Institute Of Chartered Accountants Of Ontario

Institute Of Chartered Accountants Of Ontario

May 12, 2011 09:10 ET

Ontario CAs: Small Business Owners-Stay Ahead of the Taxman!

TORONTO, ONTARIO--(Marketwire - May 12, 2011) - Every year, thousands of semi-retired baby boomers, budding entrepreneurs and people wanting to "follow their passion" join the ranks of small business owners and the self-employed. But, according to Ontario's Chartered Accountants, while they're living the dream, budding entrepreneurs shouldn't overlook opportunities for saving money or staying in line with the taxman.

Chartered Accountants can be of great service for small businesses which, like most other organizations and money-earning individuals, must contribute their fair share to the Canada Revenue Agency (CRA). Here are some tips from Ontario CAs.

When it comes to taxes, small is good – "We commonly think of small businesses as being privately held," says Don Scott, FCA, Tax Partner with Welch LLP in Ottawa. "But for the CRA's purposes, the metrics are a little more specific. Small businesses in Ontario are usually eligible for the lowest tax rates – about 15 or 16 per cent – on the first $500,000 of income. That's a big lift from just a few years ago, when the ceiling was only about $200,000."

Tread carefully around capitalization – When it comes to taxes, value counts. A line in the sand is usually drawn around the $10-million-taxable-capital mark. For instance, a company that has $10 million of retained earnings could be worth $10 million, but there are many businesses worth $10 million or more due to unrecorded goodwill. A company can lose some of the small-business tax incentives that the government offers after $10-million of taxable-capital and they disappear completely at about $15-million of taxable capital.

Let a qualified business valuator be your guide – Taxes are payable on the profits a business generates, and sometimes even on the business itself when it is sold. Jeffrey Sum, Senior Manager for Small Business for Meyers Norris Penny LLP in Markham, says: "Owners often perceive their businesses to be more 'valuable' than what potential buyers are willing to pay." He advises them to get a realistic and trustworthy assessment of the business' real worth. Whether buying or selling, people should hire their own representative to conduct a thorough valuation.

It's all or nothing, almost – Small business owners and the self-employed can be one and the same, especially concerning expenses the government allows them to deduct for their businesses. But for tax purposes, the important difference is between an employee and the self-employed, says Scott. For employees, the general rule is that nothing is deductible against employment income, except for what the tax rules specifically allow. For the self-employed and business owners, the reverse is usually true: everything is deductible, except where a specific tax rule says it's not.

If it's needed to do business, deduct it – Generally, if it's required for the purpose of earning income, the cost to purchase, maintain and operate it can be deducted from the earnings of the business, says Sum. But, he cautions, the CRA may not agree with everything owners sometimes think is "business-related". Capital outlays may be needed but may not be immediately deductible.

Do it right, right at the start – Much can accomplished with proper planning, including reducing the amount of taxes paid. The earlier a business owner involve a Chartered Accountant in his or her business, the earlier they may benefit from alternative structuring models, tax deferrals, income splitting and other options that can save money, produce tax credits or even generate refunds. Registering a business, setting up to collect and pay HST, arranging payrolls and keeping proper and confidential records are all things a Chartered Accountant can help arrange.

Make the most of the calendar – Incorporated small businesses can choose any date they want to be their fiscal year-end. November can be good for golf courses, but landscapers and tow-trucks may prefer springtime. Arrange it so the payments are due when the business will have the money to make them.

Hire the skills needed – Businesses should avoid trying to save money by doing without expert advice that can save many times what it costs. Meet with a Chartered Accountant before starting a business, can help save on taxes and get the best possible terms for the amounts owing to CRA.

About the Institute of Chartered Accountants of Ontario:

The Institute of Chartered Accountants of Ontario is the qualifying and regulatory body of Ontario's 34,000 Chartered Accountants and 5,000 CA students. Since 1879, the Institute has protected the public interest through the CA profession's internationally recognized standards of qualification and the enforcement of its rules of professional conduct. Chartered Accountants are the professionals Canada's business leaders trust to help make the financial, strategic and leadership decisions that matter. The Institute's website is: www.icao.on.ca and the student website is www.guidetorulingtheworld.ca.

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