Using Online Resources To Better Your Finances And Business, Part 1

The other day I met with a client of ours that does their own bookkeeping and we were reviewing her bookkeeping file and found that the bookkeeping was done quite well.  When she incorporated in mid 2011, she did not know how to do bookkeeping and when we let her know we have the option of bookkeeping in our accounting packages, she hummed and hawed.  After a bit of conversation, she decided that she wanted to try it on her own.  Now just over 6 months later we reviewed her bookkeeping and found that the bookkeeping was done well!  Because most people that don’t know how to do bookkeeping take awhile to catch on, I was surprised that she learned and caught on so fast.  I asked her how she did it, and her answer…”I learned how on You Tube.”  I looked on www.youtube.com and found that there were tons of tutorials on Quickbooks. Wow, it’s true you can learn off Youtube!

I shouldn’t have been surprised as I’ve used You Tube to learn how to do specific things in the music studio.  You Tube can be a great resource, so don’t hesitate to use it.  The key to learning from the internet is to check your source and verify its accuracy.   Search more than one site as you can’t believe everything on every site!  There is truth and lies all over the internet, so go to trusted websites and when you are unsure use google to search and find other websites and what people are saying to confirm it is a trusted site, video, blog etc.

I’ll continue my blog on using online resources to better your finances and business on Thursday.  Please watch out for that.  I will discuss more resources you should know about such as useful blogs on finance and taxes and useful online links for stocks and investing!   

Understanding the Taxpayer Bill of Rights Part 1

In my next blogs I will help you understand your basic rights as a taxpayer.  Many people do not even know the Taxpayer Bill of Rights even exists in Canada, never mind read it.  So here it is (please click on the link below):

Taxpayer Bill of Rights

1. You have the right to receive entitlements and to pay no more and no less than what is required by law:

This means that you can take advantage of all tax credits, tax deductions and options available to you for saving taxes.  You can do everything within the guidelines to save tax, and yes there are a ton available.

2. You have the right to service in both official Languages:

This is simple, you can have service from CRA in either or both English and French.

3. You have the right to privacy and confidentiality:

Unfortunately this is a tough one as you don’t always know when they are breaking your confidentiality or privacy.  In the case that you do find them breaking this rule, you must immediately write to the Tax Payer’s Ombudsmen (http://www.taxpayersrights.gc.ca/)

4. You have the right to a formal review and a subsequent appeal:

This means you can object and have a formal review of your case.  If they disagree with your claim or reassess you and you don’t agree with it, you need to object.  You may want to call for any clarification before you file the Objection.  A Notice of Objection can be filed within 90 days of an assessment or Reassessment that you don’t agree with.  If after the initial review is done and you still don’t agree with their decision, you can appeal further to the tax court and even on to higher courts!

5. You have the right to be treated professionally, courteously, and fairly:

Sometimes they do, sometimes they don’t!  If you are not being treated in a professional, courteous and fair manner then you can go to their superior for a complaint.  If the complaint is not resolved at that level then go directly to the Tax Payer’s Ombudsman.  Remember it is best not to speak to CRA directly, but to do everything with them in writing.  If you do have to speak to them, always get their full name and badge/bond number!

We will discuss more of your rights on my next blog!

Doing Business in the U.S. Part 2

If you are doing a substantial amount of business in the U.S., and Permanent Establishment, or Nexus applies to you, then you must carefully consider the best entity to use to do the U.S. business.  There are typically 4 Structures used in the U.S. to do business:

          1. C-Corporations

          2. S-Corporations

          3. Limited Liability Corporations (LLC's)
          4.Trusts

Here are some basic points on each:

C-Corps:

•          Taxed similar to Canadian Corps except dividends are treated different. (no gross up or dividend tax credit)

•          Anyone can own a C-Corp.

S-Corps:

•          You typically have to be a U.S. Citizen or Resident (U.S. Person) to own an S-Corp.

•          With S-Corps there can be no Corporate tax.

LLC's

• These are not advisable for Canadians as there may be a possibility of double taxation

Trusts:

•          Typically are only used by U.S. persons.

•          Trusts can be effective when partnering with a U.S. person

There are more options than what I’ve listed here and there is much to know about each.  You should also consider where to incorporate.  The decision on where to incorporate generally depends on where the corporation does/will do business. If the company is primarily doing business in one state, it is generally recommended that the incorporation should be done in that state. If the company is doing business in several states, you can incorporate in Delaware and file to qualify to do business in the other states the company conducts business in. The company only pays tax in Delaware if it actually is doing business there (there is a nominal annual fee paid to Delaware). The company files tax returns in each state it is doing business generally using the allocation method in which profit is allocated to an individual state based on property, payroll and sales factors.  For companies with no presence in any state, the Delaware Corporation is typically recommended, however it is not the only option. 

