<![CDATA[Naomi Wilkins

<![CDATA[Naomi Wilkins - Blog]]>Fri, 17 Mar 2023 09:23:51 -0700Weebly<![CDATA[What to expect and do to pass a GST/HST Audit or Review!]]>Tue, 14 Feb 2023 21:39:47 GMThttp://naomiwilkins.ca/blog/what-to-expect-and-do-to-pass-a-gsthst-audit-or-review

Last Blog Post we discussed GST/HST audits and how to avoid them! But what are some things you can do if you find yourself in a GST/HST Audit or Review situation?

Approach it with the right attitude: GST/HST is dollar for dollar important: Our tax dollars! If GST/HST is not correctly remitted and reported by our business neighbours, it ends up costing tax payer money, and taking government funds away from things that are important to us. Consider if your business neighbour was incorrectly claiming thousands of dollars of GST/HST back from CRA that was not rightly theirs. If it's intentional, they should be stopped. If it's accidentally, then they should be corrected. CRA has to find those things, and checking your work is part of that effort. As a business owner, it is your responsibility to be ready to supply the details and support of the numbers you filed with CRA. And that's all you need to do. CRA isn't out to 'get you'. CRA is simply out to make sure the correct numbers are being filed, period. And as a business owner... you have the SAME GOAL! You also want the correct numbers to be filed with CRA! Same goal! Sure, the approach is slightly different; CRA doesn't want you to get back more than you should, you don't want to get back less than you should. But at the end of the day, we are on the same team with the same goal; what is filed should be correct. Understanding that you are on the same team as the auditor is a huge help, because you can literally ask them "what specifically do you need to see" and they will give you specific and actionable answers. Don't be intimidated or anxious. If you've made a mistake somewhere, then it just gets corrected. You may owe because of a mistake you've made. But if you've taken your bookkeeping seriously, and followed the advice of my previous hacks newsletter, there shouldn't be anything major of concern.
Make it easy for the Auditor to Understand: Approach everything you are submitting as if you were the auditor; what would YOU need to understand and feel confident in the numbers?

The auditor is looking for a list. If you claimed $45,000 in sales, and $4,950 in GST/HST collected, then you need to be able to show the details. A list of each invoice with the date, customer name, sales type, and amount of GST/HST collected is required. The numbers in the list needs to add up to the numbers filed. (By 'sales type' what I am referring to is, if you have different products/services subject to different taxes, be sure to note that. Honey sales is zero rated. Sales to Alberta are at 5% GST. Sales to the US are zero rated. Etc). Be aware that paid date is not the same as invoice date. These lists you should be able to download directly from your bookkeeping software. Ideally you have them saved from when you filed the GST/HST return. (QBO, for example, saves a 'snapshot' of these details, so if items are added to the period later, you still have the list of numbers you filed with for CRA if audited). If your business is not the type that 'invoices' clients, (perhaps a store with a register or an e-commerce operation), be sure that the reports you provide from your register or software breaks out important details such as gift cards sold (not technically sales, just a promise to provide goods and services in the future), tax collected, etc.

It is the same approach now for the credits you have claimed. (These are called "ITCs, or, "Input Tax Credits"... aka GST/HST paid on expenses). If you claimed $2,459.69 in GST/HST paid on expenses, you will need to list out every bill and receipt that comprises that amount: Bill date, supplier name, bill total, and GST/HST amount. Again, paid date is NOT the bill date. (Bills can be paid on their bill date, but that's not always the case). You should be able to provide on demand any bill or receipt listed on that list with the matching date and amount that is on the list. So, if you claimed HST on a 'payment on account', be prepared for a lot of extra work!!! Because now you have to prove what bills that $5k was applied to and provide those! Which is the wrong way to go about bookkeeping and thus why it's not easy to have in a GST/HST audit. This is why we enter the bills and their payments into our bookkeeping, not just the payments as if they were the expense themselves (aka cash accounting). Just backing GST/HST out of payment transactions means you're gonna have a bad time in an audit situation. (Typing that inspired a meme now added below). And those physical or pdf bills should all have the the GST/HST amount listed out with the GST/HST number of the vendor showing. If they don't have a GST/HST number on them, ask the vendor for a re-print of the bill with the correct GST/HST amount and their GST/HST number. The bigger the bill, the more CRA will want to see it. So, during the year, BEFORE you are audited, that's when you need to make sure you are not missing any of these bigger bills, and that they ALL have a GST/HST number on it! (Refer to my last hack "you gotta see it to believe it").
Vehicle Log!!!: If you use your business vehicle for 100% business, you don't have to keep a vehicle log forever... but you do have to support the 100% business use. So keep a vehicle log for three months with a photo of the starting odometer and a photo of the ending odometer (or from oil change to oil change with the odometer on the bill). Keep this vehicle log as a reference for when you are reviewed. This is even more important to do when you buy a new work truck, and your usual GST/HST payable turns into a refund. CRA is gonna want to take a closer look at that... be ready! If you use your vehicle for less than 90% for business, you need to keep that vehicle log on an ongoing basis, and only claim the correct percentage of GST/HST on your vehicle expenses. Too late? In an audit with no vehicle log? You have receipts with dates. You have client invoices with dates. You have a couple of vehicle maintenance bills. You have google maps! You have enough clues to put together a 3 month vehicle log! Make one!
Communicate, meet deadlines, ask for help, and if needed, object!: I couldn't choose my three favorite hacks on this subject, so, the last few are pretending to be #4! Firstly, always communicate with the auditor. You're working together... if you ghost them, they may just go with what they have and disallow the rest. So keep the communication going, and always meet those deadlines. Get their name right and don't lose their phone number. If you have a hard time understanding what is being requested, ask that it be written out in a letter and sent to you. Sometimes the 'lingo' is familiar to us in this space and we forget that it's not as familiar to others, so feel free to reach out to your bookkeeper or accountant to help work with you on the requests, they may have an easier time understanding the asks. Lastly, if there are things that you feel were disallowed incorrectly (either because the CRA auditor made a wrong call, or perhaps the paperwork didn't make it in on time), OBJECT! File an objection right away. (And *I* just got my idea for my next YouTube video! How to file an objection with CRA!) You have 90 days to file an objection, so don't delay. Pay any tax bill that arises from the audit, because if the objection is accepted, the money will be returned to you. But if the objection is only partially accepted, not only are you incurring interest, CRA collections will be bugging you for the funds in the meantime, and objections take forever (think 8 to 16 months!). So clear up the bill, and object to get it back.

