Clearing The Confusion On Tax Instalments

You may have received an instalment reminder in the mail and are wondering whether you have to make these payments, how much they are, and when they are due. This article aims to clarify some of the confusion surrounding personal and corporate tax instalments.

What Are Instalments?

The CRA requires individuals and businesses to make monthly or quarterly instalments, towards their tax account so that taxes are received throughout the year rather than collecting all of its tax revenue in a lump sum.

Personal Tax Instalments

When you earn income without having tax withheld, or that does not have enough tax withheld for consecutive years, you may be required to make personal tax instalments. Income from self-employment, rental properties, investments, and certain pension payments may not have tax withheld at the source and can result in an unexpected tax bill later in the year.

Similarly, when working at more than one job your employers may not deduct the appropriate amount of tax from your paychecks. Therefore, it is important to review your sources of income regularly to check whether the appropriate amount of income tax is being withheld. If not, consider setting aside some income to cover the tax on this come tax time.  

When must you make personal tax instalments? You must make personal tax instalments if both of the following criteria are met:

  • Your net tax owing for the current tax year will be over $3,000 ($1,800 for residents of Quebec); and
  • Your net tax owing in either of the two previous tax years was over $3,000 ($1,800 for residents of Quebec)

The CRA will send out instalment reminder slips to those individuals who may be required to make instalments based on their prior year taxes owing.

If you are required to make personal tax instalments you may choose one of the following three options to calculate the amount of each instalment:

  • No calculation option – use the amounts listed on your CRA instalment reminder slip. This is the simplest method and is useful if your income, deductions, and credits are similar each year.
  • Prior-year option – use the net tax owing in the previous year and divide the figure by 4 to determine the quarterly payment amount. This option is useful if your current-year income, deductions, and credits will be similar to the prior year, but different from the second previous year.
  • Current-year option – estimate your current-year net tax owing and divide the figure by 4 to determine the quarterly payment amount. This option is best if your current-year income, deductions, and credits will be significantly different than in the last two years.

If you choose to calculate your instalments using option 2 or 3 above, the CRA may charge interest if the estimated net tax owing for the year is less than the actual net tax owing for the year. If your actual net tax owing is less than the estimated amount, any excess payments can either be refunded to you or be applied to the next tax year.

Due date:

Personal tax instalments are due quarterly on March 15, June 15, September 15, and December 15. CRA will start to charge interest on each installment amount from the date it was due if not made.

Corporate Tax Instalments

Similar to individuals, a company is required to make corporate tax instalments if it has Federal taxes payable of $3,000 or more in both the current and previous tax year.  Alberta and Quebec collect corporate taxes separate from the Federal government and have similar thresholds.  Companies in their first year of operations are not required to make instalments.

There are three choices available to calculate the number of total tax instalments a company will have to pay during the year:

  • Current-year option – base the total instalment amount on the estimated current year tax payable balance.
  • Prior-year option – base the total instalment amount on the previous year tax payable balance.
  • Combination of the previous year and second previous year – base the total instalment amount on a combination of the previous two tax year’s tax payable balances. The CRA provides helpful worksheets to calculate this method.

Typically, instalments are due monthly, but some smaller private companies may qualify to make installments quarterly.  All instalments are due at the end of each month or quarter.

GST/HST Instalments

Annual GST/HST filers that have a net GST/HST balance payable over $3,000 in both the current and previous return periods are required to make quarterly instalments that are due one month after each quarter. The filer has the option to calculate each instalment payment as either:

  • 1/4 of the total estimated GST/HST tax payable for the current year; or
  • 1/4 of the GST/HST payable balance in the prior year       

Whether you are an individual or own a company, setting out some time to schedule and understand your tax reporting and payment deadlines can help to reduce the stress and confusion surrounding your taxes and help set yourself up for a smooth tax year.    If you would like to understand your installment requirement better, please contact your Avisar professional.

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.

in house financial statements

IN HOUSE FINANCIAL STATEMENTS: EVERYTHING YOU NEED TO KNOW

Consider your external Chartered Professional Accountant when preparing in house financial statements.

To run an owner-managed business successfully, it is not enough just to track the movement of funds in and out. In-house financial statements provide the type of information needed by your external accountant are also essential because the external accountant is the intermediary between your business and the Canada Revenue Agency, creditors, a potential buyer and others who need the special financial statements only your external accountant can produce.

In House Financial Statements

Internal accounting systems process daily sales, purchases, and payroll transactions; effective owner-managers review the general ledger bank balance, accounts receivable, accounts payable, and the payroll summary and analyze the basic financial statements on a regular basis. Management needs these in house financial statements to meet some if not all of the following requirements:

  • All provincial corporations’ acts require financial data to support financial statement filing requirements.
  • Shareholders have a right to yearly financial statements based on recorded transactions in your in house financial statements.
  • Creditors may require regular financial statements to evaluate the quality and sufficiency of collateral covering a loan and to ensure the loan conditions are being met.
  • Potential investors may want to review monthly financial statements to evaluate throughout-the-year performance.
  • Comparable monthly historical in house financial statements give valuable information to a potential purchaser if the owner-manager retires or sells all or part of the business.
  • Financial decisions based on monthly facts and figures provide insight for planning and budgeting.
  • Comparative financial statements can reveal whether changes in sales or expenditures are creating variations in the bottom line. Such comparisons allow management to take corrective action and ward off potential working capital problems.
  • In house financial statements establish how management is guiding the company.
  • Financial statements provide information about the availability of sufficient assets to meet liabilities.
  • Operating results provided by financial statements inform management whether action is needed to increase sales, cut production costs, or reduce wage costs.
  • Properly structured income statements provide insight into the cost of production compared to sales. As a result, management can more rapidly decide whether sales prices need to be increased or job costs better controlled.
  • Monthly in house financial statements show errors in environmental, tax, payroll, pension, workers’ compensation, GST/HST or employee health tax remittances.

