Making the Most of Your Savings & Minimize Your Taxes - Part 2 - TFSA's

As the 2010 tax season approaches, this is a good time to review your personal tax situation in the ‘age of austerity’ in the wake of the ‘great recession’.

One recent addition to the tax savings toolbox as of 2009 is the Tax Free Savings Account.  You will find below some key points of interest as well as additional sources of information to allow you to understand how you can take full advantage of this new tax free investment and savings tool.

What are Tax Free Savings Accounts (TFSA's)?

 A TFSA is a registered saving account that allows taxpayers to earn investment income tax free inside an account.  Unlike a Registered Retirement Savings Account (RRSP), the contributions are not deductible for tax purposes; also the withdrawals from a TFSA are not taxable.

Anyone who is resident in Canada and is 18 years of age or older is eligible to contribute to a TFSA through an account at a bank, insurance company or credit union or trust company – the same institutions that manage RRSP accounts.  To open an account, you would be required to provide a Social Insurance Number (SIN).

TFSA’s were introduced in 2009 and limit contributions to $5,000 in a calendar year.  If no contributions have been made since 2009, you would be able to contribute up to $15,000 to your TFSA.

**It is important to know how much you have contributed and withdrawn in a particular year.  Any over-contributions (over and above the annual limit of $5,000) will be subject to a penalty of interest at a rate of 1% per month that the amounts remain in the TFSA.

Recent Announcements by CRA Regarding TFSA’s [1]
In October 2009, Jim Flaherty, the Minister of Finance announced proposed amendments the Income Tax Act to strengthen the rules around TFSA’s.  These include applying strict rules on the impact of over-contributions and asset transfers between accounts.

Over contributions or contributions of non-qualifying investments and subsequent withdrawals from TFSA’s do not create additional contribution room to the TFSA account.  Also any income earned in the TFSA and that is attributable to non-qualifying or prohibited investments will be taxed at regular income tax rates (eliminating the tax-free status).

How TFSA’s May Be of Benefit to You

Depending on your personal financial situation and financial goals, you may benefit from contributing to both the RRSP and the TFSA accounts.

If you have contributed the maximum amounts annually to your RRSP (currently 18% of annual earned income up to $22,000 per year FOR 2010), then the TFSA presents an additional opportunity to contribute to your savings and earn tax free investment income.

Any contributions you make to your RRSP account are taxed at your marginal tax rate when they are withdrawn.  If you have a short term need for funds from your TFSA, you can withdraw funds tax-free.

You can also loan funds to your spouse to contribute to his or her TFSA, effectively splitting income between spouses.

For more information on Tax Free Savings Accounts, refer to the Canada Revenue Agency website (http://www.cra-arc.gc.ca/tx/rgstrd/tfsa-celi/menu-eng.html), or consult with your local bank or financial planning professional.

Consult with your accountant or financial planning professional before making any changes to your RRSP or TFSA accounts to avoid any contribution or withdrawal penalties.

Stay tuned for more articles for personal and corporate taxpayers and small business owners!

Have comments relating to this article? Add your comments below!

Thanks,
Regards,
Stephen Beech MBA, CMA
http://www.smallbizprosmississauga.ca/

[1] Government of Canada Proposes Technical Changes Concerning Tax-Free Savings Accounts, October 16, 2009, http://www.fin.gc.ca/n08/09-099-eng.asp

Making the Most of Your Savings and Minimize Your Taxes – RRSP’s, LLP’s and HBP’s

We all work hard to make money and if we plan to save for retirement, we should also plan to ensure that we don’t pay more taxes than necessary.  The following tools and tips will help plan for specific goals and minimize the taxes you pay.

Registered Retirement Savings Plans (RRSP’s) – a primer

RRSP’s are the cornerstone of your retirement savings plan.  Taxpayers can contribute up to 18%* of their earned income, or $22,000 to a registered retirement savings plan established at a bank or other financial institution, which will earn income in the form of interest, dividends or capital gains, tax-free until the age of retirement or the age of 71, whichever comes first.  Also, contributions to the RRSP can be deducted from taxable income in the year of contribution.  If income is earned in any particular year, but no RRSP contribution is made, the ‘contribution room’ for that year carries forward to allow for larger contributions in later years to ‘catch up’ with your contributions.