This now wraps up our series on Cross Border.  If you have any questions or comments on the blogs, please let me know.  We work closely with Cross Border experts so if we can’t answer your question, they will. In my next blogs we will get back to Canada which is more my expertise.  

In response to Europe's Financial Troubles, Part 1

Very interesting responses have come from the current financial troubles in Europe. In the news, it states that Germany is leading the way by revising their budget to include Billions in savings each year. Is this from budget cuts, or the raising of taxes? From what we can see, it is both, more though on the side of raising taxes and creating new taxes. As mentioned in a previous blog, one of the main ways countries are dealing with the financial troubles is to raise taxes and create new taxes. We are even seeing this here in Canada where we are supposedly better than many other nations!

After much negotiating, the European Union has now approved a Financial Safety Net as part of the response to the European Financial troubles that began mostly with Greece’s debt woes. The Financial Safety Net is worth $440 Billion Euros, which is currently over $525 Billion Dollars. Although this is the amount of the Financial Safety Net, the actual amount including amounts pledged by the IMF totals over $750 Billion Euros, or over $1 Trillion dollars. The program is set up for 3 years and will allow Euro Zone countries to borrow from the EU in the case that the borrowing costs of that EU or euro zone country rise so high that borrowing on the market is unsustainable for reasons beyond its control. Currently, the EU laws forbid any Euro member to assume the debt of another Euro member. The European Union will use the revenues of their budget to guarantee the debt.

How it works is that the Euro Zone country that wants to borrow would tell the EU's executive arm, and the European Central Bank how much it needs, submitting a draft economic and financial adjustment program to the Economic and Financial Committee which prepares monthly meetings of ministers. The ministers would then say "yes" or "no" in a qualified majority vote. The ministers would then set the policy conditions of the financial support, including the maximum amount of the loans, their price and duration, and the number of installments to be disbursed. Once the details of assistance are settled, the Commission will issue bonds to raise cash within the first 60 billion euro limit. If more cash for a euro zone country is needed, a Special Purpose Vehicle (SPV) called the European Financial Stability Facility (EFSF), will issue bonds to raise money on the market.

THE NEW HST

The Harmonized Sales Tax or HST is on for British Columbia and Ontario. British Columbia And Ontario will harmonize their provincial sales tax (PST) with the Federal goods and services tax (GST) effective July 1, 2010. The current provincial sales tax (PST) rate in BC is 7%, which, when combined with the goods and services tax (GST) results in a harmonized sales tax (HST) rate of 12%. The current provincial sales tax (PST) rate in Ontario is 8%, which, when combined with the goods and services tax (GST) results in a harmonized sales tax (HST) rate of 13%. The initialization of this will be costly and result in extra time spent understanding the rules, however in the long run it should benefit, more than harm, as it eliminates an entire level of bureaucracy, which is always a good thing! One tax means only one reporting, no longer 2! There will be a slight increased cost to consumers to start, but because this is a consumption tax, those who spend the most will pay the most. Those with low incomes will be affected the least, because they spend the least, and a higher proportion of items purchased by low-income people are not subject to the harmonized sales tax (HST), such as basic groceries. The new harmonized sales tax (HST) allows business owners to claim HST paid as input tax credits which could allow for less tax paid to CRA. There are also changes in the goods and services tax (GST) Benefits paid to lower income families, especially in Ontario which could result in higher benefits being paid. As we know with any tax things do change over time though. There are lots of different implications with the harmonized sales tax (HST), including what is taxed and what isn’t, transitional rules and more. For more information please refer to http://taxtips.ca/whatsnew.htm

What’s next after the Closed Circle Budget?

Creating your Closed Circle Budget is your first step to financial freedom. It is in this initial step that you build on a solid financial foundation for you, your family and the future generations of your family. You must practice all the 5 Steps regularly before you can truly reach financial freedom. Here’s an overview of what these steps are:

1. Develop a Closed Circle Budget
2. Eliminate Bad Debt
3. Legally Minimize Taxes Paid
4. Wealth Accumulation and Increase Passive Cash Flow
5. Wealth Preservation

Employment Expenses

Are you or someone you know employed and paying for expenses that are not reimbursed by your employer? Many people do not know that employment expenses can be deducted. For example if you had to carry tools for work, needed to drive your vehicle or needed a computer for work and you had to pay for the items you may be able to deduct them on your taxes. If you were reimbursed for these expenses you would not claim them on your taxes, however if you were reimbursed for them, but your employer included the reimbursement in your T4 income, then you would claim the expenses. The key to claiming these expenses is getting a T2200 (Declaration of Conditions of Employment) signed by your employer. CRA typically requires this for each year you are claiming expenses. Business Owners deduct all kinds of expenses, why can’t employees deduct some as well!