small business accountant

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 and 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.

measuring customer profitability

Measuring Customer Profitability: 3 Tips Businesses Should Know

If you’re a business owner, you know how valuable a good customer can be—as well as how draining a bad one can be. How can small businesses measure and identify their most profitable customers to attract more of them? Below, we’ll discuss some tips and tricks for measuring customer profitability and how you can use these metrics to grow your business.

What Is Customer Profitability?

You may assume that your most profitable customers are simply those who spend the most money with you. However, this isn’t all that goes into profit—you’ll also need to consider the costs associated with the customer relationship. When measuring customer profitability, consider customers who are high-maintenance and use a disproportionate amount of your employees’ time or who tend to return items more often than other customers. They may be less profitable than lower-maintenance customers who spend a bit less. Some particularly difficult customers may even be costing you money. 

There are a variety of software programs designed to help assess profitability based on your business’s unique metrics. A Chartered Professional Accountant (CPA) can help you evaluate the data these programs generate giving you insights on the allocation of resources and productivity; however, there are some slightly lower-tech ways to measure customer profitability, which we’ll discuss below.

Measuring Customer Profitability: Three Tips

Identify Your Customer Contact Channels

Before you can see what’s working and what isn’t, you’ll need to identify each of the potential ways in which a customer can interact with your company. Do you have a website? Social media pages? A public email address? Storefronts? A call centre? Unless you’re tracking the levels of engagement through all of these potential customer interaction channels, you could be missing key pieces of data that may inform your customer profitability analysis.

Once you’ve identified these channels, you can then evaluate the costs associated with each. These can include: 

  • Advertising and marketing costs
  • Infrastructure expenses (rent, utilities, real estate taxes)
  • Shipping costs
  • Return, refund, and restocking costs

Define Your Customer Categories

Many businesses tend to have customer segments that are clearly defined. For example, there are few daycare customers who aren’t parents of young children—but assessing customer categories for retail and department stores can be trickier, as these tend to attract a much broader range of demographics. 

However, business owners are uniquely positioned to define their customer categories, as you have first-hand knowledge of your business, your products, and your general impressions of who’s spending money (and who isn’t) at your business. Some questions to ask yourself include:

  • What types of customers do you see? 
  • Is your “typical customer” different at different times of the day? (For example, some businesses tend to see more students in the afternoon and early evening, while retirees may make up the bulk of customers from 9 to 5 on weekdays.) 
  • What motivates your customers to purchase from you?
  • Who is your competition? Do your customers tend to be loyal to one business or simply patronize whoever is most convenient at the time?
  • Which categories of customers tend to interact with your staff the most?

With this information in hand, you can begin to do some calculations for measuring customer profitability. 

Begin Tracking and Logging Key Performance Indicators (KPIs) 

Some profitability KPIs you’ll want to measure and track when measuring customer profitability can include: 

  • Average revenue per user (ARPU), calculated by dividing the total revenue by the total number of customers or subscribers.
  • Customer lifetime value (CLV), which projects the entire net profit that will be generated from a customer over the course of their relationship with your business. You can calculate CLV by multiplying the annual profit per customer by the average number of years they’ll stay a customer, then subtracting the initial cost of acquiring this customer. 
  • Customer acquisition cost. Your customer acquisition cost (CAC) is quite simply how much money it costs you to acquire a new customer. It typically includes the cost of your sales and marketing activities. If you want to be accurate when measuring customer profitability, you need to know this number. The formula to calculate CAC is: (Cost of Sales + Cost of Marketing & Advertising) / New Customers Acquired

Some of this data may not be readily accessible. But by thinking about these calculations, you can brainstorm ways to collect and track this information, whether this means investing in some marketing tools or creating an employee loyalty program that can track spending patterns.

Partnering with a CPA can give you access to an even broader range of potential KPI tools for measuring customer profitability approach. For more tips on measuring profitability download The Ultimate Small Business Profitability Checklist, our free guide to help you measure and manage the profitability of your business.

