Benefits and Disadvantages of a Joint Spousal and Alter Ego Trust

Note: This blog post is information that is directed towards those individuals who have assets in BC and Ontario, but may be of interest to others as well.

If you are over 65 years of age, an Alter Ego Trust or a Joint Spousal Trust can be used to assist with your Estate Tax Plans and to help minimize the taxes due on your death as well as assisting in avoiding Probate Fees. Probate fees in BC are 1.4% of the Fair Market Value of the assets in a person’s estate. But like anything, there are advantages and disadvantages of creating one of these trusts.


These trusts can save your estate money when you die.

Asset Held Personally

Assets held in a Trust

Total cash savings when assets are in the trust is $35,000.

Ideally, we feel that this is a good option if your principal residence is worth more than $2.5 Million dollars. The savings on probate fees will outweigh the administration costs of maintaining the trust year to year.

There are other assets that could also be put into these trusts, but we would need to review this on an asset by asset basis.

These trusts will also allow you to live as you normally would. You can stay in your home and you still receive income from the assets that are placed in these trusts.

Some additional non-financial reasons why you might consider using a joint spousal trust or an alter ego trust in your estate planning is for privacy or in the instances of blended families. Assets in these trusts are not subject to public probate records nor can they be contested by beneficiaries. These trusts are also useful where there are adult children and the parent remarries and wants to ensure the new spouse can enjoy use of the family home and other assets until the spouse’s passing, after the spouses’ passing the assets can be distributed to children.


The biggest disadvantage of creating these trusts are the tax rates that these trusts pay on the undistributed income earned during a tax year. Trust income is taxed at the highest marginal tax rate for individuals, based on where the trust is located. In Alberta the top marginal tax rate is 48.%; in BC, it is 53.50%; and in Ontario, it is 53.53%.

The trusts can usually avoid paying tax at these rates by distributing their income out to the beneficiaries of the trust during the year.

An additional disadvantage is the cost to maintain the trust every year, by filing additional tax returns and paying any trustee or other administration fees. The trust is effectively a separate legal entity that must be maintained separate from your personal affairs.

The last disadvantage that we wanted to mention in this blog, is the differences that occurs when you die and your assets have been held personally, compared to when you die and your assets are held in a Trust.

When you die with a regular will, there is a deemed disposition of all your financial assets at their fair market values on that date. The gains and losses on these assets are realized on your final personal tax return and are automatically acquired by your Estate at those fair market values. The Estate is then administered by your executor/executrix as outlined in your will. From a tax perspective, your Estate is eligible to be treated as a Graduated Rate Estate and is taxed as an individual would be however, without the benefit of any personal tax credits. This means that the estate would be taxed on the same graduated tax rate schedule as an individual. This only lasts for 3 years and after the first 36 months, the tax rate defaults to the highest marginal rates.

Conversely, if you die and your assets are in a Joint Spousal Trust or an Alter Ego Trust, the assets in these Trusts are not eligible for these same graduated rates. Upon death, the assets in the Joint Spousal Trust or Alter Ego Trust will be taxed at the highest marginal tax rate; the assets will then be distributed from this Trust in accordance with the instructions in the trust indenture. The Joint Spousal Trust and Alter Ego Trust assets are held separate from the estate so the Trust assets will bypass any application of the last will and testament of these assets. It is therefore very important that the Trust Indenture and the Last Will and Testament be updated at the same time to ensure there is no conflict between these two very important legal documents.

This is a very simplified summary of some of the advantages and disadvantages that a Trust can provide to taxpayers and our belief is that, while there are some disadvantages to having a Joint Spousal Trust or an Alter Ego Trust, the cash tax savings should not be ignored. And many of the potential disadvantages just need to be analyzed to ensure that the cash tax savings still exists. If this is something that is of interest to you, please feel free to reach out to us to discuss further.

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Ch-Ch-Ch-Changes: Short Term Rentals, Bare Trusts and the Underused Housing Tax

Well, we’ve just received the Fall Economic Statement from our Government. In there, were a bunch of tidbits. And one change that was found on the CRA website that could be helpful to some taxpayers.

Short-Term Rentals

There is one in particular that I think was highly unfortunate to see. Mortgage interest is no longer an eligible expense if you use your home for short-term rentals.

Part of the 2023 Fall Economic Statement addressed the housing crisis that many Canadians are seeing with a lack of affordable housing. To combat this, the government is cracking down on short term rentals. Where short term rentals are prohibited, or where licensing/permits/registration requirements are required but where the taxpayer has not obtained appropriate licensing, the federal government intends to deny tax deductions incurred to earn short term rental income. This change is proposed for periods from Jan 1, 2024 onwards. As an example, if you own a short term rental and previously collected $100,000 of rental income, and had mortgage interest of $80,000, only $20,000 may be taxable. In 2024, if the short term rental falls subject to these rules, the entire $100,000 collected would be taxable. This could result in significant tax liability for the taxpayer.

