Talking Accounting with Adrienne Breakwell from KRP
Hello entrepreneur friends! There are SO MANY things to consider when you’re running your own business… especially when it comes to your accounting, your books, taxes, etc.
So we sat down with our friends at KRP to talk about all things taxes and year-end filings.
A big welcome to Adrienne Breakwell, Principal at KRP. Adrienne has worked extensively in the Assurance and Advisory Services Group, servicing a wide variety of clients in the public and private sectors, as well as volunteering with the Make A Wish Foundation and ICAA tax clinic.
Alright! Let’s dive in.
TNT: Adrienne! Thank you so much for sitting down with us today. You have so much knowledge that we can’t wait to download for our founder friends.
Alright, let’s kick this off by talking about the tax considerations of incorporating vs being a sole proprietor.
AB: Thanks for having me! Ok, there are a TON of variables that play a role in this decision.
Some of the more common/bigger items to think about:
| Incorporating | Sole Proprietor | |
|---|---|---|
| Tax filings | Need to file two: personal and corporate. | Need to file one: personal. |
| Tax Rates | Small business (CCPC) active business income is taxed at 9% federally and 0%-5% provincially. | All income sources are combined and taxed at the marginal rates. |
| Tax owing and filing deadlines | Corporate tax owing is due three months after corporate year-end. Personal tax owing and filing due by April 30. When incorporating, a company can choose any year-end date, which can have tax benefits. | Personal tax owing is due by April 30, personal tax filing is due by June 15. |
| Legal liability | Possible protection of personal property held. | No real protection of personal property held. |
| Additional costs when starting-up. | Will need to register with the province the company is incorporated in and complete annual filings (not a tax return). It’s HIGHLY recommended that incorporation is completed by a lawyer. | Registration of a specific trade name to use. |
TNT: Wow, what a useful table. Thank you so much for this!
Alright, second question - why is it so important to work with a CPA as an entrepreneur? Vs trying to do your taxes yourself?
AB: Lol, have you heard the phrase “Write it off”? Schitt’s Creek had an episode where David (Dan Levy) attempted to explain to his father Johnny (Eugene Levy), how he was going to “write off” some home décor and bedding he purchased for his hotel room, within his business. That episode is the definition of why it’s important to work with a CPA!
So unlike what David thinks, not all expenses are eligible to be deducted for tax purposes. And changes to the Income Tax Act can happen often. A CPA knows what deductions are eligible, will be on top of the Income Tax Act changes, and will be able to determine if they will have a positive or negative affect on your business. Plus, there are many tax credits and benefits out there and you want to ensure you are applying and receiving all that you are eligible for, and a CPA can definitely help with that.
TNT: And how soon should a business owner/entrepreneur start prepping for their year-end filings?
AB: I recommend having the internal books up to date and completed by the end of the month following the year-end date of the corporation. For example, if your company has a July 31 year-end, you should plan to have your books completed and to your accountant by Aug 31.
This would be the same for a sole proprietor - you want to plan to have your books completed and to your accountant by February 1.
TNT: Are there any GST considerations entrepreneurs need to think about?
AB: For sure. As soon as you hit consecutive taxable sales of $30,000, you are required to register for GST. You will want to do this before you hit this threshold as it's difficult to back date registration, if at all.
Filing requirements may be annually, quarterly or monthly and this depends on your annual taxable sales. Deadlines for filing and remitting amounts owing for annual filers is no later than three months after the end of your year-end. Quarterly and monthly filers’ deadline is no later than one month after the end of your reporting period.
Lastly, remember that GST is governed by its own Excise Tax Act and transactions/filing can be complex depending on the industry and province(s) your business operates in.