Federal Budget 2022: Previously Announced Measures

Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:

Legislative proposals relating to the Select Luxury Items Tax Act (a tax on certain automobiles, boats and aircrafts) released on March 11, 2022.
Legislative proposals released on February 4, 2022 in respect of the following measures:
electronic filing and certification of tax and information returns;
immediate expensing;
the Disability Tax Credit;
a technical fix related to the GST Credit top-up;
the rate reduction for zero-emission technology manufacturers;
film or video production tax credits;
postdoctoral fellowship income;
fixing contribution errors in registered pension plans;
a technical fix related to the revocation tax applicable to charities;
capital cost allowance for clean energy equipment;
enhanced reporting requirements for certain trusts;
allocation to redeemers methodology for mutual fund trusts;
mandatory disclosure rules;
avoidance of tax debts;
taxes applicable to registered investments;
audit authorities;
interest deductibility limits; and
crypto asset mining.
Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
Legislative proposals released on December 3, 2021 with respect to Climate Action Incentive payments.
The income tax measure announced in Budget 2021 with respect to Hybrid Mismatch Arrangements.
The transfer pricing consultation announced in Budget 2021.
The anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement, with an expected paper for consultation over the summer of 2022, and legislative proposals tabled by the end of 2022.
The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
Measures confirmed in Budget 2016 relating to the GST/HST joint venture election.

Budget 2022 reiterates the government’s intention to return a portion of the proceeds from the price on pollution to small and medium-sized businesses through new federal programming in backstop jurisdictions (Alberta, Saskatchewan, Manitoba and Ontario). Budget 2022 proposes to provide funds, starting in 2022-23, to Environment and Climate Change Canada to administer direct payments to support emission-intensive, trade-exposed small and medium-sized enterprises in those jurisdictions.

Budget 2022 also reaffirms the government’s intention to revise the Employment Insurance (EI) system, including its support for experienced workers transitioning to a new career and coverage for seasonal, self-employed and gig workers. A long-term plan for the future of EI will be released after consultations conclude. As an interim measure, Budget 2022 proposes to extend previous expansions to EI coverage for seasonal workers.

Federal Budget 2022: International Measures

Digital Platform Operators – Disclosure Requirements

The digital economy (including the sharing and gig economies, and online sellers of goods) continues to grow at a rapid pace. Participants in the digital economy often make use of digital platforms. Many tax authorities are concerned that not all participants are aware of the tax implications of their online activities. In addition, transactions occurring digitally through online platforms may not be visible to tax administrations, making it difficult for CRA to identify non-compliance.

The Organisation for Economic Co-operation and Development (OECD) has developed model rules for reporting by digital platform operators with respect to platform sellers which require the platforms to collect and report relevant information to tax administrations. The model rules provide for the sharing of information between tax administrations so that an online platform would generally need to report the information to only one jurisdiction, and that jurisdiction would then share the information with partner jurisdictions based on the residence of each person earning revenue through the platform. Jurisdictions which have announced their intention to implement such a framework include the European Union, the United Kingdom and Australia.

Budget 2022 proposes to implement the model rules in Canada. They would require reporting platform operators that provide support to reportable sellers for relevant activities to determine the jurisdiction of residence of their reportable sellers and report certain information on them. Reporting platform operators would be entities that make software that runs a platform available for the sellers to be connected to other users, or to collect compensation through the platform.

The measure would generally apply to platform operators that are resident for tax purposes in Canada, and to platform operators that are not resident in Canada or a partner jurisdiction (one that has implemented similar rules and will share data with CRA on Canadian activity) and that facilitate relevant activities by Canadian residents or with respect to rental of real property located in Canada.

Relevant activities would be sales of goods and relevant services including the following:

personal services outside of an employment relationship (e.g. transportation and delivery services, manual labour, tutoring, data manipulation and clerical, legal or accounting tasks);
rental of real property (residential or commercial; parking spaces); and
rental of means of transportation.