Bare Trusts

I know that we discussed this in a previous blog post (see “You May now have a Trust Reporting Requirement Under the New Trust Reporting Rules”), but this is one of the areas that is causing a lot of concern for us at Affirm LLP.

A Bare Trusts is an entity or individual that holds title to something for the beneficial use of someone else. They are not considered to be “regular” trusts and do not have to have a formalized trust agreement. Nor have they had to file a Trust Return. However, as a part of the Budget and then formalized in Bill C-32, there are new trust reporting requirements that make it a requirement for these types of arrangements to file a tax return.

As of this month (December 2023), the CRA has created a new FAQ type of page to help all of us work through what needs to be reported and how to report it. ( According to the preamble on this page, it will be updated periodically, so it is expected that this is just the beginning of the information that they are going to provide to us. This is similar to how they managed the new Underused Housing Tax reporting requirements.

We can’t reiterate enough that if you do feel that you are in a Bare Trust arrangement, please reach out to your tax advisor and they can help you figure out what needs to be done to keep you compliant with the CRA.

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You May Now Have a Trust Reporting Requirement Under the New Trust Reporting Rules

As of December 30, 2023, there are new Trust reporting rules that come into effect.  In our opinion, the impact on those that are already filing a Trust Return will not be as great as those that are going to be filing a Trust Return for the first time. 

Those that already are filing Trust Returns are affected, but they are already used to the process that goes into preparing a Trust Return.  They will have an additional schedule to file with their 2023 Trust Return (Schedule 15) where they will have to disclose all of the parties that are involved in the trust.  There will be some additional information gathering to ensure that we have all of the relevant information for each of the trusts that we’re filing on behalf of our clients, but overall, that isn’t what is causing all of the angst. 

The stress within the tax community is on those people, corporations, and partnerships, that haven’t had to file a trust return in the past but will now have to do so.  Trying to determine if a trust relationship exists, with minimal guidance from the Canada Revenue Agency (as of November 6, 2023), has been frustrating.  Starting this year, Trust Returns will be required for those individuals or corporations that hold onto an asset for the beneficial use of another entity (individual, corporation or partnership).  These types of relationships are generally referred to as Bare Trusts.  Many people are finding out for the first time that they have a trust relationship. 

Here are some examples of what a Bare Trust is:

  • You have a corporation that holds title to a piece of land, but another corporation is using, enjoying and/or benefiting from the land.
  • You have opened up a bank account for your grandchildren who are under the age of 18.
  • You have added your adult child onto your investment accounts or bank accounts for probate purposes.
  • You and your spouse made an investment with money you earned.  Both of you are on title, but you are the only one that claims the income earned since it was your earnings that made the investment.
    • This is correct for the purposes of the tax attribution rules.  All of the income would be attributed back to you. But now you will have a trust filing because your spouse is on title.
  • Your son or daughter has purchased a home and you are on title to that home as well in order to guarantee a mortgage for them.  But you don’t live in that home or have any other rights to that home. 

In these situations, you will need to file a Trust Return for 2023.  The only one where you may not have to is if the bank account or publicly traded portfolio investment account have a balance that is under $50,000 at all times during the year.  In many instances you will not need to file a Trust Return.  However, even in this situation, you may find that you have to file a Trust Return, since certain investments qualify for the exemption, and others do not.    

The good news is that in most Bare Trust relationships, there will be no tax due.  It will be an exercise in disclosure. The bad news is that if you choose not to file the return, the penalties are severe.  The penalties are $25 per day with a minimum penalty of $100 and a maximum of $2,500 per return.  And since you chose not to file the return, there is an additional penalty of the greater of $2,500 or 5% of the maximum value of the property held during the year. 

And just in case you were thinking that perhaps these rules will be deferred for a period of time?  We aren’t that hopeful, especially since these rules have been hovering over us for the past few years, and finally got passed in Parliament at the end of last year. 

If any of these situations apply to you, please reach out to us as soon as possible so that we can start applying for a Trust Account Number and ensure that you have all of the documentation that will be required to disclose on the Trust Return.  Trust Returns with a December 31st year end are due March 30, 2024. 

