Owning one’s own business is the culmination of a dream for many people. But, once started, an enterprise demands dedication and attention to details.
Entrepreneurs who familiarize themselves with accounting and SME taxation can often rapidly pull themselves out of debt.
Here are five rules to apply to be successful and stay in the good graces of the Canada Revenue Agency and Revenu Quebec.
Recognize the importance of the cash flow
The importance of the cash flow cannot be overstated. The cash flow is whatever amount of money you put aside to cover your corporation’s current expenses (rent, invoices, etc.). Newcomers to SME taxation are sometimes oblivious to the many statutory deadlines for returns and/or tax remittances.
In order to not get caught sleeping on the job, the shrewd entrepreneur uses the cash flow to pay up for any contingency and/or taxes. Caught off guard, an enterprise without sufficient cash flow – when for instance a client delays paying – may fail. The wise therefore will set aside a monthly amount sufficient to face up any headwinds and pay current expenses and/or taxes.
Do not throw away your invoices
Make sure you take advantage of all permissible corporate taxation deductions. Many corporate expenses give rise to tax allowances whenever the following conditions are met:
• The expenses are related to your professional activities.
• You kept hold of your invoices.
• The amounts claimed are reasonable.
• The expenses claimed are not personal.
Deductions may be claimed on many grounds: interest for loans, yearly permits, bank fees, office expenses, supplies, employee allowances, websites, etc. This also applies for public relations expenses necessary to keep your clientele, such as meals in restaurants, or tickets for shows, etc. You should therefore use tax credits in order to play SME taxation in your favor.
Amortize your expenses
Amortizing your expenses will allow you to claim for the depreciation over many years of the value of a good, and thereby increase your yearly expenses without increasing your cash flow. Although it is mostly seen in the light of accounting, amortizing also exists for income tax purposes. It is then called capital cost allowance (CCA).
The goods eligible for amortization through a CCA are tangible assets, i.e. your production equipment like machines, tools, computers and electronic devices, motor vehicles, and buildings.
For amortization matters, it is highly recommended to consult with a tax accountant, to avoid any reporting error.
A tool for SMEs: the business reminder mobile app
Although sometimes viewed as a necessary encumbrance slowing down productivity, governmental taxation agencies provide taxpayers with a trove of reliable information directly concerning SME taxation.
CRA has been for some time offering a Business Reminder mobile app, working on iOS, Android, and Blackberry, that could help you to never again miss your taxation deadlines, and to properly establish your SME taxation calendar. Don’t count yourself among the many late taxpayers who end up having to pay heavy penalties.
Registering on business registries
If you are a small supplier, you may want to consider registering on the mandatory business registries soon after making your first taxable sales. Do not wait until you cease to be considered a small supplier (which you will when you do more than 30,000$ for a quarter on taxable products and services) to register on the Revenu Québec GST and TVQ registry.
Finally, to stay on top of things in SME taxation matters, do not hesitate to enlist a tax accountant to help you solve any bothersome questions. A few meetings may be enough to give you a clear view of your situation, and provide you with the insights needed to take charge of your taxation requirements.
For entrepreneurs wishing to brush up on accounting and taxation, T2inc. offers classes focusing on Quebec SME accounting and taxation.