]]><![CDATA[Are you prepared for a GST/HST audit?]]>Tue, 14 Feb 2023 21:35:27 GMThttp://naomiwilkins.ca/blog/are-you-prepared-for-a-gsthst-audit

Filing and Paying your GST/HST late can draw the attention of CRA like the Eye of Sauron!

Last Blog Post we discussed how to claim HST credits on mixed use expenses. This post we'll discuss GST/HST audits and how to avoid them!

HST is Serious Business to the CRA: CRA conducts reviews and audits on income tax returns and also on GST/HST returns. If an entrepreneur owes income taxes, that's their own money that the law dictates needs to be contributed to society. But if an entrepreneur owes GST/HST, that's CRA's money, and CRA is more aggressive in their collections procedures, even mandating that the bank takes the money directly from the business bank account and freezing the bank if necessary. Because when an entrepreneur doesn't remit to the government the GST/HST they collect on CRA's behalf, that's akin to stealing funds from CRA. So if you receive a collections call from CRA regarding GST/HST, don't ignore that call... talk and figure out a payment plan with them so that they do not need to resort to the extreme measures of contacting your bank. Also, if an expense is disallowed in an income tax audit, it's only about 25% important. That is, if a $100 expense is disallowed, it may effect how much income tax you owe on the revised profit, so, only about 25% of the change; $25. But GST/HST is dollar for dollar important! If you are disallowed a $100 dollar GST/HST credit, you will owe all $100 back of the disallowed credit; that's what I mean when I write GST/HST is "dollar for dollar" important, and CRA takes GST/HST very seriously. If a business owes both GST/HST and Income Taxes, CRA demands that the GST/HST is paid down first. (Payroll taxes are even more serious... that's the Employee's money, so that's at the top of CRA's list! Same deal, ignore collections, and they move on to your bank and freeze your funds. So not something you can put off!)
You Gotta See it to Believe it!: Many people assume that everything has GST/HST on it, but this is far from the truth. I always say, "You gotta see it to believe it". There is no GST/HST on loan payments, insurance, bank charges, interest charges, and zero rated supplies such as unprepared food. Oh, you see tax on your insurance policy? Take a closer look... that's RST (Retail Sales Tax) or PST (Provincial Sales Tax), the provincial portion of sales tax, not GST/HST, so it is not a GST/HST Credit. Which leads me to my next point, it's gotta either say GST or HST, or it's not going to Feds (CRA). PST, QST, RST are all provincial sales taxes that CRA doesn't get passed up to them. So if they aren't expecting to get it, you don't get it back. Which again, leads me to my next point, you have to be able to support that CRA will be receiving the funds from the business billing you. And to do that, the bill or receipt has to show the GST/HST number of the collecting business, and also specify how much GST/HST is being collected. A business MUST be registered to collect GST/HST to add it to their bill, and the only way you know that for sure is if they have the GST/HST number right on the bill itself. Just because an entrepreneur is a business, it does not automatically mean they are registered for GST/HST (as we discussed in November's newsletter). If CRA can't see and confirm that CRA is to receive those funds from the business issuing the bill on the paperwork, your GST/HST credit will be denied in an audit. That also means that just a vendor statement is NOT enough support. It doesn't show what was purchased (could be zero rated goods!) and if it was subject to GST/HST and if so, how much. Similarly, a line on a bank or credit card statement just won't cut it in an audit, (it is not accepted in an income tax audit or a GST/HST audit. There's no way around it.. ya need that paperwork!) It's also the wild west of sales tax out there in internet land. Just because a fee is charged to you from an online subscription, you cannot assume that it does or does not have GST/HST. I've even seen GST/HST charged on transactions in USD (like Shopify fees), so look at the bill to confirm... you gotta see it to believe it.
Avoid a GST/HST Audit: Even if you feel confident that your business is claiming GST/HST credits correctly, GST/HST audits take a lot of time, work, and energy that you would rather put somewhere else. There is one simple and best way to reduce your chances of a GST/HST Audit; file and pay your GST/HST on time. Consider that CRA has limited resources. They cannot audit and review every single business. So, they focus their attention on businesses where they are most likely to find incorrectly claimed credits. And those businesses where they are most likely to find incorrectly claimed credits are disorganized businesses. It's that simple. Filing and paying late is like attracting the Eye of Sauron. Though filing and paying on time is no guarantee against an audit. CRA does do random audits also, as well as focusing in on sectors that often are susceptible to cash transactions such as restaurants and construction. Just being part of these industries increases your chances of an audit, so it's always good to be confident in your bookkeeping and tax filing, and keeping good records. There are two different ways CRA can take a closer look at your GST/HST; they can conduct either an Audit or a Review. Audits are more intense, CRA often wants to see every single document. But these are quite costly for CRA to perform, so they sometimes instead just do a Review, which is more like a "spot check". In a Review situation, they'll ask to see a listing of all the transactions for the period, and the top 10 largest invoices, and the top ten largest bills. Then they'll ask for a few random others from the list, and ask a few additional questions, and that's it. So, Reviews are much less work for both CRA and the Business. Reviews can be triggered simply because a business that usually files a payable return suddenly files a large refundable return. And CRA just wants to check that the reason for the refund is legit before they release the funds!

]]><![CDATA[How to claim HST Credits on mixed use expenses!]]>Tue, 14 Feb 2023 21:32:24 GMThttp://naomiwilkins.ca/blog/february-14th-2023Last Blog Post we discussed why a business would want to register for GST/HST before they have to. This month we discuss what businesses can claim GST/HST credits on. (And next Blog Post we'll discuss what a business can't claim GST/HST credits on!)

