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Keep an audit trail

An audit trail is nothing more than a record of all your invoices and checks in numeric order. The thing to remember is never skip numbers. Record voided checks and invoice numbers in numeric order with all other checks and invoices, only denote each one that is “voided”. This assures there will be no gaps in your numerical sequence and leaves a proper audit trail.

Always keep all your receipts, no matter how small the amount and make sure they are legible. Receipts you must keep include debit receipts and credit card receipts.

Be Consistent

Consistency is essential to successful business bookkeeping. If you use manual bookkeeping system, the double entry system is the best system to use. Always be sure to head your columns the same way each month throughout the year. This small matter of consistency will save you and your accountant time and aggravation.

Keep Good Records

Many business owners don’t keep good records. Some don’t understand bookkeeping; others understand it, but may be afraid of what the numbers might tell them. Think of it this way – – bookkeeping is the glue that keeps your business together. If your records are not in good shape, the business could fall apart. A healthy business is monitored through its records on a regular basis so you can find problems and correct them before it’s too late.

Deposit Books

How do you handle your bank deposits? One easy way is to record your daily deposit in a deposit book. Generally, these books come with a white (original) copy, yellow (duplicate) and pink copy for triplicate. As you write each deposit ticket, it is a good idea to remove the white copy to give to the bank and leave the duplicate(yellow) in the book. That way nothing gets lost. You should always provide a copy of all deposit slips to your bookkeeper.

Get into the habit of depositing all cash immediately at the bank once it is received. All deposits must match your Sales.

Bank Account Statements

When opening a business checking account, you should request a statement and cancelled cheques with a month-end cut-off date. This will save you time when reconcilling your records with the bank statement every month. The closer the cut-off date to the month end, the fewer checks you will need to record as outstanding.

And don’t toss those bank statements and canceled checks into a filing cabinet without reviewing them. Resist the urge to do this! As soon as your statement arrives, review it before anyone else sees it, including your bookkeeper or employees. That way you can catch unauthorized checks. You should always reconcile your bank statement either manually or computerized.

Petty Cash Box

Almost all small business make small cash purchases. You may want to set up a Petty Cash Box to keep control of those purchases. Get yourself a metal cash box and put in currency and coin that totals $100.00, for example.. This will be your starting point. The value of this box should remain at $100.00 at all times. Perhaps you or your employee purchases a notebook at the local office supply store for $5.00, using money from the Petty Cash Box. When you get back to the office you will put your receipt in th box. Now you should have $95.00 in currency and one receipts for $5.00. The value of your box is still $100.00. You can continue using the Petty Cash Box until you run out of cash. Then replenish the box by writing a check for “Cash”, expensing all the receipts, and cashing the check at the bank. After you cash the check, the new currency and coin go into the Petty Cash Box, so you’ll be starting again with $100.00 in the box.

Storage Boxes for Each New Year

Keep all your records for one year in one box. You can put a copy of your tax return, bank account statements with cancelled checks, receipts, financial statements from your accountant/bookkeeper, your paid bills and all other backup for that year in one box. Label it with the year and contents on the outside of the box. Then store it somewhere accessible.

Filing Paid Invoices

Start new file folders at the beginning of each year for all your paid invoices and paid bills. It’s not necessary to start a folder for each customer or vendor unless you do a large volume of business with that customer. You could get by with a folder for all customers from A-C, D-F, and so on.

Printing Invoices

If your books are computerized always print 2 copies of invoices one for your books, one for your client. Computerized invoices can be customized to suit your business. If you decide to print invoices with a perforated edge so customers can tear off one portion and return it with their payment, be sure to print your name and “remit to” address on both sides of the perforation.

From Paper System to Computer Program

The best time to go from a paper bookkeeping system to a computerized system is right after you completed a Year End using the accountants Year End Trial Balance.

Always keep your business finances separate from your personal finances. Don’t give the tax auditor a reason to audit both.

File all your tax compliance reports on time to avoid penalties, even if you can’t pay the amount owing

Keep organized by

  • developing a method for handling all your paperwork;
  • entering your bookkeeping data in batches; and
  • reviewing your bank statement and financial reports monthly.

Keep track of what you spend

Keep and sort your receipts for purchases. Create some type of system to sort receipts–date and function are two options–so you can find receipts if needed. You may seperate these receipts into accounts to keep track of income and expenses for particular customers or projects. Record these receipts in your ledger–on paper or computer, so you have a running total of your expenses.

