As an owner/managed business, the two most dreaded words are: tax audit. Just thinking about these words can cause many business owners to break into a cold sweat.
There’s really no need to panic—if an audit’s going to happen, it’s going to happen and there is nothing you can do to stop it. In fact, there’s an increased focus on tax compliance by the Canada Revenue Agency (CRA), which means your risk of being audited is higher than ever. Audits aren’t always ordered because you did something wrong; many are simply ordered at random based on verification programs, processing reviews, and data matching and examination programs. (Although some audits are ordered because a business sent up red flags that drew the CRA’s attention. One way to avoid drawing attention is by filing your taxes on time.)
If you get that audit letter, it doesn’t need to be a painful and anxiety-riddled process. An audit will go smoothly as long as you remember these three important rules.
Don’t ignore it. The absolute worst thing you can do when you receive a CRA audit letter is to drop it in a drawer and hope the issue will go away. It won’t. Instead, it will get worse—much worse. Without a response, CRA will continue to try to reach you by mail, by posting information in your CRA My Business Account, and by phoning you. Eventually, no response could result in your bank accounts being frozen, which is a much bigger mess to fix than dealing with an audit request.
Don’t speak with a CRA auditor yourself. Trouble often starts when someone takes on a CRA auditor by themselves. That’s because they are often tense, don’t know the right questions to ask or are too chatty. (Remember: the words ‘yes’ and ‘no’ are considered complete sentences and they shut down any possible fishing expeditions.) Have your accountant speak with the auditor on your behalf. An accountant knows what the auditor is looking for and how to answer each question appropriately.
Don’t panic. An audit is often a dispute over the application of a tax rule. It is not that you necessarily knowingly did something wrong, it is that the rules can be complex and now you need to prove specific claims. The best way to prepare for an audit is to always keep organized records. This means maintaining good bookkeeping habits (or hiring someone to do it for you). Whatever you do, don’t use the shoebox solution as it just leads to lost receipts and moments of panic.
Finally, while it is best to have an accountant handle a CRA audit, they can be fairly costly depending on the complexity. We’ve quickly seen bills run into the thousands of dollars in professional fees as a result of the time needed to dedicate to it. Many accounting firms, including SFD Professional Corporation, offer audit insurance for an annual fee to combat the additional costs related to compliance.
We offer Audit Shield Fee Waiver Service. Clients who participate in this service benefit from our professional fees being waived (up to a maximum limit) for responding to audits, reviews, or investigations directly in connection to a tax filing. The protection is retroactive and covers previous tax returns regardless of who prepared them. It covers T1 slip requests, GST reviews, payroll audits, corporate reviews, and more. Contact us for more details.
New Tax Credits You Don’t Want to Miss
Tax season puts money on our minds—occupational hazard of our financial services brain, obviously. It is not only about keeping CRA at bay (okay, it often is); it is also about making sure everyone knows to take advantage of the tax credits available to them. Because no one wants to pay CRA more money than necessary.
Here are the changes you need to know about when filing your taxes this year.
Home office deduction increased to $500.
If you once again found yourself transforming part of your home into an office space in 2021, you may be eligible for the temporary home office expense credit first introduced in 2020, as it has been extended into this tax year. Eligible expenses include rent, electricity, internet, and unreimbursed office expenses or cellphone costs. To qualify, you had to work from home more than 50% of the time for at least four consecutive weeks.
There are two different ways to claim this credit:
The flat rate method is simpler and recommended for straight-forward home office costs. If, for example, you worked from home for a 30-day period (that’s $60 under the flat rate method) but had to buy $100 of office supplies in order to do your job (and the cost was not reimbursed by your employer), then the detailed method will result in a larger tax credit.
Climate action incentive (CAI) no longer claimed on T1 returns
The CAI is a tax-free amount individuals and families living in Alberta, Saskatchewan, Manitoba and Ontario can receive to offset the cost of the federal pollution pricing. It has been available for several years, but can now no longer be claimed annually as a refundable credit on personal income tax refunds. Instead, those eligible will receive quarterly payments through the benefits system. Read more.
T2200 form requirements
The need to complete a T2200 or T2200S form is only necessary if an employee chooses to claim their home office deduction using the detailed method. For any employees claiming additional expenses, such as travel expenses or other costs, a regular T2200 form is required. More information is available on the CRA site.
CEBA repayment deadline extended
If your business received a Canadian Emergency Business Account (CEBA) interest-free loan of up to $60,000 at any point during the pandemic, we have good news. The repayment deadline to qualify for partial loan forgiveness has been extended by one year for eligible borrowers in good standing. To keep it interest-free and to get up to $20,000 (33%) of the loan forgiven, the balance must now be repaid by December 31, 2023.
Take note for 2022…
We may be in the thick of the 2021 tax filing season but we want you to be prepared for 2022 as well. Here are two things to remember this year to avoid surprises or mad scrambles next year.
Planning to buy a luxury vehicle in 2022? Be prepared for extra sticker shock. Under proposed legislation, cars and aircrafts over $100,000 and boats over $250,000 will be slapped with an additional tax of the lesser of 10% of the total price or 20% of the total price above $100,000 ($250,000 for boats). If passed, the tax will apply to all luxury goods delivered on or after Jan. 1, 2022.
Ontario Staycation Tax Credit
Planning to keep vacations local this year? Keep those receipts! This temporary tax credit will allow Ontario residents to claim 20% (up to $1,000 for an individual and up to $2,000 for families) of accommodation expenses. This includes hotels, cottages, campgrounds, resorts and lodges. Your receipt must show the location of the accommodation, the amount paid, GST/HST paid, date of stays, and name of the payor.
Know your tax deadlines!
