9/13/2015 Cristian Cupen, CGA1

9/13/2015 Cristian Cupen, CGA2

Types of business: 1. Sole Proprietorship 2. Corporation 3. Partnership Accounting Methods: 1. Cash Method 2. Accrual Method 9/13/2015 Cristian Cupen, CGA 3

Accrual Versus Cash Accounting In accrual accounting, income is reported in the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are paid or not. In cash accounting, revenues are recorded when cash is actually received and expenses are recorded when they are actually paid. Accrual accounting is the method of accounting most businesses and professionals are required to use by law. 9/13/20154 Cristian Cupen, CGA

Bookkeeping Electronic Records: ■ Microsoft Excel. ■ Small business accounting applications: QuickBooks Sage 50 Accounting Many more… Paper and electronic records– six years after the end of current fiscal year end. 9/13/2015 Cristian Cupen, CGA5

Income Tax Compliance Sole proprietorship: 1. Income tax payable due April File income tax return by June 15 Corporation: 1. Income tax payable due 60 days after fiscal year end (90 days for CCPC). 2. File income tax return up to 180 days after fiscal year end. 9/13/2015 Cristian Cupen, CGA 6

Incorporated / Not Incorporated Benefits of Incorporating Benefits of not Incorporating Limited Liability Small Business Deduction rate of approximately 15.5% on the 1 st $500K on net income (compared to 46% individually) Defer taxes Income Splitting (reasonability test / not for dividends) Unlimited number of owners Tax Advantage of Capital Gains Exemption Easier to obtain financing Losses can be deducted against other sources of personal income to reduce your tax liability Do not have to account for all the bank activity 9/13/2015Cristian Cupen, CGA7

Employee versus Self-employed Individuals prefer to be self-employed for the following reasons: No withholding of taxes Easier to claim “business” expenses Under the Act, the “incorporated employee” is said to be operating a “personal services business” (PSB). Income from a PSB is not eligible for the low small business tax rate and the corporation is restricted in the types of expenses it can write off for tax purposes; it’s limited only to the expenses an employee can deduct. Cristian Cupen, CGA 9/13/2015 8

Employee versus Self-employed Tests to consider when determining whether an individual is an employee or self-employed: Control – Consider the degree of control held by the payer or the degree of autonomy held by the worker. Tools and Equipment – Who owns the tools and equipment? Financial risk – Are there any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed? Opportunity for a profit – Can the worker realize a profit or incur a loss. 9/13/2015 Cristian Cupen, CGA 9

Other Relevant Topics / References Goods and services tax/harmonized sales tax (GST/HST) Payroll Workplace Safety and Insurance Board (WSIB) Canada Revenue Agency – Business Ontario – Ministry of Economic Development and Innovation 9/13/2015Cristian Cupen, CGA109/13/2015

Other Relevant Topics / References RC4070 Guide for Canadian Small Businesses RC4409 Keeping Records RC4110 Employee or Self-Employed 9/13/2015Cristian Cupen, CGA9/13/201511

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