Click here to go directly to purchase the video.
IPBC Members will find a link to the IPBC Partner page where they will find a 50% discount
If you want to learn more about this area of taxation in depth, CGA Canada PDNet
offers a course on S.85 rollovers.
Their course is $299 for CGA's or students and $349 for non CGA's.
http://www.cga-pdnet.org/en-CA/PDResources/2010/Pages/Section85PropertyTransferstoaCorporation2012.aspx
Today's video on Bookkeeping for Transitions is now posted up for sale
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ITC on CCA spreadsheet
I mentioned a spreadsheet to calculate ITC's on CCA. Be careful, as it's use is limited to certain vehicles, certain claimants with specific % of use.
CGA Connect in the Fraser Valley tonight!
This page gets the most hits on my website. The first link at the top of the page (click the blue circle) was a panel discussion that the University of the Fraser Valley librarian for their NPO mgmt program took an interest in. She had the University Board authorize this page as a study link for students in the NPO Management program.
I'm going to be attending a CGA Connect event where students from the U of the FV will be this evening. If you're a student and interested in tax, please come talk to me.
http://www.taxdetective.ca/Nonprofitlinks.html
Be very careful where you take tax advice from!
The Income Tax Act and the Excise Tax Act which provides for GST/HST are not the same and you can't assume that because it says something is true for tax purposes, that the same holds true for GST/HST purposes.
Case in point: Acupuncturists
When you look at the list of who CRA will accept as a qualified medical practitioner, under the Income Tax Act, you will see acupuncturists listed in three provinces currently, because in those three provinces they have an association that licences them, and under the Income Tax Act that's what is required for a qualified medical practitioner:
www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/ampp-eng.html
When you look at who is exempt for GST/HST purposes, from charging the tax on taxable supplies, however, the list is much shorter. Only those who are members of the College of Physicians and Surgeons or on a specific list of 11 (only 11) listed other practitioners are exempted from charging tax.
You'll find that list of who is exempt, and only those 11 practitioners listed under A through K in Section 7 of Part II of Schedule 5 of the Excise Tax Act are exempt. Acupuncturists are not on the list.
How could they get on the list? Finance has a policy. The policy is essentially that they would have to be licensed in most of the provinces in Canada before Finance would entertain a request from their collective organizations to add them to this list of exempt practitioners.
To read the Excise Tax Act to get to where the exempt listing is and to understand it in context, content and purpose, start with the general theme that everything that is in the commercial activity realm is taxable supply in Canada. S. 165 says recipients of supplies have to pay tax and S. 221 says suppliers are required to collect tax.
Exempt supplies are defined in S. 123(1) and that applies to the entire ETA.
The definition in that section says anything included in Schedule 5.
Schedule 5 lists exempt supplies and has parts. Part II lists exempt health care services.
There is a definition in S. 1 of Part II that applies only to Part II and it says that a medical practitioner is someone who is entitled to practice the profession of medicine or dentistry and is licensed as a member of the provincial college.
It also defines practitioners (non medical practitioners that is) and provides a list of 11 specific practitioners, and acupuncturists aren't on that list.
S. 5 of Part II of Schedule 5 discusses which supplies of which specific services are included as exempt and again, acupuncture isn't on that list, because that list is exactly the same list as the one above in the definition of practitioner (non medical).
Here is the Excise Tax Act: read it for yourself and again, be very careful where you get your advice from as Income Tax is not Excise Tax.
http://laws-lois.justice.gc.ca/eng/acts/E-15/page-1.html
and here's where you'll find Schedule 5 Part II
http://laws-lois.justice.gc.ca/eng/acts/E-15/page-323.html#docCont
Confusion about who is responsible and accountable...
This coming Wednesday I will be presenting a course on 'Bookkeeping for Transitions' for IPBC.