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.

measuring profitability

Measuring Profitability in Your Business: 7 Key Ratios

Measuring profitability in a business is essential to understanding how well it’s running. From measuring minor operational changes to exiting via sale, understanding what your business’s bottom line truly means is the only way to accurately determine its value. If you run a business, here’s an overview of how to measure profitability.

How To Measure Profitability

Knowing your business’s numbers is foundational to assessing profitability. Inaccurate figures will lead to inaccurate conclusions. Don’t go with what you think the business makes and spends, and don’t use what you expect future sales and expenses to be. Use hard data from the past months or years — yes, you need to keep accurate records — to gain a true understanding of your business.

There are multiple numbers that every business owner should know. Here are a few of the more important ones related to measuring profitability:

  • Gross Revenues
  • Net Income
  • Cost of Goods Sold (COGS)
  • Operating Expenses
  • Other Income
  • Taxes

An accountant can help you calculate these, so long as you have the necessary records. Because records are so important, it’s generally advisable to hire a bookkeeper or accountant as soon as you start a business (or now if you already have a business).

Measuring Profitability: Key Ratios

Your gross revenues show the top-line income that your business makes, and net income generally shows how much the business actually earns after expenses. These figures become even more important to measuring profitability when put in the context of profitability ratios, though.

There are multiple profitability ratios that show how much a business earns with respect to different underlying costs. Some of the most common ratios are:

  • Gross Profit: Gross profit measures how profitable your goods/services are to sell. It puts the earnings in perspective to the cost of those goods, and the best way to improve this is to either raise prices or find lower-cost suppliers. 

Formula: Gross Profit = Revenue – Cost of Goods Sold

  • Operating Profit: Operating profit provides a more complete picture, as it takes into account the cost of goods sold plus how much it costs to run your business. This can be improved by bettering the gross profit or reducing operating expenses.

    Formula: Operating Profit = Gross Profit – Operating Costs
  • Pre-tax Profit: Pre-tax profit gives a complete view of your business’s profitability before the government gets its share via taxes, taking into account any other income and any non-operational expenses. The ratio will be improved by any positive change to sales, sourcing, operations, or almost any other aspect of your business.

    Formula: Pre-tax Profit = Operating Profit – Non-Operating Expenses
  • Net Profit: Net profit shows exactly how much money your business is making after everything is taken into account. Any change in revenues or expenses will impact this.

    Formula: Net Profit = Pre-tax Profit – Taxes

These profitability ratios are even more informative when used to calculate other ratios that look at returns. Most people use net profit when showing how to calculate profitability ratios that are more advanced:

  • Return on Investment: ROI is most useful when assessing whether a major investment in a business is financially advisable. You may use this when determining whether to purchase another business or when considering expanding operations. The ratio shows what sort of return you’ll receive from the outlay.

    Formula: ROI = Net Profit / Initial Investment
  • Return on Assets: ROA looks specifically at the tangible assets a business has to determine how well they’re deployed. You can use this when evaluating a major capital outlay or assessing the use of existing infrastructure/equipment. Unlike ROI, ROA will change more over time as the value of assets fluctuates with additional purchases and depreciation.

    Formula: ROA = Net Profit / Assets’ Total Value
  • Return on Equity: ROE is most often used to evaluate business profitability from a shareholder perspective. The ratio shows how much shareholders are earning. Improving profitability, rebuying equity, and issuing new equity will all impact this.

    Formula: ROE = Net Profit / Equity Investments

Each of these three ratios can be multiplied by 100 for a percentage.

For more tips on measuring profitability check out The Ultimate Small Business Profitability Checklist. It provides five key metrics you should know and be watching to understand your profitability.

Download a free copy here and get started measuring profitability in your business.

Work With a Knowledgeable Accountant

Evaluating profitability can be challenging even when you know how to calculate it via these various ratios. Working with a knowledgeable accountant who knows how to measure profitability will give you the confidence necessary to make informed business decisions. Book a free consultation if you’d like assistance determining how profitable your business is and where profits might be improved.

