Why we love it:

• It’s free – yes, all of it
• The user interface is friendly without technical jargon that could blow your socks off. And it’s easy to set up.
• Wave can track both personal and business activity separately, and it can automatically download your bank account and credit card activity. Like Mint, it figures out the nature of each downloaded transaction and categorizes them.
• You can invite collaborators and share access with your business partners or your accountant
• It combines GST, HST and QST entry into both invoices and expenses
• The reports section includes key business reports such as Balance Sheet, Accounts Receivable and Payable aging, Expenses, and more. Very simple.
• All reports can be output in PDF or exported to Excel
• It does a good job of generating and tracking invoices. You also have the option of customizing your invoices with different colours and 4 templates to choose from
• All your data is in the cloud, which allows you to simply access from anywhere and on-the-go

Limitations

• There is no time tracking function which can be a setback for those providing time based services. However, you can integrate the software with Freshbooks (which many freelancers already use) and you can use Google Docs to attach documents to specific transactions for reference purposes
• Formatting reports is great for internal use. However, they have to be reformatted in Excel before sending them out.
• There is no budgeting or forecasting capability
• You have to manually import balances and transactions from other accounting software. If you are considering switching from Wave to another accounting software you can only export transactions to an excel file
• Lack of accessibility on smartphone (iPhone/Android/Blackberry) devices
• Does not have an API yet (although they deem to be currently working on it)
• There is no inventory functionality for those who sell products and need to keep track of inventory
• Wave’s reconciliation system could be cumbersome
• No multilingual support

If you are a freelancer or a small service provider, then Wave is ideal for you. It is free, easy to use and provides you with the financial information that you need without requiring almost any accounting knowledge. If your needs are more sophisticated however, (e.g. you have more employees, you need to analyze your accounting data or you want to track and analyze your inventory) it would make more sense to find a more advanced accounting software.

Independent contractors who are starting out their businesses often overlook the importance of having a business coach; or the resources and the guidance that they need during the process of start-ups when the going gets tough.

Here are seven reasons why you should choose a business coach:

1. Business coaching will expand your network, creating connections in the IT field that can help you personally and professionally.
2. Without a plan, your business will go nowhere. Having a business coach will help you create a plan to align your business decisions with your strategy, provide you with solutions to problems, and keep abreast of changes. A great exercise I often use is the Pyramid of Power.
3. Business coaching will steer you in the right direction in times of adversity.
4. A business coach is there to provide some insight into the industry that you would otherwise have not received, whether you decide to incorporate or make a business decision that could cost you $10,000. From my personal experience, I discovered that it is great to speak with someone who was once in your shoes, going through the same questions and challenges.
5. A coach doesn’t provide the answers. A coach will ask you the right questions that will challenge you to think out of your comfort zone and find the answers.
6. A business coach will help you tap into your unique resources and draw out the strengths of yourself and others, coaching you on skills improvement, opportunity enhancement, and growth.
7. A coach is committed to your success and therefore dedicated to training you for it.

Nearly every successful person has a mentor or coach. Sure, it is great to able to spell out Napoleon Hill’s eleven traits of successful leaders from the top of your head and use that to guide your business decisions along with a well-crafted strategy. But it is important to have someone there to help you become equipped with the knowledge and tools that you need to succeed continuously. This toolkit will even go so far as to develop the most important asset to your organization; your people. It is a worthwhile investment for yourself, your team, and your business.

CA4IT is uniquely qualified to mentor IT entrepreneurs with our extensive relationships in the IT industry and a process of mentoring. Our free business coaching is readily available to you as an IT professional. The opportunity is here. Why not take advantage of it?

Benchmarking your results against other independent contractors is essential to ensure your career is on target.  It allows you to gain insight during review of your tax strategy, and provide information on where you stand compared to your peers.  It also provides goals for realistic improvement, so you avoid getting caught up trying to achieve overly ambitious goals that you may find to be irrelevant to improving your business performance. 