Feb. 28, 2022: Sole proprietors and corporations who pay employees via payroll must complete T4 salary declarations.
March 1, 2022: Individual taxpayers’ deadline to contribute to RRSPs for the 2021 calendar year.
May 2, 2022: Individual tax returns for the 2021 calendar year must be filed and paid.
June 15, 2022: Self-employed sole proprietors and partnerships (i.e. unincorporated businesses) must file before penalties apply. But, interest on taxes owed is charged as of May 2, 2022.
For close to two years now, business owners around the world have come to intimately know a single word—a word that many never thought would need to be a necessary part of their business plan.
Restaurants that never dreamed of offering take-out and delivery have pivoted to do so; stores that never wanted to dive into e-commerce have pivoted to take the plunge; manufacturers operating in an on-demand capacity have pivoted to bow to supply chain pressures. Every pivot has been about survival. And so far, you have succeeded. But the end game has changed because the world has changed. It will not go back to the way it used to be.
So, where does your business need to go from here to succeed?
For starters, you need to take a hard look at every aspect of your business. Here is what you need to do to help your business thrive as we edge toward a post-pandemic world.
Review your finances and upgrade your financial reporting. Every step in this list comes back to this point because without a solid financial plan, it is impossible to grow your business. Lenders rarely move quickly and don’t take kindly to credit asks that come out of the blue, so build a strong financial case for your future plans and negotiate additional credit or new lending terms as early as you can.
Reconsider your offerings. While the current supply chain issues will one day end, if your business sells products, this is a good time to measure the success of each one. Perhaps a lack of inventory in certain areas hasn’t been as damaging as you first thought.
Understand your new costs. Inflation is currently at a 30-year high; shipping container costs are currently through the roof. Both will quickly affect your bottom line if you don’t figure out how to accommodate them. Do you need to raise prices? Do you need to have fewer staff on site? Do you need an all-round different solution?
Assess your staffing. Taking your business to the next level is not done in a silo; you need to have the right people in place to help take you there. Assess not just your current staffing levels, but also the skills and expertise your employees bring to the table. What new positions might you need to create and what talent or knowledge do new hires need to have to propel your company forward?
Evaluate your marketing efforts. Don’t forget that how you market your business goes a long way toward its success. Take a look at what has worked and what hasn’t throughout the pandemic, as well as how much money you put toward it, and decide what you may need to do differently. Taking your business to the next level could mean anything from minor tweaks to your marketing efforts to a major change in direction or even a complete rebranding.
Remember, being able to take your business to the next level all comes back to having your finances and financial systems in order. We go beyond the basics of financial services to pinpoint the numbers that are critical to your business’s performance now and in the future.
Kiran Kaur is an experienced CPA, CGA who joined SFD Professional Corporation in 2020. Kiran has been in the field of accounting and tax for over a decade and has gained valuable experience, providing high quality service to clients in various industries. Kiran is responsible for providing our clients with services in the areas of accounting, compilations of financial information, corporate tax planning and filings.
Karen has been a part-time bookkeeper working with Rob & Xing since before they started Smart Foundations. Her precision and experience mean we keep her very, very busy.
Jing is not only an accomplished bookkeeper, but also works with SFD as a payroll specialist.
Magdelane’s experience in managing a call centre gave her a perfect grounding in herding the kittens in our office. As Program Manager she is responsible for ensuring that all aspects of internal and external deliverables are on time, and on budget. Magdelane is our resident guru for our resource management system DT Practice.
Xing has been with SFD from the start providing accounting, tax, & business advisory services to owner-managed businesses. He works with clients in a wide rage of industries including technology, professional services, real estate, construction, manufacturing, & career colleges. He is proficient in understanding businesses’ accounting & reporting requirements, assisting on analyzing the numbers to help understand the meaning behind them.
Rob has a background as a CPA/CA and has held prestigious CFO and GM positions for several Canadian and U.S. based companies. His consulting experience is international and he brings much more to the table than financial expertise. Because Rob has been in their shoes too, he understands how owner-managers need to move beyond bookkeeping and use their financials as a business tool.
‘Tis the season for gift giving and as an owner/manager, finding the right way to show your employees you appreciate them can be fraught with questions: How much should I spend? Should I spend the same amount on each employee? And if I don’t know someone well, what’s an appropriate gift that keeps it professional?
The pre-pandemic days were certainly easier; you could simply plan a holiday party or book a holiday lunch and invite everyone to attend. And while doing so is not completely out of the question, as it was during the days of lockdowns, gatherings may not be high on everyone’s to-do list.
To be clear, you don’t have to give your employees a gift. But it is certainly a nice gesture to show that you value their efforts, particularly during a year that has included multiple lockdowns, endless work-from-home days, supply chain delays, and more.
To help you out, here’s a short list of fun gift ideas:
Free days off. Who doesn’t like paid holidays? If business is typically slow in the days between Christmas and New Year’s Day, consider shutting the doors and giving everyone a few free days off. If that’s not possible, then consider giving your staff the opportunity to book a free vacation day or two in the early new year.
A self-care kit. Work life balance can be tough; show you care about your staff’s wellbeing with an at-home self-care kit. You could include everything from cozy blankets, to tea tumblers, a bottle of wine or bath salts.
Support local box. Show your favourite small businesses some love by giving gift boxes of small batch and artisan sips, sweets and snacks.
Extra money in the bank. Sometimes the best gift comes in the form of cash. If sales have been good, consider giving everyone a holiday bonus.
Whatever you choose to give, take the time to write a personal note of thanks. If your staff is small, make the effort to write individual notes; if it is larger, write a general heartfelt letter to all. Your staff will be pleased about the time and thought you put into appreciating their efforts.
From all of us at SFD Professional Corporation…Happy Holidays!