of CRA audit over a 20-year time frame.
7. If I break the rules and the CRA catches me, what happens then?
It will really depend on the circumstances under which you broke the rules. In the worst case (you broke the rules in an egregious manner), the CRA charges you the normal tax you should have paid, along with a 50% gross negligence penalty along with interest from the date the taxes were owed. Here is a simple example:
3 years ago, you claimed a $10,000 personal vacation in the company. You are earning income that puts you in a 30% personal tax bracket that year. The CRA denies the amount to the company and charges you a personal benefit along with gross negligence penalties. The resulting tax bill is:
- Corporate tax of: [10,000 x 11% tax rate + 50% gross negligence] x 3 years @ 5% = $1,910
- Personal tax of: [10,000 x 30% tax rate + 50% gross negligence] x 3 years @ 5% = $5,209
- Total tax bill =1,910 + 5,209 = 7,119
So instead of just paying 30% personal tax, or $3,000, you now pay $7,119, or 71% tax. As you can see, the CRA punishes those who break the rules quite heavily.
8. Should I incorporate or operate as a sole proprietor? Are there other options?
This is a very important question. The answer really depends on the specifics of your scenario. We have a detailed blog on the subject – Click Here to go to our blog page.
9. How much does it cost to hire an accountant to file my taxes?
Fees really depend on the complexity of your scenario. Personal tax returns prepared by a Tax Accountant in Kelowna (i.e. a CPA) tend to cost between $250 – $600. There are lots of people who are not professionals that prepare personal tax returns as well; as such their cost is much lower (H&R Block is one such example).
Our most basic corporate package starts at $1,250 and includes a year end tax return, financial statements, GST return and T5 return. Fees generally range between $1,250 and $3,000 for a single corporation year end.
10. How much does it cost to get my book keeping done?
Bookkeeping fees are really all over the map. On the low end, I’ve met bookkeepers charging as little as $40/hr. These people have no education at all and tend to make a lot of mistakes that the accountant has to fix at year end. On the high end, properly trained, efficient book keepers charge anywhere from $75/hr – $125/hr depending on if they work for a small or large accounting firm.
A simple company (i.e. a one person consultant) likely needs 2 – 3 hours per month of book keeping. A more complex company (say $1M in annual revenue and 10 employees) would need 15 – 20 hours per month of book keeping.
At Modi, we analyze your bookkeeping needs and provide you with a fixed monthly fee that doesn’t fluctuate, this way you’re not surprised by big bills.
Click Here to see our book keeping services for Kelowna and area Companies.
11. What is a family trust? Should I have one?
A family trust is an advanced tax planning technique that allows you to flow income to different trust beneficiaries. Paying several individuals income instead of a single person can result in substantial tax savings. However, the accounting and legal fees are very high to start and to operate the trust. We recommend clients consider a family trust when they have a net worth in excess of $3M and annual income in excess of $300,000.
12. Do I really need to keep every single receipt?
Yes, every single one.
When the CRA audits you (and you must assume that you’ll be audited at some point), they will ask for certain receipts. We never know which ones and therefore we need to keep them all. Failure to keep receipts can result in disallowed expenses and big fines/penalties (see FAQ #7 about breaking the rules and the fines/penalties that result).
13. Should my company pay me a dividend or a salary? What’s the difference?
This is such an important question we wrote a whole blog about it. Click Here to see our blog page.
There is no short version to this question. Whether you should be paid a dividend or a salary depends on the make up of your family (spouse, children, etc.), your retirement outlook (soon or far), what type of work you’ve been doing up until now, the consistency of your expected earnings and several other factors.