We list the major changes below, including income tax changes that have been announced but were not law at the time of printing. If they become law as proposed, they will be effective for 2012 or as of the dates given. For more information about these and other changes, see the areas outlined in this guide.

 

Employees profit‑sharing plan (EPSP) (lines  229 and 418) – You may have to pay a new tax if you are a specified employee and contributions your employer made to an EPSP and allocated to you for the year exceed a threshold. If you are subject to this new tax, you may be eligible for a deduction on line 229. For more information, see Employees profit-sharing plan (EPSP) and Tax on excess employees profit‑sharing plan (EPSP) amounts.

 

Canada Pension Plan (CPP) working beneficiaries contributions – (line 308) – As of January 1, 2012, the rules for contributing to the CPP changed. The changes apply to you if you are an employee or self-employed, you are 60 to 70 years of age, and you are receiving a CPP or Quebec Pension Plan retirement pension. For more information, go to our Changes to the Canada Pension Plan (CPP). To find out how the changes may affect your CPP benefits, go to Service Canada, Changes to the Canada Pension Plan (CPP).

 

Medical expenses (lines 330 and 331) – Prescribed blood coagulation monitors for individuals who require anti-coagulation therapy are now eligible as medical expenses. For more information, see Guide RC4064, Medical and Disability‑Related Information.

 

Investment tax credit (line 412) – Eligibility for the mineral exploration tax credit has been extended to flow-through share agreements entered into before April 1, 2013. For more information, see Investment tax credit.

 

Family caregiver amount – If you have a dependant with an impairment in physical or mental functions, you could be eligible for an additional amount of $2,000 in the calculation of certain non-refundable tax credits. For more information, see Family caregiver amount (FCA).

 

Healthy Homes Renovation Tax Credit

As a senior 65 years or older in Ontario, you could qualify for a tax credit to help with the cost of making your home safer and more accessible.

The Healthy Homes Renovation Tax Credit is a permanent, refundable personal income tax credit for seniors and family members who live with them. If you qualify, you can claim up to $10,000 worth of eligible home improvements on your tax return. The amount of money you get back for these expenses is calculated as 15 per cent of the eligible expenses you claim. For example, if you spend and then claim $10,000 worth of eligible expenses, you could get $1,500 back.

The Healthy Homes Renovation Tax Credit can help with the costs of improving safety and accessibility in your home. Explore the interactive house below for examples of changes you could make.

 

Do I qualify?

To qualify for the credit, you need to be:

  • 65 years old or older by the end of the year for which you are claiming the credit; or
  • living with a family member who is a senior

Your income doesn’t matter — seniors and their family members at all income levels are eligible.

Family members

If you are living with a senior relative in your home, you could qualify for a total tax credit of up to $1,500 every year, regardless of income.

For more information, see Healthy Homes Renovation Tax Credit

Do you qualify to split your pension income?

You (the Pensioner) and your spouse or common-law partner (the Pension Transferee) can elect to split your eligible pension income received in the year if you meet the following conditions:

  • you are married or in a common-law partnership with each other in the year and are not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the tax year and for a period of 90 days or more commencing in the year (see the note below); and
  • you are are both resident in Canada on December 31 of the year; or
  • if deceased in the year, resident in Canada on the date of death; or
  • if bankrupt in the year, resident in Canada on December 31 of the year in which the tax year (pre- or post-bankruptcy) ends.
  • you received pension income in the year that qualifies for the pension income amount.

Note
You and your spouse or common-law partner will still be eligible to split pension income if living apart at the end of the year for medical, educational, or business reasons (rather than a breakdown in the marriage or common-law partnership).

Eligible pension income can only be split between you (the Pensioner) and your spouse or common-law partner (the Pension Transferee).

You are not prevented from splitting your eligible pension income because of the age of your spouse or common-law partner.

What is eligible pension income?

Eligible pension income is generally the total of the following amounts received by the pensioner in the year (these amounts also qualify for the pension income amount):

  • the taxable part of life annuity payments from a superannuation or pension fund or plan; and
  • if they are received as a result of the death of a spouse or common-law partner, or if the pensioner is age 65 or older at the end of the year:
    • annuity and registered retirement income fund (including life income fund) payments; and
    • Registered Retirement Savings Plan annuity payments.