Today, we'll look at three different categories of what businesses can claim GST/HST credits back on; 100% business use purchases, purchases with a personal use portion, and business use of home expenses;

Claim 100% of the GST/HST credits on Direct Expenses: You want to make sure to claim all the HST on transactions that occurred that would not have happened if you were not running the business. Be sure that the bill-to name on the bill is either the name of the GST/HST registrant (either a person in the case of a non-incorporated business, or the corporation's official name if incorporated) or the operating name of the business. Only the person/business being charged the GST/HST can claim the credit. We'll dig into that more next month! If you're unsure about what direct expenses (and related GST/HST) you can claim for your business, check out my blog post on what expenses a business can claim here
Prorate the GST/HST on the expenses that have a personal portion: If you have an expense that is used for both business and personal, you can only claim the business portion of that expense, along with the associated GST/HST. If the business portion is over 50%, then you'll want to see that expense entered into your bookkeeping. Your internet bill or your cell phone bill are good examples of mixed use expenses that you can claim a good portion of. Once you've worked out the portion that is used for business, for example 75%, then you have a few options for adding this to your bookkeeping. One option is that you can enter the bill with two separate categories: on the first line put 75% of the expense portion and catagorize it as the expense (cell phone, or internet for example), and then calculate the GST/HST on that reduced amount, (or manually put in 75% of the GST/HST in the tax field). Note in the description that it is 75% of the bill, and communicate it to your tax preparer how you entered these so that they don't further reduce the amount! If you are paying the bill from your business account, or you'd like to have the full amount of the bill in the bookkeeping, on the next line choose the category "Owner's contribution/Draw" or a similar category. Put in the remainder of the bill amount... NO HST can be claimed on the personal portion, so the total amount here would be the remaining amount of the bill.. no GST/HST!
Claiming GST/HST on Business Use of Home expenses: This is a weird one. If your business is incorporated, you would need to connect with your accountant about how to claim your home office expenses. If your business is not incorporated, then you may already know that you may be able to claim a portion of your home expenses related to your home office expense on your tax return to reduce your taxable profit. But did you know you can also claim the GST/HST credits related to that? If you do not have a business location outside of your home, and you have a designated office space in your home to run your business, you can calculate the square footage of that space as compared to the square footage of your home, and how often it is used for business vs personal. Then, you may be able to use this percentage of your home expenses to reduce your taxable profit (connect with a tax specialist to see if it is applicable for your specific situation). If you can claim this, then how do you claim the associated GST/HST? Usually you CAN'T claim the GST/HST on expenses related to a property that is mainly used for residential use. But I said Business Use of Home was a weird one! We can claim the GST/HST credits related to the portion of the expenses we claim for business use of home at the end of the year! Whether you add the business use of home expense to your bookkeeping monthly, quarterly, annually, or not at all, is personal preference, but since it's usually such a low percentage, and because it's expense you'd pay even if you weren't running a business, many people opt to just put in an adjusting entry at the end of the year, or only adjust for the HST portion. You can put in an expense for just the percentage for the year (and associated HST) on the last day of the year before preparing your GST/HST to be filed. Or you could just add a GST/HST adjustment using a Journal Entry! If you do the latter, it's important to tag the GST/HST as "GST/HST on purchases/ITC/Line 106". Here's a video that can show you how!

]]><![CDATA[Why would a business want to register for GST/HST before they had to?]]>Mon, 14 Nov 2022 23:05:47 GMThttp://naomiwilkins.ca/blog/why-would-a-business-want-to-register-for-gsthst-before-they-had-to

Last month we discussed the CRA Business Number, and three of it's most common 'program accounts'. One of those program accounts was the GST/HST account (the CRA Business Number with "RT0001" at the end). But does a business NEED to register for a GST/HST Account? Does a business WANT to register for a GST/HST Account?

When does a business NEED to register for a GST/HST account?: CRA has a fabulous resource that provides all the specifics, but the TL;DR is: if you are selling anything in Canada that is subject to GST/HST, AND your sales are over $30,000 in one year, you are required to register for GST/HST. (Technically, over $30k in four consecutive quarters, so if your sales from July 1st to June 30th go over $30k, ya gotta register). That's $30k in sales, not the profit. If you are selling across Canada, be aware that Provinces have similar thresholds for Provincial Sales Taxes, though the thresholds vary depending on the province. So, if you are located in Ontario, but selling to BC, you may also need to register for BC PST if you go over their threshold. It's not where you sell FROM, it's where the ownership of the goods is received. But CRA's $30k threshold is when you HAVE to register. A business can elect to register for GST/HST before they reach that threshold. And there are some very good reasons why they would want to!
But does a business WANT to register for GST/HST?: Most sales tax and industry tax that a business collects, they pass ALL of it up to the governing body they are collecting it for. GST/HST is very different though. When you are registered for GST/HST you are special!! Businesses registered for GST/HST do not have to pay any GST/HST on any of their business expenses! That's right! None!! It doesn't happen at the store though. You report to CRA how much GST/HST you paid on business expenses for the period, and they refund it to you! Let's say there's a box of widgets that the business purchases in Ontario for $1,000 + HST. The business paid $1,130. If that business was registered for GST/HST, they'd receive back $130 from CRA, and the widgets only cost them $1,000. If that business was NOT registered for GST/HST, then they don't get back the GST/HST, and the box of widgets now costs them $1,130. You can see why businesses would want to register for GST/HST! BUT, that is only HALF the story! Some business may not want to fire this up before they have to if they're not ready for the responsibility or don't feel it's worth the hassle.
Then why would a business not want to register for GST/HST?: If a business is registered for GST/HST, they are now a TAX COLLECTOR on behalf of the government. This is more work, has the risk of spending money in the bank that isn't yours, and comes with interest and penalties if filed or paid late. It also increases how much your products and services cost to the consumer. Let's say you sell a product you created from widgets. If you are not registered for GST/HST, if you have chosen to charge $3,000 for that product, then you just charge $3k to your customer. But if you are registered for GST/HST, you must charge GST/HST on that product! So, you would charge your customer $3k + GST/HST. In Ontario, you would charge $3,390. You keep the $3k, and you give CRA $390. (If you chose kept your total at $3k, you'd be making less money, as you'd have to 'back out' the GST/HST, so your sale price would only be $2,654 + HST). So being registered for GST/HST increases your price to your customers, AND you now have to collect it, hold on to it for a period of time, and then report it and remit it to CRA. Both how much GST/HST you collect and how much GST/HST you pay on your business expenses are reported and remitted to CRA at the same time. You collected $390 in HST, but you also paid out $130 on the widgets, so, you would tell CRA both of these amounts and only give them $260! ($390 - $130 = $260). You still come out ahead! BUT, it takes discipline to recognize this, keep on top of tracking it, filing it on time etc. It's sneaky!!! If you don't keep your eye on it, and you forget that some of the money in your bank is actually not your money, but CRA's, it can be the cause of many stresses and headaches (and late filing fees, and interest, and collections actions...). Never give CRA more money than you have to! But when a business stays on top of their bookkeeping, and is ready to file and pay each period, being registered for GST/HST is a great benefit! All of those expensive investment purchases at the beginning of the business journey have quite a bit of GST/HST to claim! But if you are a service provider with low overhead and costs, being registered for GST/HST before the $30k threshold may be more hassle than it's worth. Every business is different!