Reporting would not be required in respect of sellers that represent a limited compliance risk, including government entities, publicly listed entities, large providers of hotel accommodation (more than 2,000 per year in respect of a property listing) and, with respect to the sales of goods, sellers who make less than 30 sales a year for a total of not more than 2,000 euro.

Reporting platform operators would be required to provide the required disclosures to CRA by January 31 of the year following the calendar year. CRA would automatically exchange information received on sellers resident in partner jurisdictions. Likewise, CRA would receive information on Canadian sellers from partner jurisdictions. This measure would apply to calendar years beginning after 2023, with the first reporting and exchange of information expected to take place in early 2025 with respect to the 2024 calendar year.

Ban on Residential Real Estate Purchases by Non-residents

The government intends to prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a period of two years. This would not apply to refugees and people authorized to come to Canada while fleeing international crises, certain international students on the path to permanent residency or individuals on work permits who are residing in Canada.

Other International Measures

International Tax Reform – Base Erosion and Profit Shifting

Canada is one of 137 members of the OECD/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) that have joined a two-pillar plan for international tax reform agreed to on October 8, 2021. Budget 2022 reiterates Canada’s commitment to the framework, and its intention to implement the Pillar One (intended to reallocate a portion of taxing rights over the profits of the largest and most profitable multinational enterprises to market countries where their users and customers are located) and Pillar Two (intended to ensure that the profits of large multinational enterprises are subject to an effective tax rate of at least 15%, regardless of where they are earned) initiatives.

Budget 2022 sets out the government’s plans for consultation and implementation of these initiatives.

Anti-Avoidance – Interest Stripping

Interest paid from a Canadian resident to a non-arm’s length non-resident is generally subject to a 25% flat withholding tax, reduced under various tax treaties (often to either 10% or 15%; generally to nil where paid to U.S. residents). Budget 2022 proposes measures to address certain arrangements (referred to as interest coupon stripping arrangements) to ensure that this withholding tax is not avoided.

The Difference Between Capital Gains and Investment Income

Can Smart Capital Gains Financial Planning Save You Money?

What are capital gains? The profit people generate from selling an asset or investment is typically referred to as a “capital gain.” The term has also become synonymous with taxation, because a percentage of the profit margin may end up in the government’s coffers. But it’s important to understand that not every asset falls under the capital gain rules. Financial planners and accountants have strategies to utilize to minimize tax liability.

How Are Capital Gains Taxed in Canada?

Profits made from selling items such as stocks, bonds, mutual funds, and exchange-traded funds generally fall under capital gain rules. The same applies to tangible assets, such as rental properties, second homes, equipment, and luxury items, which also may be subject to after-sale taxation. Principle homes generally are exempt as long as they remain a primary residence.

Although there is not necessarily a “capital gains tax” explicitly written into law, 50 percent of the profit earned from the sale of an asset becomes taxable. The rate of taxation is based on the person’s marginal tax rate. For instance, if you sold a second home for $100,000 above the purchase price, minus expenses, you’d apply $50,000 (half) to your taxable income. If you’re in the 33 percent bracket, then one-third of the $50,000 goes to taxes. The remaining two-thirds plus the untaxed $50,000 are free and clear profit.

That’s why it’s crucial to maintain diligent records regarding reasonable expenses associated with an asset. Fees, commissions, maintenance, advertising, and improvements are generally deducted from the amount of capital gain total and potential taxes.

The Difference Between Capital Gains and Investment Income

It’s not uncommon for people to find the difference between capital gains and investment income confusing. This holds particularly true when dealing with investment opportunities such as stocks.

While the two are not necessarily mutually exclusive, investment income generally refers to ongoing profits. Dividends on a lucrative stock or monthly rent payments from a real estate property are examples of investment income. They are not subject to the same tax formula as a capital gain generated from the sale of an asset.

How to Minimize Taxes on Capital Gains

The fact that someone makes a hefty profit on the sale of an asset doesn’t mean they must pay the full face value in taxes. A savvy accountant may employ the following strategies to reduce capital gains tax liability.

