TFSA

A Tax-Free Savings Account is a useful tool in your savings arsenal. However, many people do not understand that there are rules to how much you can contribute to a TFSA each year. If you over contribute the CRA can and will charge you a tax. This post will cover FAQs about TFSAs. Including, what a TFSA is, how much you can contribute, and what penalties you will face if you exceed the limit.

 

What is a TFSA?

 

The government started this program in 2009, and it is available to anyone over 18 who has a valid SIN. It allows for an investment that is free of tax, this includes all money gained within investments, and tax-free withdrawals. However, this also means that unlike RRSPs you will not get a tax-deduction when you invest in a TFSA. 

 

No one besides yourself can contribute, withdraw money, or make decisions about investments  in your TFSA. 

 

 Will it affect government benefits?

 

Any money that is made within a TFSA or withdrawn from one, will not affect any government benefits that you have or will apply for. This is true for retirees, and people still in the workforce. 

 

How much can you contribute?

 

The CRA will publish the annual contribution limit for TFSAs for that calendar year. You can not exceed this amount if you have maxed out your previous years TFSA limit. However, if you have spare room from the previous year or you had withdrawn money in the previous year, you can add this to your contribution limit. 

 

If you have never opened up a TFSA, you are eligible to contribute $63,500 as of today, because your contribution limit accumulates. The breakdown of this is as follows: 

 

Years Contribution Limit 
2009 – 2012 $5,000
2013-2014 $5,500
2015 $10,000
2016-2018 $5,500
2019 $6,000

 

How can I find out my contribution limit?

 

If you want to find out your contribution limit, you can:

 

  • Phone the CRA TIPS line at 1-800-267-6999
  • Visit your CRA Individual Account

 

Can I have more than one TFSA?

 

Yes, you are allowed to have more than one TFSA, however it is your responsibility to ensure that you are not over contributing. 

 

What is the penalty for exceeding the contribution limit?

 

The CRA will charge you 1% of the highest excess amount in the TFSA for that month. They will continue doing this each month that the over contribution remains in your account. This can add up quickly! 

 

Where can I find more information on TFSAs?

 

You can check out the CRA website from the below links, or talk to your accountant or financial planner! 

 

TFSA Basic Information

TFSA Contributions

CPP 2020

CPP rates have been announced and will again be changing in 2020, this is part of the first phase of the CPP enhancement program started by the government in 2019. 

 

Below is a chart showing both the 2020 and 2019 CPP information. 

 

2020 2019
Maximum Annual Pensionable Earnings $60,100 $57,400
Basic Exemption $3,500 $3,500
Maximum Contributory Earnings  $56,600 $53,900
Contribution Rate 5.25% 5.10%
Maximum Annual Employer & Employee Contributions $2,972 $2,748.90
Maximum Annual Self-Employed Contributions  $5,944 $5,497.80

 

The CPP enhancement program sees rates rising until 2023, where they will reach a 5.95% contribution rate. 

 

After 2023, the second phase will take place, where two different rates will be in effect.

Once you have reached the first earnings limit, you will move to the second tier and contribute 4% on this income until you reach the second earnings limit. 

 

You can find more information on this program here.

Do you need to make installments?

Whether business or personal, everyone knows that the time will come when they must pay the CRA. However, what may surprise you is that the CRA sometimes demands their money in installments. You need to be prepared to make these installments, or the CRA will charge you interest and penalties. Below are the thresholds to watch out for, so you can budget and avoid paying the CRA more than you need to! 

 

Personal Installments 

 

You must pay personal tax installments if:

  • Your previous years personal taxes owing were over $3,000
  • Your current years taxes are estimated to be over $3,000 owing

 

Note, if your current year taxes will be less than $3,000 owing, you will not need to pay installments even if your previous year was over the threshold.  

 

The CRA will send you installment reminders in either February or August. The only time you should ignore these are if your current year taxes will be under $3,000. 

 

If you don’t remit installments the CRA will charge you interest and penalties.

 

You can find more information on personal tax installments here.