At retirement (or age 71), the RRSP funds can be fully withdrawn, or converted to a Registered Retirement Income Fund or annuity from which income is provided for retirement.   

What is important to know is that the Canada Revenue Agency allows a certain amount of flexibility to access the funds prior to retirement (with certain conditions).  For example, funds may be withdrawn to support post-secondary education under the Lifelong Learning Plan (LLP)**, or the purchase of a first home under the first-time Home Buyer's Plan***.

Further, CRA will allow for planning to reduce family taxes by allowing the higher income earning spouse to contribute to the RRSP of the lower income earning spouse.  When withdrawn, the contributed funds will be recorded as income at the marginal tax rate of the lower income-earning spouse, effectively reducing the family tax burden.

Key Dates

A taxpayer can continue to make contributions their RRSP plan up to March 1^st of a calendar year against their contribution limit for the prior calendar year. 

In the year the taxpayer turns 71, contributions can be made up to December 31^st.

For RRSP withdrawals for the Homebuyer’s plan, the qualifying home must be built by October 1^st of the following year of the withdrawal.

For the Lifelong Learning Plan, you must have received a written offer to enroll before March of the year after you withdraw funds from your RRSP’s.

It is recommended that you consult with a financial planning and tax professional when planning for your retirement or before making withdrawals from your RRSP.  An appropriate retirement plan will be prepared based on your specific personal circumstances.

Stay tuned for more articles for taxpayers and small business owners to minimize their taxes

Like this article?  Provide your comments or questions below!

Thanks,

Regards,

Stephen Beech, MBA CMA

www.smallbizprosmississauga.ca

*The contribution limit for 2010 is 18% of net income or a maximum of $22,000.  Refer to the CRA website for the current contribution limits

http://www.cra-arc.gc.ca/E/pub/tg/t4040/t4040-e.html

**RRSP funds may be withdrawn under the Lifelong Learning Plan (LLP) and are subject to certain conditions.  Consult the CRA website or your tax or financial planning professional for more information:

http://www.cra-arc.gc.ca/E/pub/tg/rc4112/README.html

***Under the Home Buyer’s Plan (HBP) is open to Canadian Residents with an RRSP looking to finance their first home (principle residence).

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

© Stephen Beech 2010

Preparing for the 2010 Tax Season? These tips will help!

Now that 2010 is over and we begin to think about personal tax preparation (T4’s, RRSP’s etc.) this is also a good time to think about preparing your taxes for your small business.  If your company has a December 31^st year end, and you owe income tax for 2010, these taxes are due on April 30, 2011.

For small business corporations, partnerships or proprietorships, the following items should be considered when calculating your income for tax purposes and the tax return.                        

In determining net income for tax purposes, ensure that only appropriate and documented expenses incurred in the operation of the business are deducted, some examples include:

Accounting	Advertising
Amortization of capital assets	Bad debts
Business related memberships and subscriptions	Business related start-up costs
Business taxes, fees and dues	Certain group benefits
Collection costs (related to bad debts)	Convention expenses (up to two per year)
Consulting costs	Delivery and freight
Equipment rental	Insurance (fire, theft, liability)
Interest and bank charges	Legal costs
Utilities (light, heat, water)	Maintenance and repairs
management and administration fees	Meals & entertainment expenses
Motor vehicle expenses (fuel, insurance, repairs)	Home office expenses(including postage, stationary, telephone, other supplies)
Property taxes or rent on business property	Purchases of materials and supplies
Salaries	Specific courses to improve business skills
Subcontracting costs	Travel expenses
Workspace in the home (with certain limitations)

Notes on Amortization - Planning Your Software and Hardware Purchases

The 2009 Federal budget proposed a new asset class for general office computing equipment and software that can be expensed 100% if purchased between January 29, 2009, and January 31, 2011 inclusive.  Furthermore, where normally in the year of acquisition only 50% of the maximum annual deduction would apply, it does not apply to these purchases – 100% can be expensed in one reporting year.

Also, additional expenses of a capital nature, but not included in any other asset class may also be deducted.  These include portions of expenses incurred to obtain franchises, copyrights, trademarks, incorporation costs and goodwill.