Note
Old Age Security and Canada or Quebec Pension Plan or Saskatchewan Pension Plan payments, as well as amounts received under a retirement compensation arrangement, do not qualify. Generally, variable pension benefits paid from a money purchase provision of a Registered Pension Plan are not considered life annuity payments and do not qualify unless the pensioner is age 65 or older at the end of the year or the variable benefits are received as a result of the death of a spouse or common-law partner.

How do you split your pension income?

You (the Pensioner) and your spouse or common-law partner (the Pension Transferee) must make a joint election on Form T1032, Joint Election to Split Pension Income, and submit it with your and your spouse’s or common-law partner’s income tax returns for the year by your filing due date.

You can allocate up to half (50%) of your eligible pension income to your spouse or common-law partner.

Only one joint election can be made for a tax year. If both you and your spouse or common-law partner have eligible pension income, you will have to decide which one of you will split his or her pension income.

For more information, see Form T1032, Joint Election to Split Pension Income.

Note
If you and your spouse or common-law partner elected to split eligible pension income in 2008, you do not have to use the same percentage in 2009.

How do you report your split-pension income amount?

Pensioner

If you (the Pensioner) and your spouse or common-law partner (the Pension Transferee) have jointly elected to split your eligible pension income by completing Form T1032, Joint Election to Split Pension Income, you (the Pensioner) can deduct on line 210 of your return the elected split-pension amount from line E of Form T1032.

Pension Transferee

If you (the Pension Transferee) and your spouse or common-law partner (the Pensioner) have jointly elected to split your spouse’s or common-law partner’s eligible pension income by completing Form T1032, Joint Election to Split Pension Income, you (the Pension Transferee) must enter on line 116 of your return the elected split-pension amount from line E of Form T1032.

How do you claim the pension income amount?

If you (the Pensioner) and your spouse or common-law partner (the Pension Transferee) elected to split your eligible pension income, follow the instructions at Step 4 on Form T1032, Joint Election to Split Pension Income, to calculate the amount to enter on line 314 of your and your spouse’s or common-law partner’s Schedule 1.

You (the Pensioner) will be able to claim whichever amount is less: $2,000 or the amount of your eligible pension income, after excluding amounts allocated to your spouse or common-law partner (the Pension Transferee).

Your spouse or common-law partner (the Pension Transferee) will be able to claim whichever amount is less: $2,000 or the amount of his or her pension income that is eligible for the pension income amount (based on the calculation for line 314 on the federal worksheet), including the allocated pension income that is eligible for the pension income amount.

Notes
The pension that qualifies for the pension income amount for the pensioner does not necessarily qualify for the pension income amount for the spouse or common-law partner (the Pension Transferee), because eligibility can depend on age.

If your spouse or common-law partner (the Pension Transferee) was under age 65 on December 31 of the year and you (the Pensioner) are age 65 or older and you received any RRIF, RRSP, or other annuity payments (other than amounts received due to the death of his or her former spouse or common-law partner) that you want to allocate to your spouse or common-law partner (the Penion Transferee), see the note in Step 4 of Form T1032, to determine the amount to enter on line 314 of your spouse’s or common-law partner’s Schedule 1.

Protect yourself!

The CRA knows that most taxpayers, given the proper tools and information, will voluntarily meet their tax obligations.

The following contains information that will help taxpayers understand how to protect themselves against tax schemes, and understand the consequences they might face.

For example, some taxpayers don’t realize the financial and personal risks they are exposed to by paying cash for home renovations. And some taxpayers don’t know that participating in certain tax shelter schemes to avoid paying taxes could mean not only a loss of their principal, the repayment of taxes owed, and penalties and interest – it could also lead to fines and imprisonment.

Information is the key! Select a link below to find out more.

If you donate to a gifting tax shelter, expect to be audited

Each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate.

To date, the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme.

For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the “donation” made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant’s participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

Tax shelter identification numbers

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. Just because a tax shelter has an identification number does not mean that donations made to it will result in tax benefits.

Independent professional advice

Anyone thinking of investing in a tax shelter gifting arrangement should get independent legal and tax advice from a tax professional who is not connected to the arrangement or the promoter.

Packages from promoters will often claim to have legal or tax opinions from a law firm. You may find that these opinions contain very general comments and do not provide unconditional support for the scheme. Ask to see the opinions, and have them reviewed by an independent professional.

If the CRA has reassessed you for participating in a tax shelter donation scheme in the past, you may also wish to obtain independent tax advice to determine your best options.

 Current promotions

Some promoters of gifting arrangements are acknowledging that you, the taxpayer, will be audited and reassessed as a result of participating in these arrangements, but they contend that they have a defence fund to challenge a CRA reassessment.

