Online businesses – applying Canadian taxes 

This remains a very confusing area for many people selling their products and services in an online business. The regulations by Canada Revenue Agency are pretty clear that the tax applies where the individual takes receipt of the product. Therefore, the tax to apply may not be the tax in your home province.

If you are selling a product to a Canadian in another province, then you likely should be selling it at their tax rate. For example, if you are a company in  Edmonton, Alberta and you are selling to someone in New Brunswick, then you need to sell at 13% HST. This HST would be filed and submitted with your regular GST return.

The tax rates to apply in your sale of your product or service for online businesses can be summarized by this photo.  You can read an excellent article by clicking on the map or on the link below.

Many thanks to Paradise Commerce for an excellent summary. To see their full article, click here.

A common mistake made by small business owners is to hire a bookkeeper that is not qualified to do your books. There are many individuals advertising bookkeeping services. Try going to Kijiji and search for the keyword: bookkeeping. You will get approximately 100 results or more.

But how many of these bookkeepers are actually qualified to do your books?

As the owner of the company, you are the person legally responsible for the accuracy of your books. Make sure that you are doing everything you can to ensure they are accurate.

I always tell clients that there are several general levels or styles of bookkeepers, and there are pros and cons to each level.

The most common issue is that a store owner will hire someone to do their books in the interest of cost, and they do not understand that having someone to do your data entry is not good enough to ensure your books are accurate.

What is important to know about any bookkeeper is that there is no regulation on bookkeeping services. Anybody can offer them. They don’t necessarily need schooling or have to prove they are qualified in any way. They might belong to an organization, but that does not mean they are qualified to do your books. Many bookkeepers will specialize. Know who and what you are hiring.

Whatever style of bookkeeper you are using, you must know this:

  • As the business owner, you are responsible for all costs.
  • You cannot afford to assume anything when it comes to your books.
  • This is your company. You are legally responsible.
  • Make sure that you are doing what you need to do.

Bookkeeping is a very generalized term, and not regulated. Your bookkeeper should have these qualities:

  • has some formal education with a recognized institution
  • should have several clients that can provide a reference
  • should be able to answer your questions intelligently, and without hesitation
  • should be able to list at least 2 accountants that they are dealing with regularly
  • should be 100% involved in their business and not treat it as a side job
  • should be able to prove that they are engaged and learning from others in the business
  • should be able to show you their working environment

There are several different styles of bookkeepers.

Style A Bookkeeper:

This style of bookkeeper will keep your books. They will put in what you tell them to. They will make sure that your daily paperwork is out of your way.

Then the small business owner takes their books at the end of the year and passes it along to the accountant. The accountant then takes the numbers** and puts them into a tax return.

Pros:

  • Less expensive

Cons:

  • Your books may have huge inaccuracies, unaudited numbers, unreconciled bank statements, or other inconsistencies
  • Could result in costly consequences if errors are performed and not caught by your accountant
  • They usually have a high level of inaccuracies
  • They rely on the business owner to make sure the books are correct
  • Tend not to have any formal education in place, but rather have learned through previous job experience

Neutral:

  • Tend to be home based

Style B Bookkeeper:

This bookkeeper has years of experience. They know debits and credits like they know their own kids. They are able to pick out areas of concern in your business, and give that information back to you.

A good bookkeeper in this category will get to know your business, and will be intuitive enough that they will ask questions about what you are doing. They will want to know your personal income so that they can maximize your tax returns personally and professionally.

A style B bookkeeper will be competent to do your payroll, T4, and GST returns.

They will use or have their own version of accounting software.

Experience in this field is quite diverse, however, leaving it difficult for you as a store owner to know if you are getting bang for your buck.

Pros:

  • Higher confidence level that your books are being done accurately
  • Mistakes are usually minimized
  • Relies on the bookkeeper to be accurate rather than the business owner
  • Minimizes the costly consequences of errors
  • Usually has education or belongs to an association

Cons:

  • The level of experience will vary
  • May be slightly more expensive, depending on the detail level

Neutral:

  • Tend to have a dedicated office (which may be a dedicated space from their house)

Your accountant:

Your relationship with your accountant is important. How much your accountant is actually doing for you will have a wide range of services, and a wide range of costs.

There are 3 general levels of engagement with an accountant. Know which one you are paying for. They are:

1. Notice to Reader
2. Review
3. Audit

The general rule of thumb that a client can use is looking at the cost. A tax return for a corporation will start around $1500 – $2000 per year. This generally buys you the corporate return plus answering any questions you may have about your tax accounting. It generally is not auditing your numbers, nor does it ensure that you have not made any mistakes in your daily operational bookkeeping.** The more you pay, the more services you are receiving.

To get an understanding of the type of service you are getting, you should always ask your accountant these questions:

  1. What type of tax return am I getting? What services are you providing me?
  2. Are you doing any tax planning on my behalf? Know what planning is doing before Dec 31 and after Jan 1. They are often different types of tax planning involved.
  3. If my bookkeeper made an huge error, would you catch it?
  4. Do you make sure that the bank statements and credit card statements are reconciled properly?
  5. Are all my assets on the books correctly? How do they know?
  6. Are you adjusting my inventory, or making sure that my inventory is being adjusted yearly (for retail inventories)?
  7. How confident are you that the numbers that I have given you are correct?
  8. Do you check to make sure my books match the government records CRA (Canada Revenue Agency)?
  9. For payroll, are you filing my T4? Are you filing my ROE?
  10. For GST, are you filing my GST? Are you adjusting my GST for bad debt? Are you making sure that I am claiming all the GST applicable to me?
  11. Does your accountant have an RC59 filed with Revenue Canada to be able to access your records on your behalf?
  12. Are you looking for discrepancies in my books?