Tips for Audit Proofing your Tax Return

The Canada Revenue Agency may challenge the expenses claimed if they are deemed to be unreasonable, or there is no or poor record keeping related the expenses claimed.  This is especially true for vehicles used for both personal and business purposes.  CRA encourages taxpayers in this situation to maintain a log of daily mileage travelled, and the associated business purpose for at least one year.  If the mileage is considered typical for the business, the percentage use of the vehicle for business may be used for future claims as a reasonable business expense.  The log may be required after several years to confirm the mileage travelled and percentage of use for business purposes.

It is recommended that you contact a tax accountant with any questions you may have regarding your tax planning or corporate tax return preparation.  More guides and resources from the Canada Revenue Agency are provided below for your reference.

If you have any comments or questions regarding this article, please fill in the text box below

Stay tuned for more articles for small business owners!

Regards,

Stephen Beech MBA, CMA

www.smallbizprosmississauga.ca

Online Resources and References:

CRA Interpretation Bulletin it IT-521R - Motor Vechicle use by Self-Employed Individuals:

http://www.cra-arc.gc.ca/E/pub/tp/it521r/README.html

Online resources from CRA - Review of your tax return by CRA:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rvws/menu-eng.html

Like this article?  Have additional commentary?  Write a comment on this article below

© Stephen Beech 2011

What Is The Best Corporate Structure for My Business? Find Out Here!

For those starting out with a new business or self-employment now is a good time to consider the best legal structure for your business.  Having an appropriate corporate structure for your business will allow the owner to take full advantage of tax planning opportunities, manage operating risk and facilitate decision-making at future points in the life of the business.

For small or family-owned businesses there are most often two choices to make – to operate as a proprietorship or a corporation.  Partnerships are another type of corporate structure, but are beyond the scope of this article.  Which type of corporate structure to select will depend on the objectives and goals of the business which generally include a number of factors: operating risk, tax planning considerations, financing needs, and factors affecting business transitions, each of which will be discussed below.

Business Objectives

 Having an understanding of not only the nature of the business today, but also that of tomorrow will allow you to select the appropriate structure that will allow for timely decision making and reduce legal and other related costs along the way.  Will this be a full-time or part-time business venture? How will the business receive financing?  Who will manage the business?  Will the business engage is contracts with external parties or the public for products or services?  Will the business operate with parties outside of the province or country?  The answers to these questions and more will determine an appropriate structure for your business.

The selection of a business structure is highly dependent on the nature of a particular business, its owner and family situation.  Generally speaking, where an owner can answer ‘yes’ to one or more of the questions below regarding the operation of the business, then a corporation structure would be appropriate:

-          Will the business operate outside of the home?

-          Will more than one individual be actively managing the business?

-          Will financing be obtained from a bank or other third party?

-          Will the company enter into contracts for goods or services with other companies?

-          Will the company delivering goods or services to the general public?

Tax Planning Considerations

 Operating a business as a corporation provides some tax planning opportunities not available with a sole proprietorship.  Tax advantages may be achieved with a corporation structure when family members are employed or are shareholders in the corporation.  With a sole proprietor, net income is reported as personal income and taxed at the individual’s marginal tax rate with less opportunity to share this income across the family (unless family members were employed and paid fair wages).  In a corporation, income from the corporation may be distributed as wages (when family members are employed), or as dividends (when family members are shareholders), or retained in the corporation to finance operations and distributed at a later date.  Wages and dividends may be allocated accordingly to minimize the collective family taxes for shareholders who are active in the corporation.

Tax planning considerations should also include eventual business transitions – succession planning or the sale of the business.  In a sole proprietor arrangement, selling the business may take the form of selling of assets and goodwill, again taxed in the hands of the owner, at a higher rate of tax than may be obtained if sold as shares of a small business corporation.

A further consideration may be the maintenance time and costs of the selected corporate structure.  A corporation is required to file an annual tax return (often prepared by an accountant) and maintain a corporate minute book containing records of shareholders, directors, and resolutions approving the distribution of dividends (often maintained by a lawyer).  A sole proprietor does not need to report separately to tax authorities and need only retain records related to the daily operation of the business to meet normal tax reporting requirements.   Relative to the other considerations, this one is less critical, however is important for financial budgeting and planning purposes.

Before deciding on or changing entities, a thorough review of the options and a consultation with both an accounting and legal professional are recommended.