While often used to help businesses understand their competition, benchmarking is a valuable method to identify and rectify problems.  As long as you can paint a clear picture of where you are right now, you can use benchmarking as a way to implement strategic change initiatives and for continuous improvement. 

To elaborate in further detail, benchmarking is a tool that can:

1. Provide meaningful information about your performance
• Having this information will allow you to set clear priorities and strategies and help meet external/internal accountability requirements
2. Improve strategic planning, allowing you to assess your organization’s strengths and weaknesses
• One of the ways is helping you plan for the long term effectively. You can see how other independent contractors have reached better levels of performance through their own strategic planning
• You can determine where major underlying problems lie, and what can be done to strengthen your weak areas
• Areas of excellence will also rise, enabling your organization to continue with what it is already doing well
3. Establish challenging but relevant performance goals and stimulate better financial management
• Comparison can be a driving force to encourage better organizational or individual performance because you can set more realistic goals
• Having transparency in what you are doing wrong or could do better will facilitate easier planning for future target performance levels
4. Help you implement your best practices and increase efficiency in the use of your resources
• Address pressures by identifying ways to streamline processes, or opportunities to improve the allocation of resources
• The focus on implementing best practices through benchmarking will help your business become more efficient and effective

The list is referenced from CRA’s Guide to Financial Management Benchmarking.

Our IT database is one of the largest in Canada, and we use this to show our clients where their results lie in comparison to the average and the median. It is important for them to understand whether they are above or below their expenses.

Benchmarking brings to light the importance of budgeting, which you can read more about in our previous article.

Budgeting will allow you to keep on track of your expenses, know where you’re spending, and distinguish corporate expenses from your personal expenses. For instance, when a client is in the process of determining which expenses are deductible, what usually happen is they break down all of the deductible expenses. These deductions are written off as corporate expenses, which helps lower their taxable income. However, what remains are the non-deductible expenses – the grey area. This portion goes to Director’s Advances and hence withdrawn out of the company as Salary, which can potentially be a black hole. Why? Since clients are not required to keep receipts of what they think are “non-deductible”, they avoid categorizing it and therefore lose out on the opportunity to discuss this with an accountant who may find some of the expenses to be deductible.

It is important to understand where your non-deductible spending is in addition to deductible spending, and to break down those categories.  If you do not know where your money is going and you have never discussed your non-deductible expenses with an accountant before, you will lose out on tax savings.  Do you know how much you have spent on groceries this year? What if you find out from your accountant that you can deduct a percentage of that amount for the entertaining you do in the home? By not understanding your personal spending you could be inadvertently increasing your taxes. The higher your income, the higher your effective marginal tax rate is going to be. Reducing your salary and increasing your corporate expenses will reduce your taxable income, and that’s the goal – to pay less taxes.

A savvy online tool that is great for budgeting is Mint. Available on the Android, iPhone, iPad and the web, this well-rounded software is a popular favourite amongst personal finance apps. When it comes to budget tracking, it beats most apps by a mile. Mint automatically updates your spending and transactions without requiring user input. It does so by connecting directly to your bank account through its secure and award-winning online service.  One great feature is the Bill Reminder, which helps you stay on top of bills by letting you see all of your bills in one place, set up personalized reminders and avoid costly late or overdraft fees.

The key is not to try to curtail your spending, but to understand where every dollar goes and ensure you have maximized your expenses.

What are some techniques that you use to budget effectively?

Many people try to handle their tax audit themselves, which can result in disastrous financial results. Some may even end up taking the issue to court. Sole proprietors get hit especially hard, since CRA conducts more audits of sole proprietors than they do of corporations. Nevertheless, every taxpayer has the fundamental right of due process, fairness and representation. It is therefore critical to have an expert by your side who can who will make sure your rights are protected and provide a great deal of insight as to the most effective ways to handle an audit.

One of the ways we assist our clients is through our audit representation guarantee. We focus on helping individuals and businesses resolve their tax problems by sensitively guiding the individual through the procedure and explaining exactly what their rights are. From our experience, we see a lot of people who are afraid of audits and/or people that have left money on the table by not deducting items they are entitled to.