Establish Tax Shelters: These financial umbrellas shield investments and allow people to buy and sell stocks in a duty-free environment. Shelters such as a Registered Retirement Savings Plan, Registered Education Savings Plan, and Tax-Free Savings Account rank among the popular ways Canadians manage wealth without incurring taxes on annual capital gains. However, tax shelters do limit your ability to deduct capital losses.
Deduct Capital Losses: Sometimes, people become hyper-focused on paying taxes on profits and overlook losses. This scenario proves common with real estate investments. Property owners may lose track of the ongoing expenses, fees, taxes, interest payments, and wide-reaching other costs. Although you may have earned sound investment income over the years, the final sale could result in an overall loss. It’s critical to subtract all of your expenses before arriving at a capital gains figure.
Know When to Pay: One of the capital gains caveats involves deferment. If you receive a capital gain from a divorced spouse or deceased parent, the taxable amount does not necessarily come due that year. The new owner of an asset incurs the tax liability when they sell it and earn a profit. It’s important to keep in mind that the profit will be calculated based on the value when your ex-spouse or parent purchased the asset.
Lifetime Exemption: Certain small business owners may be eligible for the Lifetime Capital Gains Exemption when selling farms, fishery property, and qualifying private interests. Canada’s lifetime exemption proves complicated, and it’s advisable to consult with a tax professional.

An experienced advisor can help you minimize their tax liability by spreading the profits over years. This strategy, often called a capital gain reserve, does more than simply postpone payment. A capital gain reserve can reduce the amount you pay.

What Is a Capital Gains Reserve?

A capital gains reserve effectively reduces the amount of profit you enjoyed as income in a given year. After calculating your capital gain, everyday people can lower that figure on the income by claiming a reserve amount. Taxpayers can usually spread the total revenue over five years using a specific formula.

In cases involving family farms, fishing businesses, among others, a qualifying capital gains reserve may be extended for upwards of 10 years. This type of deferment helps prevent the gain from driving you into a higher tax bracket and unnecessarily giving more of your hard-earned money to the government.

While Canadians all need to pay their fair share of taxes, it’s equally important to ensure the best financial stability for you and your business.

Want to know more about the difference between capital gains and investment income? Contact Avisar Chartered Professional Accountants and schedule a consultation today.

Avisar is a highly-regarded accounting firm operating in Langley, Abbotsford, Surrey, Vancouver, and the rest of the Lower Mainland.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

2021 small business tax changes; 2021 personal tax changes

Tax Changes: What You Need to Know for the 2021 Tax Year

There have been some changes to Canada’s tax rules for the 2021 tax year. Understanding these changes and how they affect you is a very important part of making sure you’re handling your tax obligations correctly. Here are the most important personal and small business tax changes you should be aware of.

What are the tax changes for 2021?

2021 Personal Tax Changes

According to the Government of Canada’s web page on 2021 personal tax changes, these are the biggest adjustments to note when getting ready to file.

Zero-Emission Vehicles: The definition of what qualifies as a zero-emission vehicle is different for the 2021 tax year, provided the vehicle was bought after March 1, 2020. It can still qualify if subject to terminal loss claim or capital cost allowance, provided it wasn’t acquired on a tax-deferred basis, or “rollover.” It also can’t have been previously owned by someone who isn’t part of an arms-length transaction.

Canada Workers Benefit (CWB): The rates and income thresholds are different for the 2021 tax year. There is also a “secondary earner exemption” that has been introduced. Information based on province or territory is available.

COVID-19 Benefits: A T4A slip with instructions will be provided to you if you received benefits related to COVID-19. These benefits include the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiving Benefit (CRCB). If you received a CRB, you might need to repay all or part of it if your net income is over $38,000. There is a chart you can use for calculating the repayment amount. Indigenous people may find that their benefits are tax-exempt. There is a form you can file for that exemption if you qualify.

2021 Small Business Tax Changes

It’s not just individuals who are subject to some differences in filing this year. There are also 2021 small business tax changes to consider. Here are the biggest ones to be aware of.