During a discussion on the Intuit Profile forum in the last several days about administrative preferences about recording the selling costs on the sale side of the equation when rolling assets tax free to a corporation from a proprietor, or whether you would record them as an increase in the ACB of the assets, a forum participant asked this question:
"Curious about your course/courses. Are you not blurring the lines between of what an
accountant can and is in comparison to what a bookkeeper is or should be?"
I responded:
"I am curious why you would want to discuss what I do in a software forum. You could always attend the course to find out if you are that curious"
They wrote back:
"Sorry, I overstepped my bounds.Please carry on encourage the button pushers to create situations. You are obviously the one encouraging the un-designated to venture beyond their means. it is always fun fixing their errors.
Good luck,
This thread has finally made me realize that I am wasting my time even lurking here. Back to doing!!!"
In the time since this exchange, even before this, I was struggling with how best to present a tax topic without talking about tax directly. Those were the instructions I received from IPBC. You can talk about the bookkeeping aspects of transitions from proprietorship to corporation, but this isn't to be a tax talk as we aren't encouraging our members to prepare tax returns, nor are we providing a tax education to them.
I totally agree on one hand, and on the other, I am totally conflicted, not with the instruction as I understand that if you don't know enough, you shouldn't be preparing tax returns.
accountant can and is in comparison to what a bookkeeper is or should be?"
I responded:
"I am curious why you would want to discuss what I do in a software forum. You could always attend the course to find out if you are that curious"
They wrote back:
"Sorry, I overstepped my bounds.Please carry on encourage the button pushers to create situations. You are obviously the one encouraging the un-designated to venture beyond their means. it is always fun fixing their errors.
Good luck,
This thread has finally made me realize that I am wasting my time even lurking here. Back to doing!!!"
In the time since this exchange, even before this, I was struggling with how best to present a tax topic without talking about tax directly. Those were the instructions I received from IPBC. You can talk about the bookkeeping aspects of transitions from proprietorship to corporation, but this isn't to be a tax talk as we aren't encouraging our members to prepare tax returns, nor are we providing a tax education to them.
I totally agree on one hand, and on the other, I am totally conflicted, not with the instruction as I understand that if you don't know enough, you shouldn't be preparing tax returns.
I'm conflicted about where the line is between accountants and bookkeepers. Let me tell you why. The line between what is an accountant and what is a bookkeeper is very blurry. Accountant's are legislated as to what they can do, not what they can't do. Bookkeepers on the other hand, have no such legislation in place. What they do operate under is much more onerous and I'll explain in a minute. But first, let's look at this historically.
Accountants do bookkeeping too. Some accountants do more bookkeeping than accounting. Some accountants were never trained to do bookkeeping as part of their training, especially CA's who were in the audit stream. They were always checking the bookkeepers work, but never actually doing the work. There is a huge difference between checking the work after it's done and doing the work. It's been a source of contention between CGA's and CA's forever. CGA's often would be the junior bookkeepers whose work would be checked by a CA student in a corporate audit. The tension between players in the two designations often develops at that stage. THe doer looks at the checker and says, you could never do what I do. You just know how to make check marks. That's how it starts.
Accountants do bookkeeping too. Some accountants do more bookkeeping than accounting. Some accountants were never trained to do bookkeeping as part of their training, especially CA's who were in the audit stream. They were always checking the bookkeepers work, but never actually doing the work. There is a huge difference between checking the work after it's done and doing the work. It's been a source of contention between CGA's and CA's forever. CGA's often would be the junior bookkeepers whose work would be checked by a CA student in a corporate audit. The tension between players in the two designations often develops at that stage. THe doer looks at the checker and says, you could never do what I do. You just know how to make check marks. That's how it starts.
Bookkeepers dabble in preparation of financial statements, in part because the software these days allows them to create a financial statement with the push of a button. Bookkeepers may without an accounting designation, prepare and sign financial statements, as by law in some jurisdictions, they are allowed to prepare and sign a Notice to Reader. Only Reviews and Audits are restricted to designated accountants. And in some cases, even those, with special dispensation can be performed by non designated accountants.
