As a small business owner are you aware of your duties and responsibilities when it comes to privacy? Is your business in compliance with the Personal Information Protection and Electronic Documents Act (“PIPEDA”)?

The Office of the Privacy Commissioner has developed a video aimed at helping small businesses understand and comply with PIPEDA. It features real business owners in their place of work, asking questions and exploring the basic principles of private sector privacy law. This free resource, PIPEDA for Business: What You Need to Know About Protecting Your Customers’ Privacy, is an engaging video that can help you and your staff learn more about PIPEDA. For more details, please go here www.priv.gc.ca/resource/videos/2010/bus_2010_index_e.cfm

If you are an incorporated business that provides IT or other consulting services to mainly one business as your customer, then you may run the risk of being viewed as a personal services business (“PSB”) by Canada Revenue Agency (“CRA”).

A PSB is a corporation where the owner/shareholder provides services to another business and the owner/shareholder can reasonably be regarded as an employee of the business. The definition of a PSB excludes an incorporated business that employs more than 5 full-time employees. If your corporation is considered a PSB, it will not qualify for the small business deduction, that is the corporation will be taxed at the highest corporate tax rate. In addition, the deductions the corporation is allowed to claim is very minimal – i.e. salary or wages and expenses that an employee would be able to claim, e.g. vehicle or travel expenses

You could be in for a quite a surprise if CRA picks your corporation for an audit and determines that it is a personal services business. Here is a recent article from the Ottawa Citizen on this issue affecting quite a number of IT consultants in the nation’s capital.

Here is a June 2010 report from a Parliamentary committee on the issues and their recommendations. This report provides a good history of why the PSB rules came into play and has some great information, so I’ve kept this blog entry short. This issue has been heating up over the past little while and I’ve heard that CRA has been  performing a ‘review’ of small business tax filings to determine if the business is a PSB. I would recommend you contact your local MP to voice your opinion on this issue.

If you are a business owner considering purchasing computer equipment or software, I would recommend you to do so before January 31, 2011. The current tax rules allow a 100% capital cost allowance for computer hardware, software and data processing equipment with no half year rule applied. This means you get a full deduction for the purchase .

The government brought in this special rule to help businesses remain competitive, but the time is coming to an end. After February 1, 2011, the capital cost allowance claim will be 55% with the half year rule in place, unless the government decides to extend this measure.

Please see this link from the Canada Revenue Agency for more details.

The Ontario government is providing a one-time transition assistance to help small businesses offset costs incurred in making changes to their point-of-sale and accounting systems in order to collect the Harmonized Sales Tax (HST) that came into effect in Ontario on July 1, 2010.

In order for small businesses to qualify for this transition assistance you must have a business premise in Ontario, the business must have been registered for GST/HST on July 1, 2010 and the business taxable revenues should be under $2 million. To collect your payment all you have to do is file your relevant tax return. If your business is a sole proprietorship, then a personal tax return; if your business is a corporation, then a corporate tax return. File your tax return to ensure you receive your payment.

For more details, please go to this link.

I find that quite a number of regulated professionals are running their business or practice as a sole proprietorship and are missing the benefits of incorporating. Here are a few of the major benefits:

1. Tax deferral – In Ontario, the first $500,000 of income after expenses is taxed at a rate of roughly 16%. If you earned this same income personally, you would pay tax at roughly 46%.  This difference translates into big tax savings that stay in your pocket as opposed to going to the government. In order to benefit from this deferral however, I recommend the majority of the funds remain inside the corporation as opposed to being all paid out right away as a dividend or salary. This takes discipline and planning, but is manageable.
2. Dividends as a form of remuneration – Dividends are taxed preferentially in Canada and if planned correctly the taxes on the personal side may be minimal. In addition, by paying dividends you avoid paying into CPP, which may save an estimated 10% of taxes on a maximum pensionable salary. Consideration must be taken here on whether you will rely on the Canada Pension Plan to fund your future retirement.
3. Income splitting – Certain professionals are allowed to have their family members as non-voting shareholders, who can benefit from receiving dividends and paying lower rates of tax.
4. Capital gains exemption – the future sale of the shares of the corporation may qualify for this exemption – meaning that capital gains up to $750,000 will be exempt from tax. Caution must be taken to ensure the corporation qualifies as a Qualifying Small Business Corporation (QSBC) and note that Alternative Minimum Tax (AMT) may apply on the sale.
5. Non-taxable benefits – For example, corporations can set up Private Health Services Plans (PSHP), Health and Welfare Trusts (HAWT) or cost-plus plans to cover medical expenses for employees. These payments are a tax deduction for the company and not income or a taxable benefit to the employee. Care must be taken with these plans, as RST and Ontario premium tax are still applicable on these types of plans, even with HST in place.  This is one among many other non-taxable benefits.
6. Year-end – You can choose a year-end other than December 31. Choose a year-end when your business is in a down cycle and you have time to sit with your accountant to discuss and analyze your numbers. There is a tax deferral opportunity by declaring year-end bonuses. You may be able to pay the bonus income into the next “personal” tax year (possibly saving taxes) which defers when you pay the payroll remittances owing on the bonus by approximately 180 days after year-end.

This list covers the major benefits of incorporating a professional or healthcare business or practice. There are disadvantages with setting up a corporation as well – the biggest being whether it is worthwhile in your situation to set one up. Contact Ark Chartered Accountant for a free, no obligation consultation to discuss your personal situation and needs.

One of the first dilemma’s I faced when I decided to open my own accounting firm, was of course what to call it?  Though naming the firm after myself would have been easiest, I wanted something unique.  I wanted a name that invoked an image and a feeling from potential clients – and so the quest began.

As all of this was evolving, my second son had just been baptized and one of the gifts he received was a book called “How Noah Knew What To Do” by Karen Moore.  Aside from being beautifully written and illustrated, it teaches us about trust, faith and perseverance – all important life lessons.  This book quickly became a favourite of my two year old and became part of his nightly bedtime routine.

An ark is more than just a physical structure.  It is a safe haven, somewhere to shelter you from the storm.  When I sat down to choose a name, I needed to decide the image I wanted to project to you, my potential clients and a few key words came to mind – trust, security, and safety.  Trust is key in any relationship and the firm will strive to gain your trust while providing a safe and secure environment.  The firm can provide you with the service that you deserve, while helping you chart your course and navigate the business environment.

And thus, Ark Chartered Accountant was born!  I look forward to working with you.