 

Business Installments 

 

Businesses must also pay installments to the CRA for their corporate taxes and GST. As with personal installments, if you do not make your installments to the CRA, they will charge you interest and penalties. 

 

You will notice that $3,000 is the running theme throughout the rules for installments. This is also the magic number the CRA has chosen for corporate taxes and GST. 

 

Corporate Taxes

 

Corporate tax installments are very similar to personal taxes, you will not have to make installments if your taxes are less than $3,000 owing in the current or previous year. Or, if the corporation is new, installments will not need to be made in the first year of operation. 

However, even if your company falls into one of these two scenarios and you do not have to make installments, you must ensure that the taxes are paid by the due date. Or the CRA will still charge you interest. 

 

Installments for corporate taxes can be made either monthly or quarterly. To calculate the installments due you can either use what you estimate this years taxes owing will be or use the previous years tax number. The CRA will charge you interest if you chose to estimate this years taxes and you have remitted less than the actual amount. 

 

You can find more information on corporate installments here

 

GST 

 

GST installments are only applicable if you are an annual filer. You will need to make them no later than a month after each of your fiscal quarters. The rules are the same as all other installments, they must be made for GST if the amount owing in the previous year or current year is over $3,000. As with corporate taxes you can calculate the installment amount by either using the previous year GST owed, or estimate the current years. Again, they will charge you interest if you estimate too low.

 

You can find more information on GST installments here.

 

It is important to understand your installment obligations, as it will save you money in interest & penalties. Talk to your accountant or bookkeeper and they can help you determine the amount to pay and when.

Balance Sheet Accounts – Part 2

The bottom half of the balance sheet will contain the liabilities information of the company. The liabilities are important to understand, as it will show how much money the company owes to various sources. Knowing what the company owes is an important aspect to cash flow. It will also help to cut down on surprises. 

Below is an example of what the liabilities section of the Balance Sheet will look like and a brief description of each account.

 

 

 

#1 Accounts Payable 

This shows how much money the company owes to vendors. It will include all amounts currently owed, whether or not they have come due. If you want to gain a better understanding of how much money is currently due to vendors, you can look at the AP Aging Summary (shown below). This will help you understand the distribution of your Accounts Payable.  

 



#2 Credit Cards 

If the company has a credit card, this will show the amount owed as of the date on the Balance Sheet. It is only the balance due on that particular day, so it may not match the last statement. 

 #3 Loans 

This will encompass loans the company currently has, for example a car loan. This account will be principle only. The interest that is paid on every payment will show up on your Profit & Loss statement. The bookkeeper or accountant, will be able to produce a schedule showing how much interest is paid on the loan. 

#4 Corporate & Provincial Taxes Payable 

This account will track how much the company owes the government for corporate taxes, if any. If money is owed, it will show as a positive balance. If the company has been making installments throughout the year, then this account will have a negative balance in it. 

 

#5 GST 

These accounts will track how much money you owe for GST. It is tracked in live time in the books. Therefore, it is important for a business owner to watch this account, as it will avoid unnecessary surprises when the GST is filed. 

There will always be two different accounts for GST on the balance sheet. The first is for the GST that has not yet been filed. This is shown as “Total GST/HST Payable” on the example above. This is the amount that the up-coming GST filing will be. The second account is “GST Net”, this account shows the amounts that are owed from already filed returns. 

At On-Core, our balance sheet shows GST broken down into both the Sales & Purchases category. This gives business owners a more detailed look at their books. 

#6 Shareholder Loan

This account will only show on the Balance Sheet if the company is incorporated. It is used to track how much money a Shareholder owes the company or vise versa. 

If the balance showing is negative, the shareholder owes the company. Meaning that they have taken money out of the company. This can happen in many forms, from transferring cash to themselves, or paying for personal expenses with company money. At the end of the fiscal year, if there is a balance owing, the accountant will need to declare a dividend to the shareholder.

It is important that the shareholder pays attention to this account. If they continue to blindly take money out of the company, the amount of income on the dividend may come as a shock.