]]><![CDATA[When Do You Need To Register Your Business?]]>Fri, 14 Oct 2022 02:12:30 GMThttp://naomiwilkins.ca/blog/when-do-you-need-to-register-your-business

Is your business registered? TRICK QUESTION! Your response should be "it depends; registered with who?"

Many Provinces require a business to register with the province in order to operate as a business in that province. For example, in Ontario, if you are going to run the business under a business name other than your own personal name, you will need to register your business name with the Province of Ontario and get a business license to operate under that name in Ontario. It’s pretty quick'n easy. It includes a name search to make sure no one else is operating under that name in Ontario, and only costs $60. If you do this, they will give you a Business License to operate under that name, and Business Identification Number. This is NOT the same thing as a Business Number, which is a federal thing.

You do not have to register your business with the Federal Government until there is a reason to do so. There are various federal agencies, but two come to mind for business registration: Service Canada & Canada Revenue Agency (CRA). You do not have to register with Service Canada unless you hire employees (at which point, you will need to be able to issue ROEs via Service Canada’s ROE Web, and you will need to be registered with CRA before you create an account with Service Canada). You do not have to register with the Canada Revenue Agency (CRA) and get a Federal Business Number unless any one of these things occur:

You want/need to start charging GST/HST
You hire an employee
You incorporate the business
You will be importing/exporting internationally

Today's blog post will focus on the first three in the list because those are the most frequent reasons for registering with CRA.

When any one of these things occur, you create a Business Account with CRA and you are issued a Business Number. It is nine digits long, and I sometimes refer to it as the SIN number of the business. That is because it is basically a way for the CRA to track how much you owe them! Let's pretend the CRA Business Number you are issued is 1234 56789...

GST/HST Business Account: Once you have your business number, a business program account is now created under that number. For example, if you want/need to start charging GST/HST, a GST/HST Business account is created with your nine digit business number with RT0001 appended at the end. Your GST/HST Account Number is 1234 56789RT0001. (Think T as in sales Tax). This program account is how your GST/HST payments are tracked.
Payroll Business Account: If you hire an employee, you will need to withhold and pay payroll taxes. So, you create a Payroll Account with CRA. Your Payroll Account Number is your business number with RP0001 at the end. Your Payroll Account Number is 1234 56789RP0001. (Think P as in Payroll Tax).
Corporate Tax Business Account: And if you incorporate your business, now not only do you pay personal income tax on your personal income from the business, now the Corporation owes Corporate Income Tax on the Corporation's income too! And to track that, you guessed it, it's gonna need a business program account. Your Corporate Tax Account number is your business number with RC0001 at the end: 1234 56789RC0001. (Think C as in Corporate Tax).

A business can have one, two, or all three of these program accounts depending on their situation. A business can have employees but not be registered for GST/HST, or vice versa. A Corporation is not automatically registered for a GST/HST account when the Corporate Tax Account is created. If your business is not incorporated, then the program accounts are all connected to your personal name (you are the business). So it's important to remember, if you incorporate your business then you will need to close any CRA Business Program Accounts you may have had connected with your personal name, and now create new CRA Business Program Accounts (a new Payroll account and/or GST/HST account) if needed under the Corporation's new Business Number.

The real business hack is understanding how to pay to the correct business program account, and also to the correct period! Paying to the incorrect period causes wasted time and money! More than you realize! Yes, it can be fixed, but to sort it out can take more time than you may think. Paying on time and to the correct program and period will help you to not give CRA more money than you have to!

Stay Tuned for next month's blog post; When does a business HAVE to register for GST/HST, and why would a business WANT to register for GST/HST before they have to!?!

If you have any specific questions you want addressed in that post, feel free to email me!

]]><![CDATA[Have You Been Pwnd?]]>Thu, 13 Jan 2022 13:28:05 GMThttp://naomiwilkins.ca/blog/have-you-been-pwnd

I never say never, but, today I will! NEVER use one password on more than one site! All it takes is for one of those sites to be breached, and you're vulnerable! Out there on the dark web, there are bots that can take a list of breached email addresses and passwords from weak website, and plug the combination into a myriad of other websites that are commonly used, such as Paypal, Amazon, Uber, etc. And if your actual gmail or yahoo is a match, now they even can jump past the email verification and reset your passwords in on other sites. Re-using passwords in today's day and age leaves you dangerously exposed, more than you may realize!

What sites can be breached? It can happen to the best of them, as it happened to CRA in 2020!

Remember when you were young and used the same password for your Myspace, Geocities, and ICQ? And that crappy coupon website? And every other online account you’ve ever created? If this sounds familiar, maybe you should check out “Have I Been Pwned” to see what sites we know have been hacked, and if your email address happens to be on any of them.