One of the best ways to protect yourself from an audit is to act professional. Our motto is “act like a business to be treated like a business.”
Some tips on how to act like a business include:

- Keep adequate and thorough records & documentation
- Keep a professional minute book of seal, with up-to-date minutes
- Maintain a professional image through promotional tools such as business cards, website, social media presence, etc.

There is no need to be afraid of a CRA audit. Keep in mind that a justifiable expense is any money spent that has a reasonable possibility of generating income somewhere in the future on your opinion. As long as you can prove that, CRA cannot question your business judgment.

Having never lost a single major case before, audit representation guarantee is one of the many things that we proudly provide to support the financial well-being for independent contractors. After all, we are behind them 110%. For more information, check out our website: http://ca4it.com/services/craaudit-protection.html

We list the major changes below, including income tax changes that have been announced but have not become law at this time. If they become law as proposed, they will be effective for 2011 or as of the dates indicated.

Split income of a child under 18

A child under 18 may be subject to the tax on split income in respect of dividends on
shares of a corporation. After March 21, 2011, any capital gain from the disposition of those shares to a person who does not deal at arm’s length with the child, will be deemed to be a dividend. This deemed dividend is subject to the tax on split income and is considered to be an other than eligible dividend for the purposes of the dividend tax credit. For more information, see Split income of a child under 18.

Saskatchewan pension plan (SPP) income

SPP income is eligible for the pension income amount and you and your spouse or common-law partner may be able to split the income from the plan. Report your SPP income on line 115. For more information, see lines 115, 210, and 314. You can also visit the Saskatchewan Pension Plan Web site.

SPP contributions

For 2010 and later tax years, SPP contributions are generally subject to the same rules as registered retirement savings plan (RRSP) contributions. The annual contribution limit to the SPP has increased to $2,500 from $600. Contributions to an SPP are limited by
your RRSP contribution room for the calendar year. Claim your SPP contributions on line 208.

Taxable capital gains

Donations of certain flow-through share properties may give rise to a deemed
capital gain that is subject to an inclusion rate of 50%. For more information, see Pamphlet P113, Gifts and Income Tax.

Exploration and development expenses

The cost of acquiring oil sands leases and other oil sands or shale resource property after March 21, 2011, will generally be treated as a Canadian oil and gas property expense, which is deductible at the rate of 10% per year on a declining balance basis.

Development expenses incurred for the purpose of bringing in new oil sands or shale mines will be treated as a Canadian development expense, and will be deductible at the rate of 30% per year on a declining balance basis. This measure will be phased in for expenses incurred after March 21, 2011 (certain exceptions apply).

For more information, see Form T1229, Statement of Resource Expenses and Depletion Allowance.

Volunteer firefighters’ amount

As a volunteer firefighter, you may be able to claim an amount of $3,000. For more information see Line 362.

Children’s arts amount

You can claim an amount for eligible expenses paid for the registration or membership of your child in a prescribed program of artistic, cultural, recreational, or developmental activity. For more information see Line 370.

Allowable amount of medical expenses for other dependants

The maximum $10,000 limit per eligible dependant has been removed. For more information, see Line 331.

Investment tax credit

Eligibility for the mineral exploration tax credit has been extended to flow-through share agreements entered into before April 1, 2012. For more information, see Line 412.

Canada Child Tax Benefit (CCTB)

If you are eligible to receive CCTB payments, you must notify the Canada Revenue Agency of any change to your marital status by the end of the month following the month in which your status changes. However, in the case of separation, do not notify us until you have been separated for more than 90 consecutive days.

Beginning July 2011, each eligible parent in a shared custody situation will get half of the child benefit and credit payments for that child every month that they qualify. For more information, see Booklet T4114, Canada Child Benefits.