As well, some promoters claim that even if you lose when you challenge the CRA, you can consider your tax refund a low interest loan from the CRA. In fact, any cash paid to the promoter or charity is gone for good and, when the entire donation claim is denied, you will have to repay the full tax refund plus interest. These cases can take years to get to court.

For more information, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l101223-eng.html

Abuse of source deductions and GST/HST amounts held in trust

The Canada Revenue Agency (CRA) is warning businesses about the consequences of failing to report and remit source deductions and goods and services tax/harmonized sales tax (GST/HST) they hold in trust for the Government of Canada.

Trust funds and your obligations

TheIncome Tax Act and the Excise Tax Act require businesses to hold source deductions and GST/HST amounts in trust for the government. Employers are required to remit these source deductions—amounts withheld from employee salaries and wages to pay income tax, Canada Pension Plan/Quebec Pension Plan, and employment insurance premiums—to the federal government by certain dates. Businesses that collect GST/HST must also remit these amounts to the government by specified dates.

Funds held in trust must not be used as an alternate means of cash for a business. The CRA will use its legislated powers of recovery to make sure that amounts considered to be held in trust are paid to the government in full and on time.

There are consequences

Businesses that do not fulfill their obligations or comply with payroll requirements may be assessed penalties or interest or incur other consequences.

Businesses have to file their GST/HST returns and make payments on time. Failure to do so may result in penalties and interest on any returns or amounts the business has not remitted to the government by the filing due date.

TheIncome Tax Act and the Excise Tax Act allow for the recovery of source deductions and GST/HST amounts by:

  • enhanced garnishments to collect amounts considered to be held in trust for the government;

  • assessment of the directors of a corporation for the corporation’s failure to remit either source deductions or GST/HST amounts;

  • seizure and sale of assets of a debtor corporation, an assessed director or a sole proprietor; and

  • any other means of recovery allowed under federal legislation.

Come to us before we come to you

If you have collected source deductions or GST/HST amounts and have not remitted them on time, please contact the CRA as soon as possible to make arrangements to pay the outstanding amounts.

Employers or businesses that have failed to file returns, remit source deductions or GST/HST amounts for current or previous years can voluntarily correct their tax affairs by participating in the Voluntary Disclosures Program. The Voluntary Disclosures Program allows taxpayers to come forward to correct inaccurate or incomplete tax information and disclose information they have not reported to the CRA. Taxpayers will not be penalized or prosecuted if they make valid disclosures before they become aware of any CRA compliance action against them. These taxpayers may only have to pay the taxes owing, plus interest. For more information, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l100521-eng.html

 

Warning: Making false claims could result in serious consequences.

The Canada Revenue Agency (CRA) has uncovered a new scheme involving false claims on personal income tax and benefit returns. Although taxpayers participating in this scheme report their income, they include claims for large business losses from fictitious businesses. These false claims often lead to large refunds. Taxpayers should be aware that making these kinds of false claims is illegal and could result in serious consequences. If you were thinking about participating in such a scheme, don’t be fooled! Chances are you will get caught and it’s not worth the risk.

Serious consequencesTaxpayers who fail to follow tax laws could face serious consequences. The CRA has the authority under the Income Tax Act and the Excise Tax Act to use a number of tools to address non-compliance. When taxpayers are convicted of tax evasion or tax fraud, they have to repay the full amount of taxes owing and any amounts fraudulently obtained, plus interest, as well as any civil penalties that may be assessed by the CRA. If they are convicted, the courts may fine them up to 200% of the federal tax evaded or false refunds claimed, and sentence them to a jail term of up to two years.

 The CRA publicizes court convictions to maintain confidence in the integrity of the self-assessment tax system and to deter non-compliance with the law. More information on these convictions is available on the CRA Web site at www.cra.gc.ca/convictions.

 

Come to us before we go to you

The CRA is always on the lookout for tax schemes. Have you reported illegitimate business losses? If so, you may want to come forward and correct your tax affairs through the CRA’s Voluntary Disclosures Program (VDP). If you make a valid disclosure before you become aware of any compliance action being initiated by the CRA, you may only have to pay the taxes owing plus interest, and you will not have to pay penalties or face prosecution in the courts. More information on the VDP is available at www.cra.gc.ca/voluntarydisclosures.

Remember, if it sounds too good to be true, it probably is.

For more info, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l100519-eng.html