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Interpreting your Financial Statements – Statement of Cash Flows

Running a small business in Canada is no easy feat.  It requires dedication, strategic planning and a keen eye for financial management.  We’ve discussed the purpose and benefits of having and analyzing a Balance Sheet and Income Statement, but there is one statement that isn’t as common, but is just as important, the Cash Flow Statement, or the Statement of Cash Flow.  This financial statement is one of the most all encompassing statements that a business can use to assess where their company has been earning and spending their money. 

The Statement of Cash Flow is a financial report that provides a detailed breakdown of the cash inflows and outflows of your business during a specific period.  It is typically categorized into three main sections:

  1. Operating Activities:  This section focuses on the cash generated or used in day-to-day operations, such as sales, purchases and expenses.
  2. Investing Activities:  This is where you will see if you made purchases or sold equipment, property or other investments.
  3. Financing Activities:  This section deals with the cash flow from borrowing or repaying loans, issuing or buying back shares of your company or other financing-related activities.

The key benefits of maintaining and creating a cash flow statement for your business:

  1. The Statement can give you a really good summary of whether your business brought in more cash than it spent in during a fiscal period.
    • Is your cash balance higher or lower at the end of the fiscal period?
  2. It will also breakdown for you as to how your business is generating its cash.
    • Is it all from operations?  Or was it supported from that additional line of credit or loan that your business took out during the year?
    • Are your operations generating sufficient cash to satisfy its debt obligations?
    • Is there positive cash being generated from your operations?
      • If it’s negative,
        • Is it because you have not collected on all of your outstanding Accounts Receivable?
        • Or have you had to increase your marketing expenses?
  3. It can also be used as a planning tool for the upcoming budget for future years.
    • If you have minimal purchases of capital equipment this year, will you need to purchase additional/newer equipment in future years?
    • If your cash from operations is negative or minimal,
      • Do you need to increase your budget on advertising? 
      • Do you need to layoff staff?
      • Or do you need to concentrate on collecting on your outstanding receivables?
    • Do the terms of your financing change in the coming years?
      • Will you need to seek out additional funds for your business? 
        • If so, can your business support the additional cash repayment terms that would be required of the company?

Overall, the Statement of Cash Flow is a very valuable tool that can empower you to manage your finances more effectively, make informed decisions, secure financing and pave the way for sustainable growth. 

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Interpreting your Financial Statements – The Income Statement

The next financial statement that we’ll tackle is the Income Statement.  The Income Statement can go by many names, “Income Statement,” “Profit & Loss Statement” or the “Statement of Income and Retained Earnings” are the most common ones.  Our firm calls it the Statement of Income (or Loss) and Retained Earnings.

What is the Income Statement?

The Income Statement provides an overview on the operations or activities of a business for a specific period of time.  Each year a company will need to provide an annual income statement to report to the Canada Revenue Agency with their tax return and will end up paying income taxes based on the net taxable income that has been earned by that company.  Publicly traded companies will report their Income Statements on a quarterly basis to their shareholders.  Many companies, both private and public, will have their financials prepared on a monthly or quarterly basis to analyze how the business is performing and to assess if any trends can be seen in sales or costs. 

Things to think about when preparing your Income Statement

Since the purpose of the income statement is to tell the story of how your business did during a particular period of time, it’s important to ensure that the amounts on the income statement properly reflect what happened during that time.  Some key areas to consider are revenues, cost of sales or cost of service expenses, gross profit (profit margin), and overhead expenses (often fixed costs to run your business). 


On a high-level basis, if you’ve sold something, you should be recording it as revenue.  However, there are some nuances that need to be considered that may change how much revenue is recognized.  Here is an example.  You are successful in signing a contract valued at $30,000 to deliver your services over a 6 month period, but your client pays you 50% up front and then 50% at the completion of the contract.  How do you recognize the revenue?   Do you recognize the $30,000 immediately?  Or do you recognize the revenue on a monthly basis? 

If the services provided for the contract is equal for each of the 6 months, you would recognize the revenues monthly.  Your cash won’t align with the revenue recognized, but that’s ok.  If you are providing the majority of the services at the beginning of the contract and very little in the last couple of months, you may have an argument, that you should be recognizing more revenues in the earlier months and less in the latter months.  The business owner should discuss recognition of revenue with their accountant to ensure that revenues recognized in the period are matched with costs incurred to earn this revenue.  This will ensure that profit margins are not skewed in any one period when costs and revenues are mismatched.  Also, depending on the type of business you have, you may need to comply with a specific set of accounting standards.  This should be a discussion to have with your accountant to see if this applies to you and your business. 