And everyone can and does do compliance work including T1's, T2's, T3's, T4's, T5's, GST/HST, WCB...I could go on. Every single Canadian taxpayer has the responsibility and authority to be compliant. They have the right to hire anyone they deem competent to assist them. There's no such thing as it's required that you have an accountant prepare your tax compliance work. In fact, you can do it yourself with the right software. The accounting software even links to the tax program to download the numbers into the right boxes for you.
That's because compliance with law is not accounting. Accountants may record tax consequences, but they aren't by default compliance experts, they are designated as experts at presenting financial information for readers who expect that the figures have been reviewed or audited. Notice to Reader? Anyone can do those, which makes them meaningless, and yet that's what is often used as the standard to report to CRA. That's why CRA audits, because anyone can put numbers together.
Over the years I have had many accountants proudly tell me they don't do any tax work. Some only took Tax 1 which is essentially personal tax, and have never ever taken another course. That scares me more than a bookkeeper who wants to learn more about tax because they want to do it right.
Other accountants have made tax a specialty, and those who do tax will tell you that they won't cross the line in to legal work, as the Tax Act is law, and as such they don't practice law. Where is that line crossed? When you start to file papers appealing or objecting? I really don't know and I try not to go there and have no intention of discussing where that line between law and accounting is crossed. Let's stick with accounting versus bookkeeping.
I will make one comment before moving on. Lawyer's at least in BC, will tell you that you can't even store a minute book for a corporation in your office as that's practicing law. In many jurisdictions, lawyers do estate tax compliance work, and accountants only do corporate work, and some accountants only do corporate, others only personal, and some dabble in all forms of compliance.
But accountants aren't licensed to practice tax, they have taken on tax work as a right, when it isn't a right, it's a convenience because their clients have asked them to assist with the preparation of compliance.
And everyone can and does do compliance work including T1's, T2's, T3's, T4's, T5's, GST/HST, WCB...I could go on. Every single Canadian taxpayer has the responsibility and authority to be compliant. They have the right to hire anyone they deem competent to assist them. There's no such thing as it's required that you have an accountant prepare your tax compliance work. In fact, you can do it yourself with the right software. The accounting software even links to the tax program to download the numbers into the right boxes for you.
That's because compliance with law is not accounting. Accountants may record tax consequences, but they aren't by default compliance experts, they are designated as experts at presenting financial information for readers who expect that the figures have been reviewed or audited. Notice to Reader? Anyone can do those, which makes them meaningless, and yet that's what is often used as the standard to report to CRA. That's why CRA audits, because anyone can put numbers together.
Over the years I have had many accountants proudly tell me they don't do any tax work. Some only took Tax 1 which is essentially personal tax, and have never ever taken another course. That scares me more than a bookkeeper who wants to learn more about tax because they want to do it right.
Other accountants have made tax a specialty, and those who do tax will tell you that they won't cross the line in to legal work, as the Tax Act is law, and as such they don't practice law. Where is that line crossed? When you start to file papers appealing or objecting? I really don't know and I try not to go there and have no intention of discussing where that line between law and accounting is crossed. Let's stick with accounting versus bookkeeping.
I will make one comment before moving on. Lawyer's at least in BC, will tell you that you can't even store a minute book for a corporation in your office as that's practicing law. In many jurisdictions, lawyers do estate tax compliance work, and accountants only do corporate work, and some accountants only do corporate, others only personal, and some dabble in all forms of compliance.
But accountants aren't licensed to practice tax, they have taken on tax work as a right, when it isn't a right, it's a convenience because their clients have asked them to assist with the preparation of compliance.
Do I believe anyone should be licensed to practice tax? I don't know, but I can tell you I think it's coming. It will only be a matter of time before we follow what the IRS is doing, requiring a licence to file tax returns with a licensing exam.
What is really interesting is that the Income Tax Act doesn't require the same standards for record keeping as do accountants in their CICA Handbook. The Handbook allows for materiality, the Income Tax Act does not. I believe that the standard set by the Income Tax Act is higher than that set by the CICA Handbook.