The word "pwned" has origins in video game culture and is a leetspeak derivation of the word "owned", due to the proximity of the "o" and "p" keys. It's typically used to imply that someone has been controlled or compromised, for example "I was pwned in the Adobe data breach". www.haveibeenpwned.com is a website that was created by Troy Hunt as a free source for anyone to quickly assess if they may have been put at risk due to an online account of theirs having been compromised or "pwned" in a data breach. If your email was part of a breach in the last 20 years, you can find out if it's on any of the lists that are out there by searching for your email address on this helpful website!

Password Managers Are No Longer An Option

To stay safe in this current time, that is, to have unique passwords for every online login, Password Managers are no longer just an option, they are a necessity. Check out PC Mag's top picks for Password Managers in 2022!

In this new year, do something good for yourself: Protect yourself and your passwords :) And don't get pwned...

]]><![CDATA[The Best Ways to File Your Business Paperwork!]]>Wed, 11 Aug 2021 16:40:50 GMThttp://naomiwilkins.ca/blog/the-best-ways-to-file-your-business-paperwork

One of the biggest sources of headaches and wasted time is mis-management of paperwork, and paperwork clutter. Without a simple filing system and process in place, you create future work & double work. Follow these tips to successfully wrangle your paperwork flow!

Put it in it's home as soon as it comes in - To avoid the dreaded pile of paperwork that buries what needs to be done and adds clutter to your life and mind, follow the 'touch it once' rule. When you open your mail, file it right away. Have a stapler and staple multi-page mail right away! Setting up your system ahead of time so it all has a home is a huge time saver, and saves brain bandwidth!
File Folder Homes - For your business paperwork, I suggest 6 folder types;
1. To Be Processed - This folder is for bills and receipts that need to be entered into the bookkeeping. It also is where to file the bank statements before the bank is reconciled. Every week on your #WeeklyWinDay you must go through this folder and enter the paperwork into the bookkeeping. If you get in paperwork that does not need processing, DO NOT FILE IT IN THIS FOLDER. File it directly in it's monthly folder, or in the Year End folder.
  *VERY IMPORTANT*: If you do not enter the "To Be Processed" folder weekly, then you should have a "To Be Processed" file for every month. ("To be processed January", "To be processed February", etc) This way, if you get behind, or if you give your paperwork to an outsourced bookkeeper IT IS ALREADY SORTED BY MONTH! I cannot stress enough how important this is. 7/8/21 can be both July 8th or Aug 7th. It is a waste of time to sort by date, especially with guessing on cryptic dates. This will not need to be done if you file it in the correct month as the paperwork comes in. Do not make double work! Keep it easy! Don't pay someone to do something that could have been done magically without any actual work simply by employing this super hack!
2. To Be Paid - Once a bill entered into the bookkeeping on your #WeeklyWinDay from your "To Be Processed" folder, if it is a bill that needs paying, then you can move it to your "To Be Paid" folder. On the 15th of every month (or your #WeeklyWinDay that comes before the 15th), open this "To Be Paid" folder and pay all of the bills for the month prior.
3. 12 Monthly Folders - One for each month, with the year. "Jan 2021" "Feb 2021" etc. Once processed, your paperwork can now be filed by month. That is, once the receipts are entered, file them in their month. Once the bill is paid, file it in it's month. Once the Bank Statement is reconciled, file it in it's month. If you get in anything that does not need entering, you can just file it directly into it's month.
4. Year End Folder - For example "Year End 2021". This folder is for A) All those items you want to have handy and ready for your Year End Tax prep (I put in copies of asset purchases for example), and B) all of those items that are not related to a specific month, such as Insurance Renewal, Property Taxes, Annual Mortgage Statements etc. It will also be where your final tax return goes for the year once completed. If you have employees, it is where your T4s will go once filed.
5. Employee Files - A file per employee, if you have employees.
6. Permanent - For your business license and a handful of other items that you do not wish to file away each year.
File Folders, hanging folders, and plastic file boxes - The easiest and most convenient way to file paperwork is in file folders, in hanging folders, in plastic file boxes. File Folders should have a clear title written on them. (If you want printable labels for the suggested folders above, you can download them here!). File folders in Hanging Folders are EXPONENTIALLY easier to use and access. Those accordion style filing contraptions may be 'pretty', but they are also pretty annoying, hard to store, difficult to file in and out of, and the receipts fall between the gaps at the bottom. Also, the cardboard file boxes that many people use do not accommodate hanging folders, damage easily, and are scary to stack. The best advice is to store in plastic file boxes. These are water resistant and sturdy. My favorite boxes I get at Staples. Another great box, for smaller businesses or traveling paperwork, is this box from Amazon. In the current year, all my files are in hanging folders, but for past years, I take the file folders out of the hanging folders and archive them without the heavy hanging folders. For archiving, hanging folders take up space and weight. But for the current year, hanging folders make life much easier. Also, don't file "legal" direction. It wastes so much space! 95% of your files are letter sized, so file "letter" direction to save so much space!!!

]]><![CDATA[Canadian GST/HST Rules are changing July 1st 2021: Don't Miss Those Credits!]]>Mon, 28 Jun 2021 13:48:58 GMThttp://naomiwilkins.ca/blog/canadian-gsthst-rules-are-changing-july-1st-2021-dont-miss-those-credits

In the fall of 2020, the sales tax rules were proposed to be changed for e-commerce (electronic commerce) supplies starting July 1st 2021. As Bill C-30 is being finalized, the bigger e-commerce providers see the writing on the wall and are updating their fees to also charge GST/HST. Now, when a foreign business sell to consumers in Canada, they may need to charge GST/HST!

Today, I just received an email from Spotify letting me know that starting July 1st, they will be charging me GST/HST on their services. You may have heard Netflix too is adding GST/HST starting July 1st. Shopify already had started charging GST/HST on their services a long time ago.

When we entered our expenses for digital services charged by a non-Canadian business in the past, if the fees were in USD, or if they were charged from a US company, it was safe to assume there was no GST/HST being charged. Even before this new bill, that was beginning to be less and less the case!

What electronic subscriptions related to business do you have that may now have GST/HST credits for you that didn't before July 1st? Even if you are being charged in US funds, don't assume there is or is not GST/HST! Go to your settings and check out the actual invoice, and see if there is GST/HST being charged that you can claim back from CRA on your next HST return!