COVID-19 Benefits: Self-employed borrowers who received the Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS), Canada Recovery Hiring Program (CRHP) or Fish Harvester Benefit and Grant Program (FHBGP) must include these in business income or reduce their expenses to match the amount they received. Corporations also have to report these benefits, as they are taxable for nearly every entity that received them.

Three New Programs: The government is proposing three new programs to help businesses that were hit the hardest by the COVID-19 pandemic. These programs are the Tourism and Hospitality Recovery Program, the Hardest-Hit Business Recovery Program, and the Local Lockdown Program. These programs will provide support for businesses that are primarily in the hospitality and tourism industries, so those businesses can stay afloat until the economy recovers.

Territory and Province Changes: Many provinces and territories have changed some of their individual filing requirements. The list of these changes is long and varies by province or territory. The best way to be sure you’re handling your taxes the right way is to look at the information for your location, so you don’t mistake what you can deduct or miss any important deadlines.

If you follow the guidelines for your 2021 personal or small business income taxes and make sure you’re taking any changes into account, you can reduce any chances of having a problem with underpayment of your taxes. You can also reduce the chances that you’ll miss a deduction and end up paying more than you need to. Fortunately, the government is pretty clear about the changes, and what you need to do to file your taxes successfully. If you would like to discuss how tax changes could impact your business or personal return, book a free consultation with an Avisar expert.

Disclaimer:

Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

How to Choose the Best Small Business Accountant

The difficulty of finding the right small business accountant can be a challenge for both start-up entrepreneurs and the proprietors of more established enterprises.

Now, in truth, it shouldn’t be too hard to find a competent and reputable local firm or individual that can carry out all the necessary functions small businesses require.

These would include bookkeeping, the maintenance of proper tax records, cost-effective inventory and invoice management, cash flow control, payrolls, and a wide variety of other “back office” tasks.

With the help of modern software packages, it’s often possible for these functions to be discharged in-house by an individual or a small team.

Small Business Accountant or Bookkeeper — Why the Difference Matters

But while these day-to-day tasks are essential to the efficient management and even the survival of any business, they’re only a small part of the value that a good small business accountant can add. As a business grows, the pressures of daily financial management grow with it, and there’s only so much that even the best software can do to help.

Caught up in the daily whirlwind of staff and inventory management, marketing, and multiple tasks involved in running a business, it’s all too easy for owners and managers to lose sight of the big picture, and to fail to make the strategic plans that will determine the long-term success of their enterprise.

The Small Business Accountant as Strategic Partner

That’s why the right choice of small business accountant is so important.

A good firm will act not just as a provider of basic services — and, in truth, they may not be the most cost-effective option for this purpose – but as a true strategic partner in the business, helping with a wide range of crucial long-term plans and decisions.

These may include:

Strategic tax planning

Far more than just the timely submission of routine returns, this involves consideration of such matters as if, when, and where to incorporate, the payment of dividends, profit-taking, and perhaps planning for the eventual sale of the business.

A good small business accountant will also be aware of the personal wealth and tax implications for the business owners in such circumstances.

Financing

Debt is a very common element in the growth of businesses, but it’s often much more involved than simply asking a local bank for a loan or overdraft facility. A good small business accountant will be able to advise on all aspects of debt, such as the right kind of debt to take on — be it loans, secured or otherwise, the issue of bonds, or other types.

They will also know the best and most effective sources of financing — including how to raise new equity capital if appropriate for an incorporated business.

And, importantly, they will know exactly how, and to whom, to pitch financing applications.

Planning for Growth

On a related point, a good accountant can also help with the preparation of the detailed business plans that must accompany any desire to expand. This includes the investigation of possible new markets, the costing of new products, and the preparation of profit an d loss projections for consideration by potential finance providers.

Goal-Setting

Less clearly defined but just as important is the advice that a small business accountant can give regarding the long-term goals of the business owner and the key performance indicators (KPIs) that need to be monitored in their pursuit.

It may be, for example, that the owner is primarily concerned with maximizing short-term revenues from a single operation or outlet. Or they may, on the other hand, be more interested in the reinvestment of profits for the long-term expansion of the business.