Additional resources & Links:

1.       Business Start-up Assistant (**Good source of information for those starting out**)

http://www.canadabusiness.ca/eng/

2.       Canada Revenue Agency (CRA) Information for New Businesses:

http://www.cra-arc.gc.ca/tx/bsnss/sm/menu-eng.html

3.       Canada Revenue Agency guides to setting up your business:

http://www.cra-arc.gc.ca/tx/bsnss/sm/sttng/menu-eng.html

Stay tuned for more articles for small business owners!

Regards,

Stephen Beech MBA, CMA

www.smallbizprosmississauga.ca

Like this article?  Have additional commentary?  Write a comment on this article below

© Stephen Beech 2010

Developing SMART Goals for Personal and Business Success 2011

Goal Setting Tips for 2011

As a new year begins, it is a new opportunity to set goals and objectives and plan for results in 2011.  Below you will find my goal setting tips to help you realize your results and avoid wasting your valuable time and money!

As a first step in your goal setting process, start with the end in mind – defining the end state you seek

  

     What outcomes or goals do you want to achieve? By starting at the end and working back to your current state, you will be able to visualize the milestones, processes and actions that will need to be put in place to achieve your goals.

The goal setting process can be defined using SMART goals – in order to avoid disappointment and wasted valuable time and effort, ensure that you define a Specific, Measurable, Achievable, Realistic and Time-based (SMART) goal. 

Specific – reduce the tasks and goals to specific items that can be seen, felt or measured.  Some examples goal could be increase new clients by 5% this calendar year, or increase net new sales 3% in fiscal 2011.

Measurable – how will you know if you are on-track and how will you know if you have succeeded?

Metrics that can highlight hat you are making progress or to indicate that adjustments to the plan may be required to ‘right the ship’ on course toward the overall goal or objective.  Some examples may be to endeavour to make 20 prospecting calls per week, and to track against this goal.  Then, of the prospects contacted, how many appointments or follow up contacts were made?   Then of these follow-up contacts, how many lead to a close or sale?  Having these results to review will allow you to identify successes and failures in the process and any areas for adjustment along the way.

Achievable and Realistic– is the goal achievable in the stated timeframe provided? Given the current uncertainty in the economy, are the goals realistic?  Goals should stretch just beyond what would normally be expected to provide some incentive or motivation to strive, however goals that stretch too far will be discouraging when results appear to be beyond reach.

Time-based – Goals should be created and plotted against calendar milestones, weekly and daily tasks to provide you with some manageable tasks on a daily basis to keep you on track toward your goals for 2011.  Once the tasks have been defined, you can use calendar tools such as a PDA, or Microsoft Outlook to create repeating tasks, milestone tasks and daily tasks to keep you organized, motivated and focused on the tasks to be accomplished.

Note that smaller more specific goals in a shorter timeframe are more easily managed than larger, multi-year objectives where progress and results along the way may be harder to measure and may reduce momentum, motivation and ultimately miss the desired results.

Following these steps will certainly put on the path to success in 2011!

References:
SMART Goals – detailed guidance notes and tips for effective SMART goals:
http://www.smart-goals.org/

Download a free SMART Goal setting worksheet – tailor this to your particular situation.
http://www.executive-and-life-coaching.com/support-files/smartgoalsettingworksheet.pdf

Stay tuned for more Small Business Tips for 2011!

Regards,

Stephen Beech MBA, CMA

Padgett Business Services

(905)949-4388 ext. 24

http://www.smallbizprosmississauga.ca/

 (c) Stephen Beech 2010

Planning for Small Business Success in 2011 ? Develop Business Mentoring Relationships

Are you preparing for success in 2011?  One way to achieve this for a small business is through developing and leveraging Business Mentoring relationships.

If you don't know exactly what a Business Mentoring relationship is, where to find one, and what to look for in such a relationship, following the Business Mentoring link for more information and related links on the same landing page.

Your local chamber of commerce or board of trade may also have mentoring or small business advisory boards, forums or panels with whom you can discuss your goals and challenges and to obtain business advice.

One important note is that you should expect to receive all the expertise you require from a single individual.  You should first decide what your needs are, for example, marketing, sales, operations, information technology, prioritize which one(s) would have the greatest impact on your top line (sales) and bottom line (profits), and seek out a mentor with these areas of expertise.