Here's CRA's FAQ on the new proposed changes
Further reading on this can be found on BDO and CPA Canada

]]><![CDATA[Setting Up Your Success Routine]]>Thu, 10 Jun 2021 18:58:29 GMThttp://naomiwilkins.ca/blog/setting-up-your-success-routine

Habits and routines are KEY in maintaining your data management. Do you constantly forget to brush your teeth in the morning? Probably not, because it is part of your morning routine. Habits can be a bad thing, but, they can also be good when implemented consciously! Intentionally create routines and processes that your future self with thank you later for. Let’s review some suggestions for routines to help you create your processes:

Do your bookkeeping data entry every week, or every month. Do not wait longer than a month. You want to know what last month’s reports are showing within two weeks of the month ending.

Set aside a special day and time to work on your paperwork and bookkeeping. You must make time for it. It must become a habit or ritual. I call it the “Weekly Win Day”. Every Saturday morning, grab your car folder you brought indoors the night before, grab your notebook, grab a coffee or a glass of wine, put on some jazz music, and enter your paperwork. Relax and enjoy it. Relish the feeling of being on top of your paperwork. This is your story, this is your data, this is your business.

Set aside a special day and time to work on your paperwork and bookkeeping. You must make time for it. It must become a habit or ritual. I call it the “Weekly Win Day”. This is not repeated because of a typo. It is repeated because it is extremely important! You could choose one Super Saturday morning every month, and put the entire month in, from start to finish, or take a few minutes every morning to enter the paperwork from the day before, and to clear your bank feed. Maybe you choose to set aside a Fabulous Friday morning, and put in the previous week. Maybe you choose a Magic Monday night, (magic, because your paperwork get’s magically done!). Whatever works for you. Though, I do suggest weekly. If it is not you doing the actual bookkeeping, you will still need to set time aside either daily or weekly to manage your paperwork, and correspond with the bookkeeper, forwarding requesting documents that you may have missed. Trust me, you’ll always be missing something.

Aim to intentionally stick with this weekly routine for Four weeks. Studies show that it takes about three weeks to create a new habit. If you cannot maintain the routine, do not be disappointed with yourself. Acknowledge that the routine you set up does not work for you and change the environment or routine such that it does work for you. Catch up and never give up. The bigger the pile grows, the less you will enjoy doing it. Doing a few minutes a day entering the transactions from the day before may work better for you than having a growing pile staring at you every week.

Use technology and processes together to make your life easier. For example, I only ever buy gas at Esso, and I only use my business bank account to fill my business vehicle. Because of that real life rule I’ve created for myself “Only Buy GAS at Esso, and ALL gas paid with card X is the Business Vehicle”, I can set up an auto rule in my bank feed on Quickbooks to put all Esso transactions from that card to “Vehicle Gas” expense, without me even looking at it or touching the app. Learn the tech, it will make your life easier. Work with your tech, it will make your life beautiful.

If you fall behind, catch up and never give up. When catching up, do one month at a time, from start to finish. If you are doing your own bookkeeping, reconcile that one month (confirm all entries in the bookkeeping are on the bank statement and credit card statement) and solve unknowns before moving onto the next month. Entering more than one month at time may cause you to repeat errors that you would have understood and resolved when reconciling the first month, if you had focused on one month at a time. Entering and reconciling one month at a time when doing catch up also helps the pile seem surmountable. If you are not trying to tackle a huge pile, just one month at a time, and it will feel more manageable.

Write down important due dates, such as GST/HST, payroll taxes, tax installments, etc., on your calendar. Every Monday morning check this calendar to see what government due dates need to be paid that week. If you’re ready, go ahead and pay them on this weekly win day. No one says you have to pay ON the due date. Paying a few days early, on your weekly win day, takes it off your “I have to remember to do this” list. Remembering that you have to do something takes up Brain Bandwidth. You only have so much bandwidth, spend it wisely!

Looking at what is due once a week and paying it then and there is a great way to be efficient with your brain bandwidth, and also saves you from late penalties. Don’t give CRA more money than you have to! This is why I suggest a Fabulous Friday, Super Saturday or Sunday, or a Magic Monday, so that you can not only take care of the paperwork from the week that just passed, but you can also prepare yourself for the coming week. If you choose to do a Fabulous Friday (which is a great idea because the week has only just finished), the write down a to do note for yourself Monday Morning, and start your work week off on the right foot.

Every month look at your unpaid bills list and your unpaid invoices list. Clear up anything that does not make sense. Look at these lists monthly even if you have outsourced your bookkeeping.

Create and keep a monthly checklist. Checklists hold more power than you realize. Make sure everything is done on that checklist. Find an example Business Checklist here

Checklists and Calendars are how you win. Your brain has a limited amount of bandwidth. Spend it wisely.

Every month review the Income Statement and compare it to the prior few months. Make sure there is nothing that jumps out as missing or incorrect. Then really take an analytical eye to it, and see if there are higher expenses in certain places than you realized. Are you happy with the profit? Why or why not?

You should also plan to put aside a percentage of your monthly profit into a savings account for income tax each month. Unlike employees, no one is deducting income tax from your income for you! As your business profit increases, so will your taxes. Your accountant can suggest a percentage based on your situation. I personally do 20%

Every month, review the Balance Sheet. Make sure there is nothing that jumps out as missing or incorrect. Then take a look at how much Shareholder Draws or Equity you have pulled out so far. Is this greater or less than the profit of the business so far? Then see how much your GST/HST payable balance has increased from last month.

Each month put the GST/HST you have collected for the month into your business savings account and do not touch it. You can also put aside any other liabilities collected, such as payroll deductions from employees for the month, into this bank account.

Reward yourself with a fancy beverage of your choice as you bathe in the completion of another month’s worth of information tracking. Feel the control you have over your business.