Cost of Sales or Cost of Service

Similarly, the Cost of Sales or Service should also match the timing of the revenues.  If the costs are not co-ordinated to be recognized at the same time as your revenues, you will end up with a financial story that will either present things better than they are or worse than they are.  It is also important for you to recognize the true inputs that relate to generating your revenues.  If you have inventory, it is also important for you to do an inventory count at the end of your period to ensure that your inventory value is correct.  If it is understated or overstated, there is a good chance that your cost of sales amount needs to be adjusted. 

Another input that should be reviewed are your staffing costs.  Is there a portion of these costs that should be included in the cost of sales?  If you have employees that help assemble your inventory, or if you have shipping costs directly related to the shipment of your goods, you should consider including these costs as a part of your cost of sales.  Business owners and their accountants should discuss the costs associated with the sale of each product or service in order to get a true picture of gross profit and ensure your goods and services are priced accordingly to earn a profit.  If not, what are you in business for?

Gross Profit

Gross profit is calculated by taking your Revenues less your Cost of Sales.  You should always aim to have a positive Gross Profit.  It is the Gross Profit that provides the funds to operate the administrative side of the business.  If your Gross Profit is negative, have a look at your revenues and expenses.  Have things been reflected properly?  If they have, are you spending too much on your inventory?  Are your prices too low?  From an investment point of view, a potential investor will shy away from a company who is operating with a negative or small gross profit (or a gross loss).  It demonstrates that the business owner doesn’t have a firm grasp on the market that they are selling into and are digging a hole that will eventually be too hard to climb out from. 

This is why it is important to ensure that your cost of sales (or service) is calculated correctly.  If the price of your product or service isn’t high enough to cover your direct inputs (costs), you will need to consider increasing your sales price.

Overhead Expenses

Overhead expenses are another word for administrative or fixed costs.  These expenses relate to the administrative side of the business and would be required if you have sales or if you don’t have sales.  Generally, these tend to be your fixed costs that will not vary as sales increase or decrease. 

This would include things like salaries for your office staff, rent and insurance.  Some costs will have a variable nature to them depending on the size of your business, such as advertising, meals & entertainment costs, travel, and interest charges.  These costs are not usually directly tied to sales of your product or services and are therefore  considered overhead expenses.

This does not mean that these costs should be ignored.  It is a good idea to look at the trends of these costs.  Are your advertising efforts matching with the increase or decrease in your business?  Should you be reviewing your loans to see if you can receive a more favourable interest rate?  How long is your lease agreement with your landlord?  Do you expect your rent expense to increase or decrease in the coming months? 

As a general rule of thumb, we also do not like to see overhead expenses exceed 10% of gross revenues.  As revenues grow, we like to see this ratio decrease as we should not see any large swings in these costs in relation to revenue.  If there are large variations, consider if any cost category currently classified in overhead expense should be considered in cost of sales instead.  Then re-evaluate your profit margin and sales prices.

How to use or interpret your Income Statement

The income statement can be created at any point in time and should be reviewed at regular intervals.  As your business is starting out, things are pretty hectic and crazy.  So, potentially creating monthly financial statements is asking a bit too much for yourself in the first year or so.  However, at a minimum, you should look at your income statement twice a year.  Once at the halfway point during the year to check in to see how things are going and to determine whether or not you need to make any adjustments. 

A budget can be created before your start your business.  And a significant portion of your budget will be based on how you expect your business to perform in a year.  The income statement portions of your budget can be used to compare against your current income statement. Are things turning out the way that you had hoped? Are things better?  Are things not going according to your plan?  Once you start looking at the numbers, start investigating what the numbers are trying to tell you. 

If this is overwhelming or you’d like a bit of assistance getting started on the right path on understanding your Income Statement, reach out to your accountant to have them help you understand what is going on in your business.  If the numbers just look like dollars to you and you aren’t sure what they are trying to tell you, spend the time to learn.  Once you spend a bit of time understanding the information, it will make you a stronger business owner, one that can make informed decisions about your business. Don’t worry, it will get easier each time you review the financial information. 

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Interpreting your Financial Statements – The Balance Sheet

For a business owner, a set of Financial Statements can be an important tool in running your business. Generally speaking, there are three sets of statements that are commonly prepared by accountants. The Balance Sheet, Income Statement (Statement of Income and Retained Earnings), and the Statement of Cash Flows. In this blog post we’ll go into a bit of detail as to what information each statement can provide. By understanding these statements, you’ll have a better understanding as to the areas in your business that you are excelling at and other areas that may require more of your attention. It will also help you gain a better understanding of what other people are seeing in your business too. This is especially important when you are looking to get financing from a bank or other financial lender.

What is the Balance Sheet?