Canada Pension Plan (CPP) contributions

As of January 1, 2012, the rules for contributing to the CPP changed. The changes apply to you if you are an employee or self-employed, you are 60 to 70 years of age, and you are receiving a CPP or Quebec Pension Plan (QPP) retirement pension. For more information, go to www.cra.gc.ca/cpp. To find out how the changes may affect your CPP benefits, visit Service Canada.

Students

More examination fees now qualify for the tuition amount. In addition, the minimum duration of courses taken at a university outside Canada has been reduced to three consecutive weeks for amounts claimed on line 323. For more information, see Pamphlet P105, Students and Income Tax.

1. January 3, 10 or 15 – source deduction remittance deadline for pay period ending December 31 for qualifying small businesses (Please also see my blog on understanding source deductions and source deductions for ca4it clients  for the dates and the frequency of your remittances throughout the entire calendar year)

2. February 28 – T4, T4A, T5 filing deadline

3. March 1 – RRSP contribution deadline if you want to claim the deduction on your previous calendar year personal tax return (in 2012 the deadline is February 29 as it is leap year)

4. March 31 – family trust return deadline

5. April 15 – UNITED STATES Income Tax Returns

6. April 30 – Individuals and tax shelters deadline for taxes owing for the previous year

7. June 15 – Sole proprietor tax return

8. 3 months after your corporate year end – HST return and payment for previous fiscal year 

9.  2 or 3 months after your corporate year end – Corporate tax balance due date. (for most ca4it clients the deadline is 3 months after year end. From this deadline you will begin to accrue interest at .05% on any outstanding corporate taxes.)

The balance due date is the date you have to pay the remainder of the tax you owe for the tax year. See paragraph 157(1)(b) of the Income Tax Act.

Generally, all corporation taxes (except Part III and Part XII.6) charged under the Act are due two months after the end of the tax year.

However, for Parts I, VI, VI.1, and XIII.1 tax, the balance of tax is due three months after the end of the tax year if conditions 1 and 2 that follow are met, as well as condition 3 or 4:

1. the corporation is a Canadian-controlled private corporation (CCPC) throughout the tax year;
2. the corporation claimed the small business deduction for the current or previous tax year;
3. the corporation’s taxable income for the previous tax year does not exceed its business limit for that tax year (if the corporation is not associated with any other corporation during the tax year);

the total of the taxable incomes of all the associated corporations for their last tax year ending in the previous calendar year does not exceed the total of their business limits for those tax years (if the corporation is associated with any other corporation during the tax year).

10. 6 months after your corporate year end – Corporate tax deadline

If the corporation’s tax year ends on the last day of a month, file the return by the last day of the sixth month after the end of the tax year. Otherwise, file the return by the same day of the sixth month after the end of the tax year.

Examples

• If your tax year ends on March 31, your filing due date is September 30.
• If your tax year ends on August 31, your filing due date is February 28.
• If your tax year ends on September 23, your filing due date is March 23.

If you file your return late, a penalty applies. The penalty is 5% of the unpaid tax that is due on the filing deadline, plus 1% of this unpaid tax for each complete month that the return is late, up to a maximum of 12 months.

PROS of the RRSP:

• HI Contribution amount up to $21,000
• Provides tax deferral (Reduces taxable income when deposited increases taxable income when withdrawn)
• You can hold USD stocks
• Growth is  not taxed until funds  are withdrawn

CONS of the RRSP:

• You can’t take money out except for buying a home or for education for you or your spouse
• If you are in the lowest tax bracket tax savings are low and  you may pay higher tax rate in retirement if you have a pension

PROS of the TFSA:

• Grows completely tax free.
• Everyone can contribute $5000 starting from the age of 18.
• It is easy to get your money out

CONS of the TFSA:

• little contribution room available  ($5000 a year )
• does not reduce taxable income

 Determining which is best depends on the individuals circumstances.   Typically the tax strategy for independent consultants is to leave as much money inside the corporation and to pay the least amount of salary possible.  Due to this strategy RRSP contributions are not nearly as beneficial for contractors as they are for employees. While the tax savings may not be as lucrative, they still have a role to play.  My advice for clients is that contributing to an rrsp is beneficial up to the point where the tax savings brings you taxable income to below the lowest tax bracket (roughly 40,000).  If you are below this tax bracket and you have funds available it is better to contribute to you TFSA.  The most ideal tax planning strategy would be to declare a salary of $50,500, contribute $10,000 to your rrsps and contribute $5000 to your TFSA.  This would mean that your taxable income would be in the lowest tax bracket, your rrsp benefit would be received in the middle tax bracket, you would max out the CPP contribution and you would mac out your TFSA contribution. 