Either way, a strategically-minded small business accountant will be able to help set appropriate KPIs, monitor progress against them, and modify them as changing circumstances may demand.

Acting as a Sounding Board

The life of an entrepreneur or small business owner can be a lonely, albeit exciting, one. The advice of an impartial, trusted, and knowledgeable professional can be invaluable both in helping owners to negotiate tough times and in restraining them from over-exuberant decision-making during the good.

Finding the Right Small Business Accountant

A good small business accountant should be much more than a mere “number cruncher.” They should act as a long-term financial adviser, strategic planner, mentor, and friend.

Book a Free Consultation

The decision to hire an accountant can be daunting, but it’s worth taking some time to get it right. It’s a choice that’s enormously important to the long-term success of your business. Word-of-mouth recommendations and local small business organizations can be a good starting point.

But in the end, for business owners, there is no substitute for meeting one on one with several potential firms to discuss their unique, individual needs. So, to book a free consultation, simply visit us here or call us on (604) 513-5707.

Federal Budget 2021: Sales & Excise Tax

GST New Housing Rebate

The GST New Housing Rebate entitles homebuyers to recover 36% of the GST (or the federal component of the HST) paid on the purchase of a new home priced up to $350,000. The maximum rebate is $6,300.

The GST New Housing Rebate is phased out for new homes priced between $350,000 and $450,000. There is no GST New Housing Rebate for new homes priced at $450,000 or more. In addition to these price thresholds, several other conditions must be met.

In particular, the purchaser must be acquiring the new home for use as their primary place of residence or as the primary place of residence of a relation (i.e., an individual related by blood, marriage, common-law partnership or adoption, or a former spouse or former common-law partner).

Under the current rules, if two or more individuals who are not considered relations for GST New Housing Rebate purposes buy a new home together, all of those individuals must meet this condition – otherwise none of them will be eligible for the GST New Housing Rebate.

Budget 2021 proposes to make the GST New Housing Rebate available as long as the new home is acquired for use as the primary place of residence of any one of the purchasers or relation of any one of the purchasers.

This measure would apply to agreements of purchase and sale entered into after Budget Day. For owner-built homes, the measure would apply where construction or substantial renovation of the residential complex is substantially completed after Budget Day.

Input Tax Credit (ITC) Information Requirements

Businesses can claim ITCs to recover the GST/HST that they pay for goods and services used as inputs in their commercial activities. Businesses must obtain and retain certain information in order to support their ITC claims, such as invoices or receipts.

The information requirements for these documents are graduated, with progressively more information required when the amount paid or payable in respect of a supply equals or exceeds thresholds of $30 or $150.

Budget 2021 proposes to increase these thresholds to $100 (from $30) and $500 (from $150).

In addition, under the ITC information rules, either the supplier or an intermediary (i.e., a person that causes or facilitates the making of a supply on behalf of the supplier) must provide its business name and, depending on the amount paid or payable in respect of the supply, its GST/HST registration number, on the supporting documents.

However, for the purposes of these rules, an intermediary currently does not include a billing agent (i.e., an agent that collects consideration and tax on behalf of an underlying vendor but does not otherwise cause or facilitate a supply).

Instead, the recipient of the supply must obtain the business name and registration number of the underlying vendor. Budget 2021 proposes to allow billing agents to be treated as intermediaries for purposes of the ITC information rules, removing this complexity.

These measures would come into force on the day after Budget Day.

Application of GST/HST to E-commerce

In the Fall Economic Statement 2020, the government proposed a number of changes to the GST/HST system relating to the digital economy, applicable to non-resident vendors supplying digital products or services, shipping goods from Canadian fulfillment warehouses, or facilitating short-term rental accommodation in Canada.

Under the proposals, GST/HST would be required to be collected and remitted by these entities commencing on July 1, 2021. Simplified registration and remittance frameworks would be available to these entities.

Budget 2021 proposes amendments to these proposals to take stakeholder feedback into account, including safe harbour rules to protect platform operators who reasonably relied on the information provided by a third-party supplier, and clarifying several aspects of the legislation.