I cannot understate how much time and money these intentional and simple things can save! It only takes 10 seconds to put the receipt into a folder in your car instead of tossing it in the back seat and having to search and gather all your paperwork later on. So make this a habit. You may find that entering your expenses every week only takes about 30 minutes for your business once you begin to get quicker at it. If you leave it until it is a large pile, sorting through all the papers will end up taking exponentially longer. Reconciling the bank every month, and clearing the bank feed every week, helps if there is a transaction that is missing a receipt. You will have a much better chance of remembering what that transaction was and was for. Set up and start these processes, routines, habits, and rituals now, and your business will be humming along later instead of careening off the rails.
Make these routines your own, but make them. I call it “Setting Up Your Success Routine”. Studies have shown that it takes about three weeks to create a new habit. Also, keep in mind that changing Systems is Easier Than Changing Behaviors. If your system fails, don’t try and change your behavior; try to change your system.
Pill boxes marked with the days of the week is a good example of changing a system instead of a behavior. We often have the best intentions, but we often forget until something is worked into our routine. Even routines are systems that may need changing. If you forget to take your medication each day, simply trying to change only your behavior is often a failing challenge. Change the system, change the routine. Maybe you could put your medication bottle next to your coffee maker and take your pill every time you make your morning coffee. You may find that then the question becomes, ‘did I take the medication’? Tweak the routine, buy a pill box marked with the days of the week, and refill it for Sunday to Saturday the moment you take your Saturday pill.
Use this perspective as you develop your business routines. If they are not working, change them. It is easier to change a routine or process than to try and change just the behavior. If Friday nights do not work for you, try a time that does, such as Monday mornings.
Work with yourself. There’s the phrase “Don't change your habits, change your habitat.” For example, do you constantly leave your socks on the floor in the living room? Put a hamper in the living room. Do you constantly leave paperwork on that side desk in the hallways? Put a folder there specifically for the business documents. Willpower is hard to control. We have more control over our environment, so set up the environment such that these processes are easier to put into practice. Our brain has less bandwidth than we think, and we will forget things that we were confident that we would remember. But we rarely forget to brush our teeth! Similarly, set up habits and routines that need no brain bandwidth to maintain, and you will set yourself, and your business, up for success.

]]><![CDATA[What Expenses Can a Business Claim?]]>Thu, 10 Jun 2021 18:54:22 GMThttp://naomiwilkins.ca/blog/what-expenses-can-a-business-claim

I’m often asked, what expenses can a business claim? There are the obvious ones of course. A list of the standard categories to add up can be found at here, but what are the not so obvious transactions that a business needs to track? What expenses can a business claim?

A core message you hear from me is: We are tracking our totals mainly for our own benefit, to make sure we are achieving the profit and growth we are aiming for. To this end, we want to make sure to capture all transactions that that would not have happened if we were not running the business. We want to get as close to reality as possible. In order to do so, we must keep our personal purchases separate from those that are business related.

Special Hack for the Grey Situations: "Would I Reimburse An Employee For That?"

A really good guide for know what is business and what is personal is to think, ‘’Would I reimburse my employee for that?”. For example, if you asked them to pick up donuts for the entire office because of an office meeting, would you expect them to pay for all the donuts? No, you would have no issues with giving them the money to cover it. If they went out at lunch to buy themselves a fast food lunch, and brought back the receipt, would you cover that? Probably not, especially if they did that every day. If you were at a job site that was far enough away from home that you and your crew needed to stay overnight in a hotel, would you cover that for them? Yes. Also, because they could not go home to pack a lunch the next day, you would probably cover their travel meal. Often, construction companies offer compensation for safety rated steel toed boots. In contrast, if one of your sales reps came into your office and said, “I need to have fresh breath for when I do my sales pitch to prospective clients, so I expect you to cover the cost of my toothpaste” you would likely think he was crazy!

Using the “would I reimburse an employee for this” guideline can be extremely helpful in deciding if it is an expense you believe is related to running the business or not. It also helps in considering if it is an expense that the CRA would allow if you are ever audited, because their goal is to find the number that is closest to reality too.

ProTip: If you are claiming a meal expense, write down on the receipt who you met and how it was related to business, so that the info is there if you are audited. And yes, you can include the Tip in the entry. (But know that even business meals expenses are only claimed at 50% for tax purposes). If you are travelling out of town, you can claim travel meal. But if you're in town, and you're not meeting a business related person, then it's not claimable, as per the guideline above, "would I reimburse an employee for this".

Mixed Use Expenses:
These guidelines also can help to understand mixed use expenses that you are allowed to claim. Mixed Use expenses are expenses that support the running of the business that also support the running of your non-business life, such as your car and your home office.

Let’s start with Vehicle Expenses

If you had a company truck that your employees picked up at the shop, and use to go to jobsites or clients, would you expect them to pay for any of the gas or maintenance? No, you would cover those truck expenses 100%. Similarly as a business owner, a company vehicle that is used 100% for business, you can claim 100% of all expenses. But when you start out, you generally have a personal vehicle that you use for both personal errands and business running around, that is used for less than 100% for business.

If your employee used their own vehicle to just drive into the office in the morning, and then back home at the end of the day, would you cover the cost of their gas and vehicle maintenance? No. Driving to and from the main place of work, such as a store or office, is not something you would reimburse for. CRA also does not consider this business use if you're just driving into your own office. If your employee drove around in their own vehicle to sales appointments, they would expect some sort of compensation. Would you cover every single gas receipt they put in their car for the entire year, and 100% of all their maintenance bills? No. How would you feel if they drove 10 minutes to a meeting, and 10 minutes back from a meeting, and filled up their gas tank from empty along the way? Would you reimburse for the full tank of gas? No. In Canada, we generally use “Vehicle allowance” or a “per km rate” to reimburse employees for use of their personal car. Though, for business owners, currently in Canada, it is a bit more complex.

For business owners, CRA would like to get a little closer to reality. That is, the per km rate does not account for higher maintenance costs for certain vehicles, or the variance of gas prices across the country. So, they become more detailed for business owners. (As mentioned above, getting as close to reality as possible).