The Balance Sheet is prepared for a specific date in time. Generally, the statement is prepared at the end of a fiscal period or year-end. The purpose of the statement is to provide a snapshot of a business on a particular date. It gives an overview of a company’s Assets (Cash, Inventory, Accounts Receivable, Fixed Assets), Liabilities (Accounts Payable, Bank Loans, Shareholder Loans) and Equity (Share capital, Retained Earnings/Deficit).

Key Line Items on a Balance Sheet

Some key areas of the Balance Sheet that business owners should review regularly are Cash, Accounts Receivable, Inventory and Accounts Payable.


Cash is king/queen. It is what is going to pay for everything that you do in your business. Without it, you will need to invest more into your company or you will need to look to external parties to invest or loan you funds to give you time to make your business profitable. Monthly reconciliations of the bank balances allow you to ensure that you know how much money you have in your bank account that can be used to pay your suppliers and employees. If you have a retail business and receive payment for purchases through a credit card processor, you can use the bank reconciliations to ensure that the payments from the credit card company are being deposited on a frequent basis and that the deposits match to what you think that they should be. Reconciliations also give you and your accountant comfort that you have captured all of the transactions in the period in your accounting records. Without it, you may be able to cherry pick which transactions are recorded in your business and you may not get a true picture of your cash position.

Accounts Receivable

Accounts Receivable should be reviewed to ensure that your customers are paying you on time. If you find that you have had a record-breaking quarter in revenues, but your bank account is low, it’s likely that you have not received payment from your customers. You should be in touch with them on a

regular basis to ensure that they can still pay what they owe you. If there is an account that is not collectible, consider writing it off or at least providing a provision that it won’t be collected. If your provisions are increasing month over month, you may want to see if your pricing is appropriate or if your target markets need to shift to customers who are more likely to pay the full amount and on time.


Inventory is another area that should also be reviewed on a frequent basis. If you have inventory, you should review to ensure that what you have in inventory, is still saleable. Is anything damaged or obsolete? Have you performed a count of all your inventory to ensure that what you think should be in available for sale is actually available? By keeping an eye on your inventory and continually checking to make sure that you have enough goods on hand and that they are saleable, will limit the possibility of theft occurring and that damaged goods or unsaleable products are identified early enough so that you can either dispose of these goods or sell them at a discount to make room for more saleable options.

Accounts Payable

Accounts Payable is the other key number on the Balance Sheet that should be reviewed regularly. This allows you to monitor what bills need to be paid in the next 30 days and what can be deferred to a later date.

Balance Sheet Financial Ratios

You will often hear in conversations amongst business owners terms like Current Ratio and Inventory Turnover. So what are these ratios and what do they tell you about a business?

Current Ratio

The current ratio determines if a business has enough funds available to pay off their operating expenses or current obligation. To calculate this amount, you would take your current assets (or items that are cash or can be quickly converted into cash, such as Cash, Accounts Receivable and Inventory) and compare this amount to the company’s current liabilities (Accounts Payable, Taxes Payable and Current portion of Debt payable) to see if the current assets are greater than the current liabilities. If the Current Assets are greater than the Current Liabilities, the lenders will gain confidence that the business can pay off their operating expenses.

Example: On December 31st, for the current assets, Cash is $5,000, Accounts Receivable is $10,000 and Inventory is $20,000. For the current liabilities, Accounts Payable is $20,000, GST Payable is $5,000, and the current portion of the debt payable is $25,000. Therefore, the current assets total to $35,000 and the current liabilities total to $50,000 and the current ratio computes to 0.70. The business owner and potential lender should start being concerned that they may not be able to pay their suppliers on a timely basis since they do not appear to have enough liquid assets available to pay their liabilities.

As a point of reference, a good target ratio is about 1.0. Most external parties will be looking for this regardless of the industry.

Inventory Turnover

The inventory turnover ratio will inform a business owner or potential lender how quickly the inventory is being sold. To calculate this ratio, you would take the Cost of Goods Sold and divide it by the Average Inventory Balance. To calculate the average inventory balance, you would take the inventory balance at the beginning the period plus the inventory balance at the end of the year and divide it by 2.

Example: On January 1st, the inventory balance is $100,000. During the year the company recognized $200,000 in Cost of Goods Sold. On December 31st, the inventory balance is $75,000. The Inventory Turnover ratio is therefore $200,000 divided by ($100,000 plus $75,000 divided by 2) = 200,000/((100,000 + 75,000)/2) which equals 2.29.

The inventory has turned over more than 2 times during the year. This business owner should be confident that the risk of having obsolete inventory is low. However, this doesn’t eliminate the need to review the inventory on hand to make sure that there isn’t any old inventory still held by the company.