As you can see, the liabilities section provides you with important insights into your company. It is important to keep the books up to date, so you can use the Balance Sheet. You can find a video here, with more information on this topic.

Balance Sheet Accounts – Part 1

Understanding reports that bookkeepers send will help owners gain a better knowledge of their business operations. Owners can use this information to advance their business and make smart decisions. This is the first blog post of 2, that will help a business owner understand the Balance Sheet. 

 

The top half of the Balance Sheet contains asset information. These are items adding value to the company and the amounts that are owed to the company. Below is an example of what the assets section of the Balance Sheet will look like and a brief description of each account. 

 

 




#1. Bank Account

All the bank accounts in the company will show up here. The balances shown may not match the amount of when you login to the bank account. This is because these accounts will reflect any outstanding items. This would include cheques that have been written but the person has not yet cashed. It is designed to give a better estimate of the available cash flow. 

 

#2. Accounts Receivable 

The amount that is in Accounts Receivables shows how much money customers currently owe the company.  It will include all amounts currently owed, whether or not they have come due. You can better understand the general timeline of the companies Accounts Receivable by looking at the AR Summary Report (shown below). 

 

#3. Prepaid Expenses 

If an expense was paid in advance, the balance that has not yet been used will show up in this account. An example of this is, if insurance was paid for the for the year, there will be a prepaid insurance account. Every month the bookkeeper will move the monthly amount out of this account and put it in the expense account. This will help the monthly Profit & Loss statement look coheavisive throughout the year.  

 

#4. Assets 

Assets are items that the company would be able to resell and are over $500. Every year the accountant will expense a portion of the asset, this is called depreciation. It will show up on your Balance Sheet in the Accumulated Amortization account.The CRA has different classes of assets, and they determine the percentage that the asset can be depreciated at. 

On the Balance Sheet you will see: 

Asset Cost

(Accumulated Amortization) 

Total Asset

The total amount indicates how much the value of the asset on the books is. It is important that business owners know how much their assets are worth. As this contributes to the value of the company.


You can find a video here, with more information on this topic. Part two will cover the liabilities section of the Balance Sheet.  If you have any questions about your assets, give On-Core a call and one of our professional bookkeepers will be happy to assist you!  

Employee or Self-Employed?

Are you self-employed or an employee? It is important that you understand and define your working relationship from the start, as it can be a costly mistake to make. 

If you are an employer, who has wrongly assumed that you are working with a subcontractor, you will end up needing to provide the government with both sides of CPP and EI. Plus, they will add penalties and interest on top of that! 

On the other side, if you are working for someone and wrongly assume that you are an employee. You may be surprised with your tax bill at the end of the year. As you now are a sole proprietor and owe both sides of CPP and all your income tax! You may even have needed to register for GST! 

As with all things business, the CRA has rules to help you figure out if you are self-employed or an employee. 

Intent

When the contract for the relationship was first established, was the intent for a contract of service (employee) or contract for services (self-employed)? It is important that both sides are of the same understanding of the intent of the relationship. Written agreements can help to make sure both sides have the same intent going in. In the event of the CRA looking at the business relationship, written contracts will be examined. 

It is important to note that even if your intent was clearly stated, the actions of your relationship must follow allow the same lines.

Working Relationship 

Once you have determined the intent of your relationship, there are six other factors that help to determine if your intent matches the reality of the working situation. You do not have to meet all six of them, they are merely metrics used to help the CRA understand your relationship. However, enough of them need to be met to show a  trend towards either a contract of service or contract for service. 

#1. Control

How much say does the person doing the work have? In a typical employee-employer relationship, the employee will be under the direct control and subversion by the company. They may be told exactly how to do the job, and the employer will always have the final say on process and what jobs need to be done. The employer will also have authority over the employee when it comes to pay, as they will determine when and how much is paid.

In a subcontractor relationship, the person working does so independently. The company does not usually have a say on how/when the work is done, and if they can work for multiple other companies at the same time. They also retain the ability to refuse work from the company, something an employee can not do. 