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.

create a marketing strategy for a small business

How to Create a Marketing Strategy for a Small Business

According to a study of US small businesses, 50% of them are operating with no marketing plan. There are no comparable Canadian stats that I could find, but I suspect it’s similar. That means that one out of every two small businesses has no plan for how they will grow their business, which could explain why 60% of small businesses fail within their first three years and many more never realize their potential.

Consistent growth rarely happens by accident and in this blog we’re going to show how to create a marketing strategy for a small business so you can avoid becoming a statistic.

Always Start with Strategy

This probably sounds a little strange to say always start with strategy when creating a marketing strategy for a small business, but here me out.

Too often, when companies think about creating a marketing strategy, they tend to start to cobble together a bunch of tactics.

  • I need to run Facebook ads
  • I need to find a way to get more leads from social media
  • I have to redesign my website
  • I should be on LinkedIn

Maybe. But none of those, or even all of those together is a strategy. And throwing money at a series of tactics that you read about, or someone recommended, is a sure-fire way to waste money.

Know Your Target

When you set out to create a marketing strategy for a small business, the first thing you need to know is where you are and where you are going. This means having targets you measure your progress against.

Your targets may be revenue based. Or you may be trying to grow into a new market. Or increase profitability. Whatever it is, be sure you quantify it, have a target, and know how you will measure progress.

If profitability is your goal, or how you’ll measure progress towards your goal, the Ultimate Small Business Profitability Checklist provides details on how to calculate five key indicators of profitability to help. You can download it here.

Find Your Ideal Customer

Most small businesses are built to perfectly serve a fairly narrow type of customer. Trying to attract and serve too broad of a market can actually hurt a business sometimes. That’s why it’s so important to define your ideal client as you create a marketing strategy for a small business.

  • Identify your most profitable customers (see the Ultimate Small Business Profitability Checklist for some tips on analyzing that)
  • From that group, identify the ones who refer you the most business
  • Take that group and try to identify some common characteristics (demographic and psychographic)
  • Use that list of common characteristics to create what’s called in marketing a “customer persona”; a profile of your ideal customer

Find Your Unique Value Proposition

Once you have a list of your current ideal customers it’s time to talk to them and find out why they chose you. Get on the phone and call them up. Ask them what they like about doing business with you. Why they chose you over all the other options they had.

If you collect testimonials and online reviews, also review those. What you’re looking for in all of this are common themes that show what your customers think makes you stand out. Be aware, this is often different from what you think it is.

Use what you find to develop some bullet point key messages that represent why they chose you/why someone like them should choose you.

Map the buyer’s journey

The next step to create a marketing strategy for a small business is to map out all the ways you might come into contact with your ideal customer as they progress through their buyer’s journey.

Everyone who has ever purchased from you has gone through a journey. They went from knowing nothing about you, to knowing you exist, acknowledging you might be able to solve their problem, to trusting you, to making a purchase. Hopefully, they then went on to re-purchase and refer you to others as well.

Take those stages and do a little brainstorming about how you might show up to people at those various stages. Here are some examples:

  • Getting to know you – search engines, ads, referrals
  • Trusting you – testimonials, reviews, blogs, discovery calls
  • Purchasing – sales people, website, physical store
  • Repeat purchase – email reminders, mailers, subscriptions
  • Referrals – referral cards, email, champion programs

You can even work some questions about this into your customer interviews you may be doing to help define your ideal customer profile.

Putting It All Together

The final step to create a marketing strategy for a small business is to put all these pieces together. By now you have:

  • A profile of your ideal customer
  • Your core message or unique value proposition that speaks to this person
  • The channels and platforms where you need to show up to reach your ideal customer

Now your task is to put it together.

If your ideal customer is most likely to get to know about you through a Google search, make sure you have optimized your website to show up for what they are searching for and that your page clearly communicates your value proposition in their language.

If reviews are important for them to trust you, put a plan in place to get more reviews and publish them where your prospects will see them.

If referrals are how people find you, focus on a referral program for both customers and strategic partners.

The tactics almost find themselves once you have the core strategic elements sorted out.