Shareholder Investment

Another area that a lender will look at is how much money the business owners have invested into the business. This can be viewed by looking at the Liabilities and Equity sections of the balance sheet. If there is a large shareholder loan in the liabilities section of the balance sheet, this is an indicator of how much money the Shareholders of the company have invested into the company. If the Shareholder Loan is located in the Assets section of the balance sheet, this is an indicator that the Shareholders have withdrawn money out of the company and owe it back to the company. Lenders will often prefer to see a Shareholder Loan balance located in the Liabilities section of the balance sheet, which indicates that a Shareholder has some stake in the business and an interest in reinvesting and growing the business rather than removing all of the wealth from the company.

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Canada Emergency Business Account (CEBA) Upcoming Repayment

Are you ready to make your CEBA Loan Repayment by December 31, 2023?

Recap of what the CEBA was for: The Canada Emergency Business Account was one of the initiatives that the Government of Canada created as a way to support business owners during the COVID-19 Pandemic. The initial support payment was a $40,000 non-interest bearing loan with $10,000 being forgivable if the amount was repaid IN FULL by its due date. There was then an additional $20,000 that became available as the COVID-19 Pandemic continued beyond what was initially anticipated. Of this additional $20,000 only $10,000 needed to be repaid. In 2021, if a business received the initial $40,000 CEBA loan, they were to include $10,000 into their income for the forgiven amount. And then if they were the recipients of the additional $20,000 loan in 2021, they were required to include $10,000 of the forgiven portion in their 2022 tax return. The initial repayment date was December 31, 2022 but then as that day approached, the government extended the payment date to December 31, 2023.

We don’t expect that there will be any more extensions on this repayment date.

If you have the funds available to repay your CEBA loan, you can pay it now or wait until closer to the December 31st deadline to make your repayments. Personally, our preference is to repay it now, so that the risk is less that you spend the funds between now and December 31st, and risk not having the money to make the required repayment.

And just to reiterate, you do need to repay either $30,000 if you received the initial $40,000; or $40,000 if you received the initial $40,000 plus the additional $20,000. If you are unable to repay these amounts by December 31, 2023, you will need to repay the full amount of the loans. Your inability to repay the $30,000 or $40,000 by December 31st, will change your repayment terms. You will need to repay the full $40,000 or the $60,000 depending on whether or not you took advantage of the second loan.

We also don’t expect any leniency on the amounts that are required to be repaid. In other words, if you owe $40,000 in CEBA repayments and you only have $38,000 available to pay by the end of December, you will be forced to actually repay $60,000 and you will actually be charged interest from January 1, 2024 to December 31, 2025. You will need to work out repayment terms with the financial institution who loaned you the funds.

If you have $37,000 available right now and need to make a repayment of $40,000. Try and budget between now and December 31st to save additionally per month to get you to the required $40,000. This savings of $500 per month will save you $20,000 in cash as well as any interest that you may have to pay.

A couple of items to note:

1) If you are unable to repay the full amount, the loan forgiveness amount that you previously included in your income for your business, can now be a deduction since the loan forgiveness no longer exists.

2) If you didn’t claim the forgiven portion as income in a previous year and you are planning to or have repaid the reduced amount in full, you do need to make an adjustment to your 2021 and 2022 tax returns for the loan forgiveness amount by increasing your income by $10,000 in 2021 if you received the $40,000 loan and $10,000 in 2022 if you received the additional $20,000. (you can’t get something for nothing).

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Mid Summer Planning – Looking Back and Looking Forward

June = Halfway point in the Calendar year.  It’s astonishing how every year, January and February drag on a bit and then life speeds up in March and April, then May goes by relatively quickly and all of a sudden it’s June!!  For the kids, it marks the end of a school year.  For Public Practicing Accountants, this month is the last push to get all of the Sole Proprietor and Calendar End Corporation Tax Returns completed.  But what next?   

As a business owner, it may be the perfect time for you to reflect on where you’ve been.  To take stock of what went well, and what can be improved upon.  Use this information to plan for the next 6 months.  If you were able to plan out your year, look at how close you are to what you had budgeted for.  Where did you deviate from your initial plan?  Do you want to get back to the original plan?  Or do you like where you’re currently going?  

From an accounting perspective, now is a great time to look at your financial results.  And it doesn’t have to take too much out of your day to do this.  Look at the information that you have and compare it to the last quarter, the last year and the last month.  See if any trends are occurring.  Does something look really weird?  Like it’s too good to be true?  Or are things inline with what you expected?    If you are using an accounting software program like QuickBooks Online or Xero, you can extract this information relatively quickly. Take the time (an hour or so) to really look at the numbers.  And take the time to compare these numbers to other periods (another hour).  Then spend some time figuring out the story that the numbers are telling you.  Is the current recession affecting you positively or negatively?  Do you need to alter your purchasing schedule for your inventory?  Do you need to think about extending credit to long time customers.  Do you need to reduce staff?  Increase staff?  This part may take 2 hours or so.   