Excise Duty on Vaping Products

Budget 2021 proposes to implement a tax on vaping products in 2022 through the introduction of a new excise duty framework. Feedback from industry and stakeholders on these proposals will be accepted until June 30, 2021 at: fin.vaping-taxation-vapotage.fin@canada.ca.

The new excise duty framework would be similar to existing excise duties on tobacco, wine, spirits, and cannabis products. It would apply to vaping liquids that are produced in Canada or imported and that are intended for use in a vaping device in Canada.

These liquids generally contain vegetable glycerin, as well as any combination of propylene glycol, flavouring, nicotine, or other ingredients, all of which must comply with Health Canada regulations. The new duty would apply to these vaping liquids whether or not they contain nicotine.

Cannabis-based vaping products would be explicitly exempt from this framework, as they are already subject to cannabis excise duties under the Act.

The proposed framework would impose a single flat rate duty on every 10 millilitres (ml) of vaping liquid or fraction thereof, within an immediate container (i.e., the container holding the liquid itself).

This rate could be in the order of $1.00 per 10 ml or fraction thereof. The last federal licensee in the supply chain who packaged the vaping product for final retail sale, including vape shops holding an excise licence, as applicable, would be liable to pay the applicable excise duty.

Registration and licensing would not be required for individuals who mix vaping liquids strictly for their own personal consumption.

Tax on Select Luxury Goods

Budget 2021 proposes to introduce a tax on the retail sale of new luxury cars and personal aircraft priced over $100,000, and boats priced over $250,000, effective as of January 1, 2022.

For vehicles, aircraft and boats sold in Canada, the tax would apply at the point of purchase if the final sale price paid by a consumer (not including GST/HST or provincial sales tax) is above the $100,000 or $250,000 price threshold, as the case may be. Importations of vehicles, aircraft and boats would also be subject to the tax.

This tax would apply to the following;

1. LUXURY VEHICLES

New passenger vehicles are typically suitable for personal use, including coupes, sedans, station wagons, sports cars, passenger vans and minivans equipped to accommodate less than 10 passengers, SUVs, and passenger pick-up trucks.

It would not apply to motorcycles and certain off-road vehicles, such as all-terrain vehicles and snowmobiles, racing cars (i.e., vehicles that are not street legal and are owned solely for on-track or off-road racing); and motor homes (commonly known as recreational vehicles, or RVs) that are designed to provide temporary living, sleeping, or eating accommodation for travel, vacation, seasonal camping, or recreational use.

Off-road, construction and farm vehicles would fall outside the scope of the tax. Similarly, certain commercial (e.g., heavy-duty vehicles such as some trucks and cargo vans) and public sector (such as buses, police cars and ambulances) vehicles, as well as hearses, would not be subject to the tax.

2. AIRCRAFT

New aircraft are typically suitable for personal use, including aeroplanes, helicopters and gliders. As a general rule, it would not apply to large aircraft typically used in commercial activities, such as those equipped for the carriage of passengers and having a certified maximum carrying capacity of more than 39 passengers.

Smaller aircraft used in certain commercial (such as public transportation) and public sector (police, military and rescue aircraft, air ambulances) activities would also be excluded.

3. Boats

New boats such as yachts, recreational motorboats and sailboats, typically suitable for personal use. Smaller personal watercraft (e.g., water scooters) and floating homes, commercial fishing vessels, ferries, and cruise ships would be excluded.

For vehicles and aircraft priced over $100,000, the amount of the tax would be the lesser of 10% of the full value of the vehicle or the aircraft, or 20% of the value above $100,000. For boats priced over $250,000, the amount of the tax would be the lesser of 10% of the full value of the boat or 20% of the value above $250,000.

The tax would generally apply at the final point of purchase of new luxury vehicles, aircraft and boats in Canada.

In the case of imports, the application would generally be either at the time of importation (in cases where there will not be a further sale of the goods in Canada) or at the time of the final point of purchase in Canada following importation.

Upon purchase or lease, the seller or lessor would be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time. Exports will not be subject to the tax.

