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Top 5 Ways to Prepare for Tax Season

Calgary 2020 Tax Planning

As the 2018 tax season wraps up, tax is likely the last thing you want to be thinking of. That said, now is probably the best time to get organized for the coming year. By setting up proper systems and processes early, a lot of headache and stress can be avoided close to the deadline.

  1. Assess your bookkeeping system: If you are going to change your bookkeeping system, whether it be from excel-based to cloud-based, or from a shoe box of receipts to excel, it is best to do it as early as possible in your tax year.
    When you hand things to your accountant, if you have different methods of bookkeeping used in a single tax year, the accountant will have to combine together multiple systems and perform reconciliations to ensure nothing is double counted or missed. That is why if you are changing your bookkeeping process it is best to set things up as if you are starting from the beginning of the year (January 1 assuming you are a sole-proprietor or have a December corporate year end).
    We would then recommend going back in time and re-doing any bookkeeping from the beginning of the tax year so everything is recorded in one system. You can read about cloud based bookkeeping and if it makes sense for your business here: https://kapasi.ca/is-cloud-based-accounting-right-for-you/

  2. Organize your paperwork: Today, a file folder organization system for receipts/invoices is not the only way to organize your paperwork. There are numerous software solutions, such as HubDoc, DropBox, and Evernote, that let you digitally organize and store your receipts, invoices, and other paper work.
    You can then shred the physical copies once you have uploaded and saved the electronic data with appropriate back-ups. Make sure you set up folders by month and set up time-stamping so you can easily sort and find receipts. Similar to your bookkeeping system, setting up and maintaining this type of tracking is best done early in the year.

  3. Discuss your tax planning strategy: Early in the tax year is a good time to discuss tax planning and strategy with your accountant for the upcoming year. This is because changes in the approach can impact what is required today.
    For example, changing from dividend to salary withdrawals from a corporation will require source deduction payments monthly to CRA. Also, any corporate re-organizations or succession planning started early in the year gives lots of time for the legal paperwork and tax filings to be made on time, avoiding the December rush.

  4. Discuss any changes to tax rules: Discuss with your accountant if there have been any changes to tax rules that would impact you in the upcoming year. Recently, changes to income sprinkling and passive investments came into effect, which impacted how and to who dividend distributions are able to be made out of the company. See our post here for details: https://kapasi.ca/income-sprinkling-rule-changes/

  5. Watch for letters from the CRA: The CRA has been increasing the number of reviews and audits they perform. It is important to give all these letters to your accountants as soon as possible as these letters have a deadline to respond to and can impact the taxes you owe if they are not addressed within 30 days. In addition, your accountant should review any notice of assessments and re-assessments sent by CRA to ensure they agree with filings made.

We would be happy to discuss ways to proactively tackle the above tasks. Please feel free to reach out to us here: https://kapasi.ca/contact-us/

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Payroll: Tips, Traps, and Other Considerations

Calgary payroll accounting firm

This article will provide an overview of payroll, a consideration for any business operating in Canada that pays the owners or employees.

Who Needs a Payroll Account?

If you pay salaries, wages, bonuses, or provide taxable benefits (such as automobile benefits), you require a payroll account and a payroll number for your corporation, partnership, or proprietorship.

Registration

If you are doing a regular payroll (monthly or bi-weekly, for example), you need to register for the payroll account before your first pay period. Typically, your accountant can set this up for you, or you can call CRA business line and set this up for your corporation.

If your accountant declares a salary once a year, when the year end is completed they will typically have already set up the payroll account and will give you a schedule for remittances required for the remainder of the year.

Calculating Source Deductions

When an individual is paid a salary from a business, the business must take the gross amount of pay, deduct “source deductions”, and pay the individual (whether the employee or yourself) the net amount. Source deductions are made up of three components:

Canada Pension Plan (CPP) contributions: All individuals over the age of 18 and below the age of 65 generally must remit CPP related to the gross pay above $3,500 per annum. This is calculated based on a percentage of the gross pay. There is a matching employer portion that must also be remitted, up to a maximum possible contribution per year. The percentages and maximums change year to year.

Employment Insurance (EI) premiums: Except for shareholders and family members, most individuals have to pay EI premiums based on a percentage of gross pay, to a maximum possible premium per year. There is also an employer portion of the premium. The percentages and maximums change year to year.

Income tax: Based on the employee TD1 forms, or by advice of your accountant, all individuals should remit the employee portion of income tax based on the gross pay. This is calculated based on payroll tables (or through a payroll calculator).

The employee and employer portions would be calculated and remitted to the government. The CRA provides a payroll calculator found at the link below which can aide in these calculations.

https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/payroll-deductions-online-calculator.html

How and When to Remit Source Deductions

Most businesses would be classified as a “regular remitter,” in which case the remittance needs to be remitted to the CRA by the 15th of the month following the month when the payroll occurred. In certain cases, a business may fall into being an accelerated remitter if the average monthly withholding amount exceeds $25,000. In this case, remittances are due more frequently, depending on the date the pay occurred. For most small businesses this would not be a concern.

To remit to the payroll account, this can be done by sending a cheque to the CRA with a payroll remittance voucher, paying online through “CRA My Payment” service, or paying through your online banking.

How to File

On a calendar year basis, T4 summaries and T4 slips need to be filed to the CRA by the end of February of the following year. These forms containing the details of the payroll that occurred during the year, and the amount of source deductions that were required to the remitted to the government. The CRA will take this information and apply the filed T4 slips to the employees’ individual tax accounts for purposes of matching to their income tax returns.

If you are not using a payroll provider that does this service for you, we would recommend engaging with an accountant to help with this process, as there could be costly penalties that apply if the filings are done incorrectly or late.

When to Use a Payroll Provider

At Kapasi & Associates, we generally recommend that if a business is employing five or more staff, it makes sense to use a payroll provider. If payroll is done incorrectly, it can lead to costly errors. Companies such as ADP have invested significant resources in creating online platforms to make payroll an efficient and painless process for most organizations. They also have help centres to support you if questions arise. Typically, the cost of this service is nominal compared to the potential time saved and mitigation of errors.

Conclusion

This is just a basic overview of payroll in Canada, and there are numerous other complexities that can arise, particularly when making special types of payments and certain exemptions for source deductions. We recommend discussing your business situation and needs with us to ensure you are compliant with all payroll requirements.