Then create a plan to carry you through to the remainder of the year.  And to set yourself up for planning into the following years.   This part may take a bit of time, but if you spent a couple of hours working on a plan and set some concrete deadlines towards realizing these plans, you may have spent the equivalent of 6-8 hours of time on this planning process. This doesn’t have to be done all in a single day.  You can do each part in isolation and stretch it out over a few days. However, I would recommend that you do accomplish this in a short amount of time (say 1 week).  This allows you to keep the momentum going and to not have to revisit what you’ve already reviewed each time.   

During the reflection time, be proud of what you have accomplished and appreciate the struggles that you have faced or are facing,but take an honest look at where things are not going according to your plan.  And figure out what things need to be changed.  Most of the time, you can work towards correcting things that have caused you to go “off track”.    If you’re unsure as to what is causing you to go on an unforeseen path, chat with your management team, bring them in to help brainstorm.  You have hired them in a senior position for their skills.  Let them use those skills to support the business.  If you are the management team, reach out to people you trust to help you explore different solutions.  Ask your accountant too.  Getting a different perspective can help create new opportunities. 

Mid Summer Planning – Looking Back and Looking Forward Read More »

Top 10 Tax and Accounting Tips That Can Help Your Business

Phew!  Personal tax season is done and dusted (well unless you are a Sole Proprietor, then you have a bit more time to file your tax return).  But for the most part, our focus is now back on our client’s businesses and what we can do to help. 

Here are some Tips, both Accounting and Tax, that can help make your business run a bit smoother.

  • You deserve to be paid!!  Make sure that you are diligent on collecting on the revenues that you bill.  As a business, you are taxed on what you bill, not on what you collect.  So make sure that you are keeping an eye on your Accounts Receivable balance to ensure that your customers are paying you on a timely basis.  Not only does this help your cash flow, but it also makes sure that you have the money available to pay for things like your payroll obligations, income taxes and GST.
  • Understand your financials Ensure that you are reviewing your Balance Sheet and Profit & Loss (aka the Income Statement) on a regular basis. This will help you keep a good eye on how your business is performing.
    1. We’ve found that watching your bank accounts and credit card statements can be misleading. It doesn’t allow you to see how you are doing with collecting your receivables, nor does it tell you if you have some larger expenses that have yet to be paid.
    2. This will also allow you to spot some trends in your business.
  • Is it really for business? Are all of the expenses that you are needing to run your business being tracked in the company?
    1. And on the flip side. Are there items in your business that maybe shouldn’t be there?
      1. The flip side is thinking about potential Canada Revenue Agency queries that can occur and having to justify what an expense is in your business books and not a considered to be a personal expense.
      2. For instance, Meals & Entertainment expenses: Those daily trips to the local coffee shop for a pick-me-up coffee/tea is not a business expense. You need to demonstrate that the expense was incurred for business purposes. Did you meet someone there to discuss your business?  Did you take someone else because you’re recruiting them to come work for you?
    2. Just remember, tax audits aren’t fun. Mainly because they are looking at a year that has passed and it doesn’t really help you into the future.  They also take you away from your day-to-day operations.   So the last thing that you want to have is a number of questionable expenses in your company. 
  • Keep it simple Organizing your financial records/receipts is important.  Not only does it make it easier if you are doing your own bookkeeping, but it also helps out your accountant.
    1. The system doesn’t need to be complex or time consuming.
      1. Digital Options: There are a number of apps out there that will help you streamline your document storage.  Companies like LedgerDoc and HubDoc will allow your banks, mobile companies and anyone else that sends you digital invoices to send the information there and it will help you upload it into your accounting software. You can also take picture of receipts and upload it as well. 
      2. Non-digital Options: This is where you have envelopes or a paper filing system to help you manage your receipts.  One that I found useful and easy to manage is to have an envelope for each month.  And on the back of each receipt, I’d write down what the expense was for and why.  Nothing more than “office expense – paper for printer”.  Or “Lunch with Diana – discussed FY2021.”
  • Have your company pay for your life insurance In a nutshell, if your company pays for your life insurance, the proceeds come into the company on a tax-free basis.  This can help you ensure that there are funds to pay for any tax liabilities that may be incurred on your death, but it also creates a pool of funds that can be distributed out to your beneficiaries on a tax free basis.  The expense isn’t a deductible expense for tax purposes in the business, but it already isn’t a tax deduction to you personally.  The additional benefit is that the premiums are being paid with pre-tax dollars vs after-tax dollars. 
  • Keep personal expenses separate from business expenses Too many business owners intermingle the personal and business accounts and find it really difficult after the fact to keep it straight and remember which were legitimately business.  It also creates a really messy paper trail if you ever need to present these bank statements to CRA – do you really want CRA going through your personal bank accounts?  Even as a sole proprietor business, you should set up a business bank account and reserve one of your personal credit cards strictly for business use.  This way you only have two accounts to manage for your business as opposed to going through all of your personal accounts to find all of your business expenses at the end of the month or year.
  • Keep your bookkeeping updated It is much easier to categorize transactions when they are top of mind! Keep your bookkeeping current and set aside a few hours at the beginning of each month (each week or every two weeks even) to categorize transactions. Or have a bookkeeper do this for you. Either way, it’s much easier to remember what a transaction was for and categorize that receipt from 10 days ago than 10 months ago.
  • Make your instalment payments If you are required to make instalment payments for the 2023 year, make sure these are made in a timely manner. Interest compounds daily and at a fairly high rate (9% for corporate clients on overdue amounts and 7% for personal taxpayers/sole proprietors)
  • Mileage Logs – A necessary evil One of the most common areas that a CRA audit will look at is the amount of vehicle expenses that are being expensed through a company.  And if you’re a sole proprietor, they look at how many kilometers you’ve used your vehicle for work vs the entire year.  The number one item that they will ask for is a mileage log.  Here is a link to a CRA video where they talk about what an auditor would be looking for and why.  It’s a bit long (42minutes), but it does cover off why it’s so important to have one.  And the consequences of not having one.  If your vehicle is owned by the company don’t forget to calculate the standby charge.  The CRA also has a handy calculator that helps you figure out what your taxable benefit would be.  If you don’t think you can keep up manually with this, there is an App for that…check out MileIQ or similar Apps on your phone that work like a dating App!  Swipe left for business or right for personal, then you get a report at the end of each month to know what is deductible in your business.
  • From basic to sophisticated How do you know when you have graduated from excel level bookkeeping to an accounting program like QBO or Xero? In our professional opinion, if you have 100 transactions or less in a year, just stick with excel, the cost of a subscription is not worth it.  As your business grows and you need more accounts and better reporting for other stakeholders like banks and investors, you are probably ready to graduate to a program like QBO or Xero.  If in doubt consult with your accountant to see if you might be ready for this software.