#2. Tools and Equipment

Who owns the tools? If you are an employee, the company will usually provide you the tools to work with, or reimburse you for money spent. Whereas a subcontractor will have bought their own tools, and will be responsible for all upkeep and repairs on them. A subcontractor will also usually have their own workspace, where they are responsible for the entire cost. 

#3. Ability to Hire

As a subcontractor, you should be able to hire whoever you want to help with your work. The company does not have power over who you hire to do the job. If you are an employee, you will need to complete the job yourself, and you will not be able to hire someone to do the job without getting approval. 

#4. Financial Risk

As an employee, you should experience no financial risk. Your employer will continuously pay you based on their schedule, and all expenses incurred for business will be reimbursed. 

Subcontractors take on financial risk, as they are based off contracts with companies. They do not have a guaranteed continual agreement with a company, and are responsible for costs relating to a job. They also have a need to market their services to other companies. 

#5. Investment & Management

An employee will not have an investment stake in the company. They will not need to put their own money into the company for it to complete a job. Whereas a subcontractor has money invested in their company and may manage employees.

#6.Opportunity for Profit

A subcontractor is able to lose money or make a profit from the business relationship. They have it within their control to negotiate the rate paid for the job. They also must pay for the expenses and possible employees time that relate to the project.  

Whereas an employee is not able to realize a profit or a loss when the company does. They are paid a standard rate for their hours worked. Sometimes employees are paid by commission, however this is not deemed a profit because there are no expenses related to it that the employee must incur. 

The CRA provides a more indepth guide here, as the above are brief summaries of each factor. If you are unsure which relationship you have or are concerned that you are being treated wrong, you can request a ruling from the CRA. 

** Quebec has different rules for determining if you are a subcontractor or employee.

Taxable Benefits

Employers often give their employees additional compensation and perks beyond their normal salaries. This can be an important aspect of employee morale. However, it is imperative that employers understands that these are taxable benefits. As with all employee compensation, the CRA has rules for these that you must follow. In previous blog posts we have discussed mileage reimbursement, and employee gifts and awards. This post will explain a few taxable benefits and give you the resources to navigate the maze of CRA payroll obligations.

Parking 

Parking can be considered a taxable benefit even if you as the employer own the lot. Now before you start to worry that you are missing parking on your employees pay cheques, there are situations in which it is not a taxable benefit to provide parking. These include: 

  • If your employee has a disability
  • It is a lot that provides both public and employee parking, For example, working at a mall.
  • You need to provide parking for an employee who uses their car for business purposes during the day. 
  • The parking situation is considered scramble parking, which means that there are less parking spots than employees. 

An example where parking would be a taxable benefit is providing your employee parking in downtown Edmonton and they don’t need their car for business. You would then need to include this in the employees income. 

Company Vehicle

If you provide your employee with a company vehicle to use, you need to pay close attention to how they are using it. The employee needs to be using the vehicle for business purposes only, and return it to the company at the end of the day. If you do allow the vehicle to go home with your employee, it must be for valid business reasons and no personal driving takes place. Your employee must also keep a logbook to prove that all KMs driven were for business reasons. Note: Driving the vehicle to and from work does not count as business driving. When the vehicle is readily available to the employee, and they use it for their personal driving this becomes a taxable benefit. 

The CRA has provided a calculator that can help you determine how much you need to charge your employee for a taxable benefit. As most of the situations will have a combination of both business and personal driving. You can find the calculator here.

 Cell Phone

Cell phones are now vital to running a business. Unfortunately, cell phones are part of the long list of items that can be considered taxable benefits. Luckily, there are provisions that allow you to pay for a cellphone for an employee. The first of which is if the company owns the cellphone and it is used by the employee for business purposes. 

 If it is the employees personal phone, you can reimburse them for the plan only if the following conditions are met: 

  • The plan is reasonable & has a fixed cost
  • Your employee does not incur overages from personal use

If you pay for personal overages or for a premium plan, when the phone is under the employee name, this is a taxable benefit to the employee. 