GST/HST would apply to the final sale price, inclusive of the proposed tax, so
GST/HST would also be payable on this new tax. Further details are to be announced in the coming months.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

The High Costs of Equipment And Vehicles

The high cost of equipment demands that owner-managers have an in-depth understanding of the cost of owning and maintaining specific types of equipment, to ensure that it contributes to a positive return on investment. Factoring the significant costs of equipment ownership into a pricing formula could increase your sales figures and at the same time, help you understand where you can reduce present and future costs – and improve your bottom line.

Businesses spend a great deal of time reviewing salary and wages, both to control cost and to determine billing rates when providing estimates or billing clients.

Next to wages, vehicle and equipment ownership and operations are among the higher-expense items within a profit-and-loss statement. Yet, very few businesses monitor the cost of owning and operating vehicles or equipment. Instead, they may simply fold it into the price of doing business without analyzing it further.

Whether your business needs a front-end loader costing just south of $500,000, or a working truck in the $90k to $100k range, analyzing the cost and contributions that these assets make to the business may contribute to a more satisfying bottom line.

To better understand the benefits of job costing each piece of equipment, consider this advice:

This information in turn provides a basis for quoting jobs, as well as documentation you can use if you’re considering future equipment purchases.

Consider recording the cost of powering the equipment. Whether the source of power is fossil fuel or electricity, knowing the operation costs is a major consideration in an energy-expensive world.
Downtime of all equipment should also be recorded. Knowing how many hours equipment is out-of-commission due to mechanical failure is essential to:
Understand the cost of repairing the equipment.
Determine the lost opportunity cost because equipment cannot be used.
Establish whether that brand of equipment meets job requirements.
Compare the downtime to that of similar equipment, so you can analyze based on hard numbers which is the most reliable or usable piece of equipment.
Purchasing equipment usually requires financing. Interest is a cost of ownership and, as such, should
be recorded for each specific piece of equipment. Factoring interest costs into the operational cost of the equipment forces management to consider whether charge-out rates need to increase, or whether leasing or renting is a better alternative to the cost of ownership.
Consider extended warranty cost as part of the cost of operating equipment. If extended warranty is included, you as an owner-manager may wish to consider extending the useful life of the equipment to align with the extended warranty period, which will help you cost jobs or hire out equipment.
Finally, be sure to record revenue earned using the equipment based upon the predetermined hourly charge-out rate. Knowing whether the equipment is paying for itself helps determine whether your business should purchase additional equipment, sell the existing equipment or rent similar equipment in the future.

JOB COSTING

Establishing an asset-specific costing process is not as difficult as you might think. Most quality bookkeeping systems will have a job-costing module that already allows posting of expenses and/or revenues for reference purposes. If your software does not have this kind of module, you could also build a spreadsheet to record the cost and revenue attributed to specific assets.

The hard part is to ensure that all employees are trained to record the additional required information. For instance, when an in-house mechanic repairs a specific piece of equipment, the time spent on the repair should be documented to allow posting to the job cost for that equipment.

Bookkeepers must also be able to identify the invoice associated with the cost of parts for that specific equipment repair, for their job-cost posting. Each business will need to adapt its procedures to accommodate its software.

Naturally, all the recordkeeping in the world will not benefit the bottom line if management does not review, on a regular basis, the results of their decision to rent or lease an asset.

Reviewing this data allows management to:

Determine whether usage of equipment dictates that the business will need a replacement earlier than suggested.
Consider whether the asset is bringing an advantage to the business.
Compare similar equipment to determine which brand is less costly to maintain in future.
Determine whether your employees have a possible bias towards a specific piece of equipment that may sway future purchase decisions.

Using a fact-filled approach will help you arrive at decisions about acquiring future equipment to be purchased and related cash-flow requirements. It will also help your business take action to ensure that financial data, corporate records, and lines of credit are up-to-date, so you’ll be able to secure financing for any future replacement assets.

Learn more about how to read and understand financial statements in How to Read Financial Statements: A Guide for Business Owners.