If your accountant is not doing any of these items, then you need to make sure that your bookkeeper is doing them.

Many times, business owners assume their accountant is doing this. The accountant assumes the store owner has done what they need to do and the numbers are right.

This article has been provided and written by On-Core Services, and is meant to provide general information only. It is not meant to replace any advice provided to you by your currently accountant. Only an accountant has the appropriate licensing to provide you with accurate and timely information for your business.

** There are different types of contracts you will have with your accountant. How your numbers are processed will depend on the agreement you have with your accountant.

Items to Bring

The following items are required to do your book keeping. You may not have all these items in your business but items marked by an * are mandatory.

  • All bank statements (*)
  • All cancelled cheques and/or cheque stubs (*)
  • Copy of incorporation documents (if this is your first year of business) (*)
  • Deposit books
  • All credit card statements
  • If you are a home based business, please supply all:
    • Utility bills
    • Mortgage statement indicating the amount of interest paid
    • Property tax bill
    • Rent receipts or amount
    • Alarm or security system billings
    • Home telephone bills
    • Home internet bills
    • The square footage of your house (include your garage only if you use it for storage/usage of your business items.)
  • A listing of invoices that you have not yet been able to collect from your clients that are over 90 days old (and will likely not be able to collect).
  • If you carry inventory, a dollar amount of the value of that inventory.
  • A listing of all assets (if this is your fist year). Include items that were yours personally prior to using for the business. Include items such as:
    • Computer desk
    • Computer
    • Filing cabinets
    • Vehicles
    • Equipment
    • Sheds and /or storage units
  • If you have any loans, please include your financing documents. This includes any leases as well. This can include such items as:
    • Vehicle bills of sale
    • Vehicle financing
    • Line of credit statements/terms
    • Loans on equipment
    • Operating loads
  • If you have any leases, please indicate which items are leased
  • Prior year tax return for your business
  • All receipts from purchases.

These are the items you need to bring on your first visit to see us.

It is a good idea to get this form also, so that you can easily record your home based expenses.

Cost Effective Methods

Bookkeeping seems to be a four-letter word for some businesses. It is just all paperwork! Receipts for this, copies for that. Do this is triplicate. AAHHH!! It can seem like such a mess.

messy-paper-tray-papers-4132374-150x150Whether you like it or not, your books are probably one of the single most important thing in your business (customers are first, of course). All that paper that you are generating tells a story about your business; it can tell how profitable it has been, how profitable it can be, and if it is done right, it can keep you out of financial trouble.

When we own our business, we tend to get our head space into doing what we do well.  If you own a company that makes widgets, then you tend to spend all your day making widgets, and forgetting about all that paper that making widgets generates. There is certainly nothing wrong with doing that. After all, isn’t make widgets what you are good at?

If you don’t take care of the paper backlash, however, then you may find yourself at the end of a very large and deep lake. Worse than that, in a fairly short period of time, you just might find out that you don’t know how to swim.

This phenomena is called the shoebox mentality. It is where you are concentrating so hard on making widgets that you forget to manage your business.  You can spend thousands of dollars just getting that paperwork in order.

How do you know how profitable your business is? How do you know how much your costs have increased? Are you truly compliant with Revenue Canada?  Is your GST caught up, or do you just *think* it is caught up? How much did you pay in interest and penalties because your paperwork wasn’t submitted on time to CRA? Where will you be financially in 6 months? 2 years? 5 years?

It certainly is not uncommon for a good bookkeeper to see clients living off of credit and making decisions from what they feel the business is doing. But all too soon, it can catch up on them.

If you have ever experienced any of these issues, you may not be doing enough with your bookkeeper.

  • penalties & interest on late GST and payroll returns to CCRA
  • high credit card balances
  • low cash flow
  • no budget in effect
  • worries about meeting payroll commitments
  • stress or an out-of-control feeling about your business
  • shoebox of receipts
  • a feeling of dread at tax time

Your bookkeeper should be able to tell you where your cash flow is at, when items are due. They should (without a doubt) be able to give you a cash flow estimate 6 months into the future.

You should always have a budget that you are working with.  After all, how do you know how much money you can spend if you don’t know how much money you expect to earn?

In all cases, you need to make that paperwork work for you. You need regular reporting from your bookkeeper how your company is doing and how close you are to budget numbers.

After all, didn’t you go into business to make money?

Hiring a Bookkeeper

The Institute of Professional Bookkeepers of Canada put out a whitepaper publication of what to look for when you are hiring an outside bookkeeper.

They have some really good points, not the least of which is to know what you are getting.

There are many types of bookkeepers.  It is not a regulated industry, therefore many people can call themselves a bookkeeper. Companies will often hire bookkeepers based upon convenience and ease.

The IPBC says in their whitepaper – Hiring the wrong bookkeeper can destroy your business.

That sounds pretty dramatic, but as a professional bookkeeper I have seen this many times over. If you don’t know how to do books, then make sure that you have someone that does! This is your cash flow, your business, and what you report to Canada Revenue Agency. You are responsible and liable for what transpires in your business. Make sure that you are doing it right the first time.

Here is the publication, direct from IPBC.