I typically recommend to max out the TFSA contribution because I believe clients should be able to generate high investment returns of over 10 % (see bobs video on financial coaching)  and because I believe it is important for IT consultants to have a cash reserve that can be used for emergencies.  While I believe contributing to RRSP`s is also beneficial the long term savings for IT contractors are limited and the strategy is mostly for tax deferral.  If you have the funds available to do both TFSA and RRSP great. If you had to choose one I would recommend a TFSA.

The reason that ca4iT does this differently is three fold.

First, it consultants have a different structure than most corporations, in that typically the only employees are the directors themselves.

Secondly, by paying the source deduction only once a year you will reduce the administration and accounting cost plus you will have access to the time value of the Money.

Thirdly and most importantly, this ensure that we will have all available information on hand when we make a decision on the tax planning for your corporation.

For example it is not that un-common for Consultants to move back and forth from fulltime to contract. This will very rarely happen at the exact end of your fiscal period. This can have a significant impact on the tax planning. For Example if you were to pay sourced deduction on a monthly basis then take a full time position half way through the year. This would mean that the tax planning done at the beginning of the year is no longer valid. In fact you would probably want to declare no salary from the corporation. Back peddling from this unforeseen situation can be difficult and costly.

While most junior auditors may tell you that you are not allowed to pay source deductions on an annual basis they are wrong. We have been using this strategy foralmost 2 decades and have successfully defended this strategy on more than one occasion. If you do receive a letter or call from CRA you should either direct them to us or simply state that you have no eligble employees with any eligible remittances during the period and that you do not expect any further remittances until January. Do not attempt to explain this further as there is some very specific language used for sourced deductions and saying the wrong thing cause you some unnecessary headaches with CRA.

As a corporation, you have to remit the CPP contributions, the EI premiums, and income tax deducted from your employees’ income, along with your share of CPP contributions and EI premiums.

These deductions, along with the remittance form, must be received by CRA on or before your remittance due dates. Due dates vary depending on the type of remitter you are.
If your remittance due date is a Saturday, Sunday or public holiday, your remittance is due on the next business day.

If your business goes bankrupt or stops operating, you must remit your deductions to your tax centre within 7 days following the closure/bankruptcy of your business.

New or regular remitter
your deductions are due on or before the 15th day of the month after the month you made them.

Quarterly remitter
If you are eligible for quarterly remitting, CRA has to receive your deductions on or before the 15th day of the month immediately following the end of each quarter. The quarters are:
• January to March;
• April to June;
• July to September; and
• October to December.
The due dates are April 15, July 15, October 15, and January 15.

Accelerated remitter
Threshold 1
This group consists of employers, who had a total average monthly withholding amount of $15,000 to $49,999.99 two calendar years ago.
CRA has to receive your deductions by the following dates:
• for remuneration paid before the 16th day of the month, by the 25th day of the same month;
• for remuneration paid after the 15th day of the month but before the first day of the following month, by the 10th day of the following month.

Threshold 2
This group consists of employers, including those with associated corporations and multiple payroll account, who had a total Average monthly withholding amount (AMWA) of $50,000 or more two calendar years ago.
As a threshold 2 remitter, you have to remit your deductions through a Canadian financial institution. We have to receive your deductions from your Canadian financial institution by the third working day after the end of the following periods:
• from the 1st through the 7th day of the month;
• from the 8th through the 14th day of the month;
• from the 15th through the 21st day of the month;
• from the 22nd through the last day of the month.