If you’d like someone to bounce some ideas off while you create a marketing strategy for a small business, book a consultation (or if you’re a customer, give us a call). We’ve worked with dozens of businesses and not-for-profits to better define their growth strategy and we’d love to help you.

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.

small business growth

The 5 Stages of Small Business Growth

While small businesses come in all shapes and sizes, almost every business goes through the same five stages from inception to late-stage growth, according to researchers Neil Churchill and Virginia Lewis. In analyzing the lifecycle of businesses, the two researchers uncovered a pattern showing small businesses go through five stages as they mature and grow.

While the length of time a small business stays in any one phase changes business-to-business, within each stage, organizations show remarkable similarities and characteristics that allow them to move to the next stage. Understanding the stages can help you identify where your business is and what to do to move up the ladder. Let’s explore.

SMALL BUSINESS GROWTH STAGE I: EXISTENCE

The small business growth journey begins at its inception. As small businesses come into existence, their focus is primarily on attracting customers and delivering the goods or services to fulfill transactions.

Organizations at this stage are fairly loose and simple. The owner or founders typically do a bit of everything and supervise subordinates directly. While there may be a formal business plan, the strategy aims to generate enough revenue to be viable.

Quality, production, and processes may be unstable until those in the business start to gain experience. With most small businesses, the owner is the company and drives both strategy and execution.

20% of small businesses never get past this stage and fail within the first year of existence. Another 30% close their doors by the end of the second year. Those that survive evolve into the second stage: survival.

SMALL BUSINESS GROWTH STAGE II: SURVIVAL

As small businesses enter the second stage, they have demonstrated viability. It is attracting and retaining enough customers and generating enough cash flow to survive in the short term.

The organization remains small, although there may now be a few managers focusing on sales or operations at the direction of the owner or founder. The owner still makes nearly every key decision, and the goal remains survival.

Many companies stall at this point. They may earn marginal returns based on their capital and time investment. Many Mom-and-Pop businesses stay in existence but never thrive beyond the survival stage — eventually closing or selling, often at a loss. Conversely, businesses that grow in profitability and develop a strong cash flow to finance growth move onto the third stage: success.

To ensure your business moves onto the next stage, it’s important to work with an advisor to have a strategic plan in place.

SMALL BUSINESS GROWTH STAGE III: SUCCESS

If your business has reached the third stage, congratulations on your small business growth. There’s a lot to celebrate. There are also important questions to ask. Do you want to:

  • keep the company fairly small with stable and predictable profitability?
  • expand and grow your business for greater profitability (but also at greater risk)?
  • step back and pursue other interests or investments while the business continues?

These are questions you should ask yourself and your accountant or business advisor to ensure you have the right plan in place to achieve your goal.

Companies can remain at the success stage for long periods and earn average or above-average returns. In this stage, businesses are more likely to survive economic downturns or shifting consumer demands.

In this stage, companies typically start to add additional executives or oversight, such as a controller. Middle managers may be necessary to drive operations. Financial, sales, marketing, and production systems run more smoothly and are better defined.

Companies willing to take on additional risk, and additional debt, strive to enter the fourth stage: take off.

SMALL BUSINESS GROWTH STAGE IV: TAKE-OFF

If the business is the fire, financing is the accelerant. To turn a business from success to take-off, owners and founders focus on raising capital and fueling growth. Owners and founders begin to delegate more and allow managers and other executives to begin to take a more active role in strategy and higher-level decision-making.

Organizations often begin to decentralize. Formal organizational charts are developed with clear lines of report and hierarchies.

This is a pivotal stage in the business lifecycle. If leaders rise to the challenge, significant growth can occur. If not, the business can stall at this stage, too. Many companies sell before achieving their take-off goals, although at this stage they usually sell for a profit.

If you’re entering this stage of small business growth, you may want to explore your options to restructure your business or sell your business with a strategic partner.

If take-off happens, it’s time to enter the final stage: resource maturity.