The Income Tax Act requires record keeping and compliance with the letter of the law in the Act. The responsibility for that compliance rests not with the accountant, but with the taxpayer, the individual, officer, trustee, executor, they are responsible for compliance with record keeping and compliance.
Bookkeepers, aka, the keepers of records are trying to figure out how best to keep the records so as to provide the taxpayer, responsible for compliance, with the records prepared to the standards of the Income Tax Act, for the most part, and secondly, to assist accountants with the preparation of financial statements that comply with the CICA Handbook. The CICA Handbook has been completely revised with all these the new rules regarding the presentation of financial information, some of it at fair market value, which really doesn't concern someone preparing compliance returns, completing boxes on forms, unless of course, their are concerned with the fair market value of assets for valuation purposes in the case of a non arms length transaction.
Add to all of this confusion, the new rules for accountants around independence as a result of the world wide concern with fraud, because of cases like Enron. If you are preparing an audit or a review, you are to be independent of the preparation of the keeping of the records. That means you need a bookkeeper.
You need a bookkeeper, not just an accountant, who knows about tax compliance, because every single transaction in those records has tax consequences. Before an accountant can prepare financial statements, they need to know the bookkeeper has recorded the transactions appropriately.
What is really interesting is that the Income Tax Act doesn't require the same standards for record keeping as do accountants in their CICA Handbook. The Handbook allows for materiality, the Income Tax Act does not. I believe that the standard set by the Income Tax Act is higher than that set by the CICA Handbook.
The Income Tax Act requires record keeping and compliance with the letter of the law in the Act. The responsibility for that compliance rests not with the accountant, but with the taxpayer, the individual, officer, trustee, executor, they are responsible for compliance with record keeping and compliance.
Bookkeepers, aka, the keepers of records are trying to figure out how best to keep the records so as to provide the taxpayer, responsible for compliance, with the records prepared to the standards of the Income Tax Act, for the most part, and secondly, to assist accountants with the preparation of financial statements that comply with the CICA Handbook. The CICA Handbook has been completely revised with all these the new rules regarding the presentation of financial information, some of it at fair market value, which really doesn't concern someone preparing compliance returns, completing boxes on forms, unless of course, their are concerned with the fair market value of assets for valuation purposes in the case of a non arms length transaction.
Add to all of this confusion, the new rules for accountants around independence as a result of the world wide concern with fraud, because of cases like Enron. If you are preparing an audit or a review, you are to be independent of the preparation of the keeping of the records. That means you need a bookkeeper.
You need a bookkeeper, not just an accountant, who knows about tax compliance, because every single transaction in those records has tax consequences. Before an accountant can prepare financial statements, they need to know the bookkeeper has recorded the transactions appropriately.
Whether it's a meal, at 50% or 80% for a trucker, or 100% because it's reimbursable, whether it's a vehicle on which there will be a benefit for standby charges and operating cost benefits, or whether it's the imputed ITC on the tax free reimbursement of a km rate, or the adjustment of GST/HST to reduce the ITC claim for the non taxable portion of meals, or the personal use of company assets... the bookkeeper, you think, why should they care about any of that?
In two words, CIVIL PENALTIES. Bookkeepers became liable to know about tax compliance to determine the tax consequences of every single entry when IC01-1 Third party civil penalties was issued in 2001. That was over 11 years ago now. Where have you been? Bookkeepers need to know about tax because they can be held personally liable if they don't know about tax. Where do I get that? Take a look at paragraph 32, where bookkeeping services are exempted from clerical or secretarial services.
Paragraph 33 specifically says in the last sentence:
"Bookkeeping services would include recording business accounts and transactions and could lead to penalties".