Another situation that is considered a taxable benefit is, if you reimburse your employees for buying a personal phone. Even if the phone was damaged during the course of doing something business related. It is also taxable to the employee if you give them a fixed allowance for a cell phone

Resources

Of course there are many other taxable benefits, you can find the entire guide on the CRA website here. Included in this is a taxable benefit chart that you can reference. It gives you both the payroll taxes on the benefit and which box it needs to go in on the T4.

On-Core can help you with any questions you may have regarding taxable benefits!

Job Creation Tax Cut

On Monday, July 1st, Bill 3 from the UCP came into effect. This bill is what they have called the Job Creation Tax Cut. You have probably heard about it on the news, and you may not be  sure what exactly what this means for you as a business owner in Alberta.

Small Business Tax Rate

First, we will start with what is staying the same. The small business tax rate will not be changing from the current 2% rate in Alberta. What this means, is that all Canadian-Controlled Private Corporations with active business income (excluding things like investment income & rental income), will have a provincial tax rate of 2% up to $500,000. If you are interested in reading more on the Small Business Deduction, you can get that information here

Large Corporation Tax Rate

The Large Corporation tax rate is what has been affected by Bill 3. In the next few years, it will be reduced by 4% overall, going from 12 to 8 percent by January 1, 2022. 

Below is the schedule for the changes laid out by the UCP, the first change of a 1% reduction has already taken place this week. 

July 1, 2019 11%
January 1, 202010%
January 1, 20219%
January 1, 20228%


Some information about the effects of Bill 3 from the Alberta website are:  

  • As of this week, we will have the lowest Corporate Tax Rate in Canada.
  • As of 2022 when the cuts have finished, we have a lower combined federal and provincial tax rate than 44 US States.

As mentioned previously, the UCP has named this the “Job Creation Tax Cut”, they believe that by having some of the lowest tax rates in North America, it will make Alberta a more enticing place to invest in, and therefore create more jobs for Albertans. 

If you would like to read more about Bill 3, you can check it out here.

“Open for Business”

A couple weeks ago the UCP introduced a new bill, Bill 2 or the Open for Business Act. As a business owner, this bill will directly impact the way that you are required to pay your employees. The changes will take place on two different dates, June 26th and September 1st of this year. The changes will be to: minimum wage for youth workers, general holiday pay, and banked time. Below is a summary of the changes, if you would like to read more about this bill you can check out the Alberta website here.

Minimum Wage on Youth Workers

This will be the first change to take effect, it will happen on June 26th and effect workers who are 13 to 17 years old. The new minimum wage for these employees will now be $13/hour. This is down from the current $15/hour. A couple notes about this change:

• The youth must be enrolled in school, if they are not a student the $13/hour does not apply to them.
• The $13 only applies to the first 28 hours worked in that week, anything over 28 hours must be paid out at $15/hour. Unless it is a break period, than all hours can be paid at $13/hour.
o For example: if a student works 32 hours during a non-break period, 28 hours would be at $13 and the other 4 would be at $15.
• If you are going to lower the wage on one of your employees, you must give them notice before the period in which this change would be taking effect.

General Holiday Pay

The rules surround General Holiday pay will be taking effect on September 1st. Currently, every employee receives 5% of their previous 28 days wages. The new rules will tweak this formula slightly, as not everyone will be eligible for General Holiday pay. The changes will be:

• You must work at least 30 days in the previous 12 months to be eligible
• It must be a normal working day for the employee, or you have actually worked on that day to receive General Holiday pay. If you do work on that day it will be 1.5 times their wage, if it is your normal working day they will be entitled to the same General Holiday pay as before.
o For example: If one of your employees is always off on a Friday, you would not need to pay them Good Friday, as it is not one of their normal working days.

Banked Overtime

This change will also take effect on September 1st. Currently, if an employee works overtime you must pay them or bank their time at 1.5 times their wage. This bill will bring back the older banked overtime structure, in which you only need to give them a 1:1 ratio for this time.

For example, if you an employee works a 10 hour day, you will now only need to give them 2 hours of banked time instead of 3.

 

If you have any questions about the Open for Business Act and how it will affect your payroll, give us a call today!