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Types of business:1.Sole Proprietorship2.Corporation3.Partnership

Accounting Methods:1.Cash Method2.Accrual Method

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Accrual Versus Cash AccountingIn accrual accounting, income is reported in

the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are paid or not.

In cash accounting, revenues are recorded when cash is actually received and expenses are recorded when they are actually paid.

Accrual accounting is the method of accounting most businesses and professionals are required to use by law.

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Bookkeeping

Electronic Records:■ Microsoft Excel.■ Small business accounting applications:

QuickBooksSage 50 AccountingMany more…

Paper and electronic records– six years after the end of current fiscal year end.

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Income Tax Compliance Sole proprietorship:1.Income tax payable due April 30 2.File income tax return by June 15

Corporation:1.Income tax payable due 60 days after fiscal

year end (90 days for CCPC). 2.File income tax return up to 180 days after

fiscal year end.

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Incorporated / Not IncorporatedBenefits of Incorporating

Benefits of not Incorporating

Limited LiabilitySmall Business Deduction

rate of approximately 15.5% on the 1st $500K on net income (compared to 46% individually)

Defer taxes Income Splitting

(reasonability test / not for dividends)

Unlimited number of ownersTax Advantage of Capital

Gains ExemptionEasier to obtain financing

Losses can be deducted against other sources of personal income to reduce your tax liability

Do not have to account for all the bank activity

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Employee versus Self-employedIndividuals prefer to be self-employed for the

following reasons:No withholding of taxesEasier to claim “business” expenses

Under the Act, the “incorporated employee” is said to be operating a “personal services business” (PSB). Income from a PSB is not eligible for the low small business tax rate and the corporation is restricted in the types of expenses it can write off for tax purposes; it’s limited only to the expenses an employee can deduct.

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Employee versus Self-employedTests to consider when determining whether

an individual is an employee or self-employed:Control – Consider the degree of control held

by the payer or the degree of autonomy held by the worker.

Tools and Equipment – Who owns the tools and equipment?

Financial risk – Are there any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed?

Opportunity for a profit – Can the worker realize a profit or incur a loss.

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Other Relevant Topics / References• Goods and services tax/harmonized sales tax

(GST/HST)http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html

• Payrollhttp://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/menu-eng.html

• Workplace Safety and Insurance Board (WSIB)http://www.wsib.on.ca/en/community/WSIB

• Canada Revenue Agency – Businesshttp://www.cra-arc.gc.ca/tx/bsnss/menu-eng.html

• Ontario – Ministry of Economic Development and Innovation

http://www.ontariocanada.com/ontcan/1medt/smallbiz/en/sb_home_en.jsp

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Other Relevant Topics / References• RC4070 Guide for Canadian Small Businesseshttp://www.cra-arc.gc.ca/E/pub/tg/rc4070/rc4070-e.html

• RC4409 Keeping Recordshttp://www.cra-arc.gc.ca/E/pub/tg/rc4409/rc4409-e.html

• RC4110 Employee or Self-Employedhttp://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html

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