Top 10 Tax and Accounting Tips That Can Help Your Business Read More »

April brings spring showers and TAXES!!!

April is here and it’s time to stop procrastinating and pull together all of your tax slips, donations, child care receipts, medical receipts and work-from-home office expenses to prepare your tax return.

I do think that it is important for people to prepare their own tax returns.  If your situation is complex or if you really REALLY hate doing it, then sure, you can hire someone like us to prepare the return.  But I do think that it is important for you to understand how the money you earn is taxed.  So if you do hire someone to prepare your return, please take the time to review it. 

If you are preparing your own tax return this year, here are some tips for you:

1. Use the Auto-Fill Feature that your tax program utilizes. This is the connection that the tax program establishes with the CRA and will download all of your T-slips into the tax program.

a. In order to take advantage of this feature, you do need to have access to your CRA account.

b. Use this link and click on “My Account”

c. If you don’t have a login ID with the CRA, use the Sign-in Partner button.  You can use your Online Banking information to create an access point.

d. You will be sent a password in the Mail from the CRA, so you should do this sooner rather than later as it can take a week or so for that code to arrive.  (See March Blog Post)

2. Create files for your Charitable Donation receipts, Child Care receipts and Medical expenses.

a. Most of the requests that are sent out in the summer to taxpayers to provide additional support for their expense claims on their returns relate to these three categories.

b. The easier that these receipts are accessible, the easier it is to respond.

  • You can scan these receipts and have them ready to upload to the CRA site as well through your online CRA account.

3. The Work from Home Expenses that we were able to claim the last couple of years are really restricted this year.

a. You can only claim this deduction if you were required to work from home due to the COVID-19 pandemic.  

4. If you took some training courses this year, you may be able to deduct those fees as an expense.  Check out whether or not your course costs meet the requirement to be claimed as a Canada Training Credit (CTC)


Good luck and make the best out of this month.  Just think, if you can get your return completed in the first half of the month, you can actually enjoy the rest of the month!  You won’t have to worry about your taxes for another year!

April brings spring showers and TAXES!!! Read More »