SMALL BUSINESS GROWTH STAGE V: RESOURCE MATURITY

As companies enter the fifth stage of small business growth, they need to be concerned about control and consolidation of rapid growth. The business may need to expand rapidly to accommodate the growth and meet consumer needs.  The organization may struggle to retain the entrepreneurial spirit that drove growth in the first place.

In this stage, the company has the financial resources to fund detailed strategic and operational planning. Management runs fairly independently and key positions are staffed by experienced workers. Systems are refined and smooth. Owners and founders are often detached from the business both financially and operationally.

As businesses reach resource maturity, profitability may flatten but be sustainable and more predictable. Yet, many businesses will lose sight of their original mission, stray too far outside their product offerings, or take unnecessary risks to chase even larger growth.

A DELICATE BALANCING ACT

Throughout every stage, it’s a delicate balancing act. For those that can move through the stages, the rewards can be great. However, it takes a careful and strategic growth plan at each stage and the ability to evolve and adapt as the business grows.

Ready to talk about where you are on the small business growth chart and how to best position your business for success? Book a free consultation and speak with one of our experts.

We work with businesses across all of these stages, helping them grow to the next stage or stay put, making the most of the stage they are in. It all depends on your priorities. We work hard to understand your business needs and help you manage risk, meet reporting obligations and plan strategically for growth.

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.

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.

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.

New-Compilation-Standards

Compilation Financial Statement Standards

As a Chartered Professional Accounting (CPA) firm, Avisar’s services are governed by standards set at a national level. Recently, the standards that apply to compilation financial statements (sometimes referred to as a Notice to Reader) have been updated. Changes in the standards are normal as the environment in which businesses operate is constantly evolving and the standards must be revised accordingly.

There are several reasons why these standards are changing now:

  • The standards had not been updated in over 30 years and were outdated;
  • The new rules promote more consistency amongst CPA firms in the amount of work done on compilation engagements, particularly in understanding their clients’ businesses;
  • The new standards will provide more useful information for the users of compiled financial statements (e.g., lenders, bonding companies); and
  • They will also help CPAs clearly outline the work they have done on the financial statements from management’s responsibility for the financial information.

What you Need To Know About The Effect of These Changes:

The changes come into effect for all fiscal years ending on or after December 14, 2021. If your company’s next fiscal year-end is November 30, 2021, or earlier, these changes will not impact you until 2022.

We do not expect that these changes in standards will lead to a significant increase in fees in most cases.

These changes are focused on the standards around compilation engagements. If we currently provide you with a financial statement that has a “Notice to Reader” attached to it, you will be impacted. If the statements are audited or reviewed or we only prepare tax returns for you then you will not be impacted.

There will be two main changes to your Compilation Statements:

  • The report at the front of the financial statements will be titled Compilation Engagement Report instead of Notice to Reader. It will also be longer and include more information about the nature of a compilation, our responsibilities and management’s responsibilities; and
  • A note will be added to the financial statements titled Basis of Accounting. This note will include brief summary of accounting policies for the significant items recorded within your company’s financial statements.

For the most part, you won’t notice any significant changes in what we are asking for at the beginning of our engagement.

Important Points to Note:

  • Prior to issuing the engagement letter, we will ask a few questions about who, other than you, receives copies of these financial statements and for what purposes they use the financial statements. A typical example would be a bank for lending purposes, a bonding agent, or a minority shareholder;
  • Our engagement letter will identify these additional users and will include acknowledgement from you that they are in a position to obtain any further information from you that they require and they have agreed to the basis of accounting used in the preparation of the financial statements;
  • We will ask some questions about your business operations and your processes for keeping financial data and bookkeeping practices. This will enable us to draft the wording for the Basis of Accounting note disclosure; and
  • The information we will require you to review and sign at the end of the engagement to approve the financial statements, will look a little different than before.

In preparation for the adoption of the new standards, as we complete this year end’s financial statements on a compilation basis, we will set up a meeting with you to review the statements, how the upcoming changes will impact your company, and to ask you some additional questions in preparation for your next year-end.  After our meeting, we will provide you with a summary of the changes as they affect you and documentation of what we discussed.