For business owners, the way that the CRA allows vehicle expenses is by percentage. If you use your vehicle for business, you can claim the percentage of all your expenses that correlate with the percentage of time you use your vehicle for business. To do that, they expect you to keep a vehicle log so that the percentage can be calculated. They are trying to get as close to reality as possible. No more, no less. You can claim that percentage of ALL the vehicle expenses; maintenance, gas, plates, insurance, lease, Capital Cost Allowance (the vehicle losing value over time) or the interest on the loan. (Not the full loan payments. Paying down a loan is not an expense, it is decreasing how much you owe. It is the interest on the loan, that is an expense, and you can claim a percentage of that).

If you have a work vehicle that you ONLY use for business, then the percentage you are claiming is 100%. If you use your vehicle half the time for business, and the other half the time for personal, then you can only claim 50% of your vehicle expenses. If you use your vehicle for both personal and business, you are required to keep a vehicle log, and to note your odometer at the beginning of every year. (There are apps that can help!) If you use your vehicle for 90% or more for business use, then keep a vehicle log for 3 months with the odometer reading from the beginning and the end of the three months, and you can use that as a baseline to show CRA if you are ever reviewed or audited.

The next question is, how do you track all of the vehicles expenses, if you are only claiming a portion, especially if you do not know the percentage until the log is added up at the end of the year?
Good question.

Many bookkeeping software applications have not yet accounted for this percentage issue, (often referred to as “allocations” or “Personal Use Allocations”). Some have, especially since the rules for the amount you can claim for GST/HST on these expenses follow the same rule. Most have not, even the bigger named bookkeeping software. Many of them work on the assumption that your vehicle is 100% business use.

You have options. To make your bookkeeping easier, if possible, you can try to focus on only one vehicle for business use and use another for personal errands. Otherwise, here are some suggestions:

If you use the vehicle for more than 90% business, you can treat it as if you use it 100% for business.
If you use the vehicle for 50% to 90% for business, you could enter all the expenses into the software, and keep in mind that the vehicle expense total on your profit and loss is higher than what you will end up claiming at the end of the year when looking at your Income Statement. Then you would subtract the personal portion with an adjustment at the end of the year.
If you use the vehicle for less than 50% business use, you can put the vehicle expenses into a special “Owners Vehicle Use” equity account on the balance sheet, and then ADD with an adjustment to the expenses at the end of the year.

Pro Tip – use only one payment method for that specific vehicle’s gas, and a different payment method for the rest of the family’s gas. This way, you can see the total gas for that specific car easily by knowing, “all gas purchased with xyz card is for Vehicle A”. Work smarter not harder!

If you are incorporated, it’s important to discuss how you will be handling your vehicle costs with your accountant at the beginning of the year. Also, before you purchase a vehicle, connect with your accountant to ask whether they think given your specific situation the vehicle should be purchased in your name or the corporation’s name.

Business Use of Home Expenses
Another scenario to consider. Kind of weird, but in keeping with the ‘would you reimburse your employee’ metaphor. If you wanted an office to run your business out of, and one of your employees said they had the perfect room for you at their place, would you expect to be able to work from their home office for free? Probably not. They would likely expect some sort of rent to be paid. Similarly, this is why CRA allows you to include your own home office as an expense. Then how do they calculate this amount?

It is a percentage game again.

There are two categories to consider here. The cost of maintaining your home that you would have to pay anyway if you had a business or not, and those costs that are higher than usual because you are running a business, such as telephone and internet use, and maybe electricity if you have a workshop on your property.

For those costs you would have to pay anyway, first you calculate the percentage your office space takes up in your home. Then, you add up all the costs it takes to run your home; utilities, insurance, maintenance, property taxes, rent or mortgage interest (not the full mortgage payments, just the interest portion). These are not usually paid for out of the business bank account, because they are below 50% business use, and would really mess up your Income Statement totals. We usually total these up at the end of the year (and associated HST), and then add an adjustment in at the end of the year, mainly to decrease your taxable income. For my personal situation, I claim 12.5% of my Business Use of Home expenses (Also known as home office expenses).

The other category to consider are the home mixed expenses that are higher because you are running the business, such as telephone and internet use.
These can be claimed at a higher percentage, and you likely want to see them on your Income Statement, because you want to consider them when evaluating your profit. Consider adding the business portion only into your monthly entries into your bookkeeping, along with associated HST. Still pay the full bill out of your personal account, but mark the business portion of the expense you enter as “Paid by Owner” (or, paid by cash).

Mixed Expenses can be a pain. But, they do help reduce your taxable profit! And in the context of wanting to get as close to reality as possible, how CRA expects them to be claimed, and how you want to see them when evaluating your Income Statement, you can see how it is helpful to know what is expected and how you are going to handle them ahead of time! For example, right now, go outside and write down your odometer reading. Then grab a notebook to keep in the car, or download an app, to keep track of kilometers you drive for business!
In Summary: Start a vehicle log, today.

- You can claim a portion of all your vehicle expenses. The percentage you can claim is related to the percentage you drive your car in the year for business. The vehicle expenses you want to track are:

Vehicle Gas
Vehicle Insurance
Vehicle maintenance
Vehicle License Plate Sticker costs
Interest on a Vehicle Loan
Vehicle Lease

Notice that I wrote “Vehicle” in every expense there. For clarity, you need to name your Ledger accounts specifically with the word “Vehicle” in it. Do not put all insurance into one GL account. This will cause headaches at year end. Put your Vehicle Insurance into It’s own GL Account, and put your business insurance into it’s own GL Account.

- You can claim a portion of all the expenses it costs you to live in your home. This is a much lower percentage, so it usually is an adjustment added in at the end of the year. The Home Expenses you will need totals for are:

Home Insurance
The INTEREST on your home Mortgage (just the interest, the mortgage company will mail you the total interest paid in the year to you in January)
Home Utilities such as Hydro Electricity, Heating costs, and Water costs.
Some home Maintenance costs. (A higher percentage if related to your home office).
Home Rent if you rent.
You generally can claim a higher percentage of your Cell Phone and Internet expenses.

- If you are incorporated, connect with your accountant with how they feel is the best way to claim your mixed use expenses given your specific situation. And if you are incorporated, connect with your accountant before you purchase a vehicle to discuss if the vehicle should be in your name or the corporation’s name. There are tax implications for both!

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