When running your business is important knowing the expenses you can claim not just to reduce any amount of tax to pay but also to be able to manage your business properly, making decisions on which expenses to reduce to save money. The main goal of having your own business is paying yourself and be able to pay the business expenses with the business revenues.

All the expenses that you incurred to run your business you are eligible to claim them: office expenses, supplies, salaries, bank charges, insurance, utilities, vehicle expenses, etc. Always providing copies of the receipts and proving that the expense is actually related to your business. If you are in the food business buying supplies like sugar and oil are totally fine, not the same with a software business that the amount of sugar is just related to supplies to giving coffee or tea to your clients when visiting your office. All expenses need to be justified and supported by the nature of the business and the proper supporting documents.

At CRA website you can find a long list of expenses you are able to claim: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html, just be careful with which ones are actually necessary. Remember that the goal is not pay for all the expenses in the list but expend the necessary amount of money to run your business and still be able to pay yourself. I once met with a client that bought anything she can find for her business, her justification “it is eligible, it’s a business expense”. When I asker if she can actually afford all that expenses she was surprised that she could only pay “in cash” for just part of the expenses and the other part she didn’t actually need it. Her business now is running better, she is able to pay herself, have a profit to invest and find the cutest toy for her daycare business.

If you have a web design business you need top of the notch software, but if your business is a daycare you can do it, for starters, with a free version of FreshBooks. Sometimes is not the expense per ser, the main point is if we need it or if we can afford it. We totally understand we need to invest to sale, but are you aware of smarter ways of running your business?

• You can use free software - even accounting software - that help you be organized and run your business. Once you grow enough and are able to pay you can upgrade.
• Even if they are not free you can use technology on your favor: online payment services, teleconference services. Buy the software you really need.
• Don’t buy what you don’t need, even if is on sale.
• Plan, use budgets to track your expenses. If is not in your budget don’t buy it.
• Go paperless, print only what is necessary
• Reduce your credit card debt, reduce your interest payments.
• Instead of renting an office, be creative. Use co-working spaces (if appropriate for your business model) or work from home.

When buying supplies or incurring in expenses for your business you must also consider the source of money. How are you paying for that? Are you incurring in more debt? Are you able to recover that amount with your sales? This is a topic for next blog.

In summary, we can always plan for ways to afford the business expenses and run a profitable business which can support our life style. 

Photo by Ryan Born on Unsplash

After our blog about the importance of keeping records we’ve been contacted this week by 2 business owners with doubts regarding record keeping. What documents are important? What business records we must keep and for how long to comply with Canada Revenue Agency’s requirements?

First, we need to define what a Record is for a business. We can identify a Record as a document containing accounting or financial information that must be kept in an organized way. Usually they are called “books and records”. Records can include: ledgers, journals, vouchers, financial statements and accounts, and income tax and excise tax records. They help you determine your tax duties. Records are generally validated by Supporting Documents, which provide evidence of the transactions.

As per CRA website, Supporting Documents include (not limited to):

• sales invoices;
• purchase receipts, contracts;
• guarantees;
• bank deposit slips, cancelled cheques;
• cash register slips, credit card receipts;
• purchase orders;
• work orders;
• delivery slips; emails; and
• general correspondence in support of the transaction.

There are various methods of record keeping: paper files, electronically accessible and readable format converted from the original paper (scanned), or electronic documents produced by software. The main objective here is that the document must be readable, reliable and complete. The Supporting Document must provide you with the correct information to backup any tax claim.

You as an entrepreneur are solely responsible for the record keeping and maintenance of all documents, even when you hire a third party to do your filing, admin, bookkeeping and/or accounting work. Keep in mind that you are also responsible to provide those records to CRA at any moment. That is why is important to keep an efficient system where you can find any document at any given moment.

How long do you have to keep your records? Usually, for income tax purposes you need to keep all records and supporting documents for a period of six years from the end of the last tax year to which they relate. It’s important to indicate that the documents that support long-term acquisitions and disposal of capital, share registers, and other documents that will have impact upon sale or liquidation of property must be kept indefinitely. Similar rules apply to GST/HST documents, CPP, EI, ROE.

There are also special situations, some of them are: of you file your taxes late, you need to keep your documents six year from the date you file the return. You must also keep all documents concerning notice of objection and appeals.

All the business records and supporting documents must be maintain in Canada, or made available in Canada at CRA request, always in any of the 2 official languages. The documents can be kept outside of Canada only with a previous authorization from CRA.

Keeping proper records is both an obligation and a useful tool for all business owners. When you maintain archives that support every claim you made you make your business transparent and avoid unnecessary penalties due to loss of supporting documents. Records also helps you identify all sources of income and make better business decisions.
​
If you still need help or have any question just let us know, we are here to help you and support your business.

Photo by chuttersnap on Unsplash