See these additional resources for more information about developing and nuturing Business Mentoring Relationships:

1. The Worst Mistakes You Can Make When Choosing A Mentoring Coach

http://www.articlesbase.com/internet-articles/the-worst-mistakes-you-can-make-when-choosing-a-mentoring-coach-2476518.html

 

2. Working with a Business Mentor - How to create a mutually rewarding relationship

http://entrepreneurs.about.com/od/businessmentoring/a/businessmentor.htm

 

Wishing you Happy Holidays and Business Success in 2011!
Regards,
Stephen Beech, MBA, CMA

(905)949-4388 ext. 24http://www.smallbizprosmississauga.ca/
http://www.paytrak.ca/

 (c) Stephen Beech 2010

Business Building Through Business Networking - Overcoming Shyness

As we enter the Holiday Season, I along with many small business owners have the opportunity to attend holiday gatherings of a personal or business nature.  These are perfect opportunities to make business connections and business prospects, that is if you are comfortable talking about your business.

The 5 tips provided below I refer to new business owners to overcome shyness and help capitalize on networking opportunities. 

Good luck and Happy Holidays!

Stephen Beech MBA, CMA

www.smallbizprosmississagua.ca

www.paytrak.ca

Get Over Your Networking Shyness

You can't get the word out on your business unless you're talking it up. Overcome your

marketing hesitance with these 5 tips.

By Sean M. Lyden

Q: I keep hearing that networking is a good way to drum up new business for my home based business support firm, but I hate doing it. I'm shy and I get embarrassed when I'm trying to talk about my company, like I'm forcing myself on the person I'm talking to.  How can I get over this?

A: Your success as an entrepreneur hinges on how well you communicate with people.  Therefore, it's a good thing that you're trying to address this issue right now before shyness can jeopardize your venture. Use these five tips to break the power of shyness and take your business to the next level:

 1. Set clear goals. What do you want to accomplish in your business? What income level do you want to achieve? Think in tangible terms: What would your life look like if you accomplished your goals? Where would you travel? What kind of home would you own? What kind of car would you drive? Then consider the alternative: What might happen if you allow shyness to stop you from pursuing your dreams? What would it cost you in terms of potential income and life fulfillment? By simply taking the time to define your goals and write them down, you intensify your desire to overcome your shyness.

2. Turn your focus away from yourself. When you're at a networking event, instead of feeling embarrassed about "forcing yourself" onto the other person, simply switch the focus of the conversation to that person. Ask questions like:

•  Are you a member?
• How have you benefited from your membership?
• Do you attend regularly?
• Are you on any committees?
• What business are you in?
• How did you get into your business (or career path)?

The irony is that when you allow people to talk about themselves, they will be more likely to enjoy the conversation with you—and naturally view your business in a positive light. In other words, you're indirectly promoting your business without having to force yourself on that person.

Also, after you've met someone new, take it upon yourself to introduce that person to others. This gives you a job to do and the activity takes your mind off your fear.

3. Practice, practice, practice. A key step to overcoming shyness is preparation and practice. Write down in advance the questions you think will stimulate and sustain conversations. Then practice in an environment where you won't feel intimidated. Try role-playing with someone you feel comfortable with, perhaps a spouse, friend, coach or even a sales trainer. This way, even when you feel insecure, you're equipped to push through the fear because you have a clear idea of what you want to say and how you're going to say it.

4. Learn from your mistakes—don't fear them. Often shyness comes from a fear of making a fool of yourself. Diminish that fear by focusing on what you can learn from networking situations, whether good or bad. Perhaps you notice particular phrases you use that generate positive responses. Write these phrases down and use them. On the other hand, when a phrase or action gets no response or a negative response, take notice and avoid it in the future. When you take time to assess your approach, you'll position yourself to be more successful with your interactions with people.

5. Reward yourself when you've done well. If you make it to a networking event and speak with, say, five or six new people and stay as long as you planned, give yourself a reward. Perhaps it's a new book, a dinner out—whatever motivates you. Withhold the reward if you don't meet your goal.

The bottom line? The more you network, the more proficient and confident you'll become at it. In addition, the more your confidence grows the less power your shyness will have over you.

Sean Lyden is the CEO of Prestige Positioning (a service of The Professional Writing Firm Inc.), an Atlanta-based firm that

"positions" clients as leading experts in their field—through ghost-written articles and books for publication. Clients include Morgan

Stanley, IFG Securities, SunTrust Service Corp. and several professional advisory and management consulting firms nationwide.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to

specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

Copyright © 2002 Entrepreneur.com, Inc. All rights reserved.