The external CPA usually makes some adjustments.

External Accountant

Before company accounts are ready for a third-party user, the external accountant usually has to make some adjustments to in house financial statements to provide the information in the form needed by the third party. Consider the following:

  • Data provided by an in-house system designed to give information about the day-to-day operations must be distilled into a summary format that provides information in accordance with Canadian financial statement disclosure requirements.
  • Statements prepared by an independent accountant lend credibility to the corporate entity because the preparation is independent of internal bias.
  • Reporting requirements change regularly and must be reflected in the financial statements.
  • Independent preparation of financial statements may identify anomalies within the corporate records, which need review to ensure they are correct. For instance, capital assets purchased may have been expensed.
  • Preparation of financial statements by your external accountant usually identifies items that are income tax sensitive such as shareholder draws, penalties and interest or personal use of corporate vehicles that may have to be adjusted.
  • An external review may determine whether the valuation of assets is accurate or whether capital assets should be written down or accounts receivable amounts should be written off.
  • The external accountant ensures that comparative figures are truly comparative, not only to ensure a better analysis of progress throughout the years, but also to provide insight as to the reasons for material variations in the event lenders or regulatory authorities question the differences.

Periodic In House Financial Statements

In order to prepare year-end financial statements, your accountant needs quality information produced by your accounting system. The regular preparation of financial statements allows your CPA to fully understand the financial performance and position of your business. Because CPAs have significant experience in a multiplicity of businesses, they are able to determine the benchmarks your particular business should meet and maintain.

Your Business Is Their Business

In the final analysis, most external accountants would agree that you know your business better than they do, but they know business better than you. Working with your accountant and helping them understand your business will ensure the financial statements provided to management, third parties and regulatory and tax authorities adequately explain the corporation’s financial position and operational results for the year.

Get a free review of your financial statements here.

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.

BS PST Rebate For Machinery

BC PST Rebate: Select Machinery and Equipment

Updated July 2022

In efforts to assist in the recovery from the impacts of COVID-19, the BC Ministry of Finance in their Economic Recovery Plan announced that effective September 17, 2020, incorporated businesses will be eligible for a PST rebate on select Machinery and Equipment.

Who Is Eligible For The Rebate?

Incorporated businesses will be eligible for the BC PST Rebate on select Machinery and Equipment as further discussed below. The rebate will not be available to certain entities including, provincial and federal Crown corporations, charities and non-profit corporations, schools, hospitals, regional health boards, and agents of the government.

What Is Eligible For The Rebate?

To qualify for the rebate, the machinery and equipment must be:

  • Included in capital cost allowance (“CCA”) classes 8, 10, 12, 16, 43, 43.1, 43.2, 46, 50, 53, 54, and 55 for income tax purposes; and
  • Obtained substantially (more than 90%) for the purpose of gaining or producing income.

Incorporated businesses should be mindful of the income tax classification of their capital assets acquired between September 17, 2020, and September 30, 2021. Details with regards to these CCA classes can be found here:

The following are some assets that will not qualify for the rebate:

  • vehicles, other than zero-emission vehicles;
  • goods purchased to be installed as an improvement to real property;
  • goods purchased for resale by a small seller;
  • exclusive products purchased by independent sales contractors.

How To Apply For The Rebate

Incorporated businesses may make up to two PST rebate applications. The first application can be made between April 1, 2021, and September 30, 2021. The second application can be made starting October 1, 2021. The last day applications will be accepted is March 31, 2022.

Update July 2022: Please be advised that the deadline to apply for the BC PST Rebate on Selected Machinery and Equipment is September 30, 2022. Although initial correspondence from the Ministry of Finance indicated a deadline of March 31, 2022, this was extended by six 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.

Important Federal Tax Updates

The trust income tax and benefit return filing deadline has been extended to May 1, 2020

The personal income tax filing deadline has been extended to June 1, 2020Personal income tax payment deadline has been extended to August 31, 2020

Although no changes to corporate tax filing deadlines were announced, all corporate income tax payments and corporate income tax instalment payment deadlines have been extended to August 31, 2020.  No interest or penalties will be charged on missed or late payments during this time. 

For more information on Canada’s COVID-19 Economic Response Plan, released on March 18, 2020, click here. 

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.

2019 Personal Income Taxes At Avisar

While we understand that your personal income tax return may not be the highest of your priorities right now, it is still our preference to prepare and file your return by April 30, 2020.  We are actively encouraging all of our clients to submit their personal income tax information electronically as soon as possible in order to meet this deadline. All we need from you is to:

Complete our personal income tax checklist (with up-to-date contact information) and any other required tax organizers;

Scan your information, or use Office Lens to take pictures with your phone or tablet and convert them to a readable PDF;

Submit your information to us via our secure client portal.

We are also encouraging our clients to receive their personal income tax packages via RightSignature, our secure electronic signature service, as much as possible this year.  We appreciate your understanding and receptiveness to this option if it is not something that you would normally consider. Signing a document through RightSignature is a simple process that any of our administrators can assist you with if required. We are confident that our secure electronic tools will make submitting and receiving your personal tax information easier than you thought and look forward to working together to meet our goals and deadlines. 

From your perspective, it should seem like we are conducting business as usual even though many of us are not physically in the office. 

We are encouraging all of our clients to continue to interact with us via email, telephone, and even video chat if that is your preference. It is our hope that you are continuing to follow social distancing suggestions and that you will refrain from coming to our office unless you absolutely have to. 

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.