If you have any questions regarding anything discussed in this post or any other matter that you wish to discuss, please reach out to your contact at Avisar and we will be pleased to discuss further with you.

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.

Impending Changes To CPP

In 2018, many owner-managers across Canada chose to adjust staff levels, wages, and prices when the minimum wage was increased. For many, it is still too early to determine the final impact on the corporate bottom line as a full fiscal year has not been completed.

With the adjustments of 2018, owner-managers may not have looked at budgets for 2019, but considering changes in the Canada Pension Plan (CPP), it may be time to start projecting 2019 and beyond.

BILL C-26

On October 6, 2016, Bill C-26 was passed with the objective of enhancing the CPP to increase the amount working Canadians receive from CPP when they retire. The amount is set to increase from one-quarter of their eligible earnings to one-third.

The increase to an individual’s pension will depend on how long and how much they have contributed to the enhanced CPP structure. An individual will receive the full increase if they have contributed to the enhanced CPP for 40 years. Further, the federal working income tax benefit (WITB) will increase to offset the increase in CPP contributions from low-income earners.

This is a polite way of saying that starting January 1, 2019, higher contributions will be required from both employees and employers. Higher contributions will be phased in over seven years.

The new structure requires that employees and employers contribute more on earnings up to the maximum amount of eligible earnings as indicated under the CPP contribution tables. By 2023, the employee and employer CPP contribution rate will have risen from 4.95 percent to 5.95 percent of eligible earnings. This increase will be phased in gradually from 2019 to 2023.

Those who are self-employed pay both sides of the equation, so contributions will have risen by 2% of eligible earnings by 2023.

MAXIMUM PENSIONABLE EARNINGS INCREASING

Under the current system, CPP contributions are capped at 4.95% of the maximum annual pensionable earnings of $55,900. Once the $3,500 basic exemption is applied, the maximum contribution by both employee and employer is $2,593.80 for a total contribution of $5,187.60.

Down the road, the Yearly Maximum Pensionable Earnings (YMPE) figures are going to change starting from the 2018 YMPE maximum to a projected YMPE of $72,500 by 2025. This amounts to an increase in the YMPE approximating 30%.

In addition to establishing a graduated YMPE rate for contributions, there will be a new upper earnings limit starting in 2024 called the Year’s Additional Maximum Pensionable Earnings (YAMPE) that will effectively require both the employee and the employer to pay an additional amount into CPP when they exceed the YMPE. It appears that an additional 4% contribution will be required by both the employee and the employer on any amounts that exceed the $72,500 YMPE amount up to the YAMPE of $82,700.

TAX DEDUCTION FOR ENHANCED CPP CONTRIBUTION

For the employed and self-employed that exceed the $72,500 YMPE and are required to pay an additional amount to CPP, the employed will be entitled to a tax deduction on the excess amount, while the self-employed will be able to deduct both the employee and employer share of enhanced contribution.

MANAGE THE FUTURE

Even though these increases will be phased in over time, astute owner-managers must consider:

  • the future cost of payroll and the impact on profits
  • the impact that these changes may have on the company retirement and savings plans already
  • in place for employees
  • whether future hires will be entitled to the same benefits package as existing employees
  • ensuring that those preparing payrolls are aware of the impending changes
  • preparing your employees for the additional deductions by communicating to employees the projected additional CPP source deductions from their pay
  • communicating to the employee the additional benefit cost for contributions the company makes
  • to their CPP
  • communicating to employees the impact that additional contributions may or may not have on the company retirement and savings plan
  • the impact that this may have on future payroll costs as employees request raises to offset the additional deductions from payroll and an increase in the cost of living
  • the timing of bonuses and other discretionary income

Employers and those who are involved in payroll may be interested in reviewing the CRA website that offers a chart showing the timing of the changes, the increased YMPE, the additional contribution amounts that will be required up to the YMPE and the contributions required on amounts over the YMPE.

Those who are involved with payroll will certainly want to keep abreast of the changes and ensure that their accounting packages can be modified for the changes that are coming.

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.