So, from my perspective, I'm looking at all of this confusion, and thinking, hmmm why isn't anyone talking to bookkeepers about taxation compliance because they really need to know they have an obligation to know about how much at risk they could be, personally, and they really don't get paid enough to take on this level of risk..so I started talking to bookkeepers, on their forum, when they would ask questions about how to account for something because they knew there were tax consequences, but they weren't sure what they were.
I have been listening to their questions very carefully for the past three years. They ask all the time, about meals, vehicles, capital cost allowance, capital vs inventory or repair, they ask intelligent questions and they deserve answers.
Where are they going to go for those answers? Well, they could purchase the 3 inch thick book from CCH, Preparing your Income Taxes, they could take tax courses at their local college, which are a joke, as they cover topics I would take 3-4 hours to review in about 5 minutes each.
Then there's the CRA website, which has a search engine that is laughable, and it's better to use Google to search the CRA website than it is to use the internal search engine, at least that's what someone told me recently, and there's courses from Evelyn Jacks, but those are extremely costly and have expiry dates at which you must pay more to access curriculum, and there's H&R Block's courses but you have to work for them, or you could pay thousands of dollars to attend tax courses by the Institute or the CGA's or CMA's who are working towards designation, plus then there's updates, like CGA's and CA's and CMA's where we spend a whole day, and pay more than $500 each, to listen to tax lawyers expound on what's new and how the rates changed from this year over last year, but they really don't get into the nitty-gritty of how to administratively deal with something like bookkeeping for a transition. Most of them have never prepared a tax return and wouldn't know how to combine tax knowledge with how to get accounting software to end up giving you the answers you need to get to...
And then there's the whole dilemma I have about how on earth do I scare these bookkeepers into realizing that they really need to hire a tax expert whenever there's capital property or tax free rollovers, or elections to sell receivables, and that they need to hire a professional valuator to establish the value of goodwill...
Because you know what? if you don't know what you're doing when it comes to this stuff, it will cost your client many multiples of what you are charging to fix it once it's messed up.
In two words, CIVIL PENALTIES. Bookkeepers became liable to know about tax compliance to determine the tax consequences of every single entry when IC01-1 Third party civil penalties was issued in 2001. That was over 11 years ago now. Where have you been? Bookkeepers need to know about tax because they can be held personally liable if they don't know about tax. Where do I get that? Take a look at paragraph 32, where bookkeeping services are exempted from clerical or secretarial services.
Paragraph 33 specifically says in the last sentence:
"Bookkeeping services would include recording business accounts and transactions and could lead to penalties".
So, from my perspective, I'm looking at all of this confusion, and thinking, hmmm why isn't anyone talking to bookkeepers about taxation compliance because they really need to know they have an obligation to know about how much at risk they could be, personally, and they really don't get paid enough to take on this level of risk..so I started talking to bookkeepers, on their forum, when they would ask questions about how to account for something because they knew there were tax consequences, but they weren't sure what they were.
I have been listening to their questions very carefully for the past three years. They ask all the time, about meals, vehicles, capital cost allowance, capital vs inventory or repair, they ask intelligent questions and they deserve answers.
Where are they going to go for those answers? Well, they could purchase the 3 inch thick book from CCH, Preparing your Income Taxes, they could take tax courses at their local college, which are a joke, as they cover topics I would take 3-4 hours to review in about 5 minutes each.
Then there's the CRA website, which has a search engine that is laughable, and it's better to use Google to search the CRA website than it is to use the internal search engine, at least that's what someone told me recently, and there's courses from Evelyn Jacks, but those are extremely costly and have expiry dates at which you must pay more to access curriculum, and there's H&R Block's courses but you have to work for them, or you could pay thousands of dollars to attend tax courses by the Institute or the CGA's or CMA's who are working towards designation, plus then there's updates, like CGA's and CA's and CMA's where we spend a whole day, and pay more than $500 each, to listen to tax lawyers expound on what's new and how the rates changed from this year over last year, but they really don't get into the nitty-gritty of how to administratively deal with something like bookkeeping for a transition. Most of them have never prepared a tax return and wouldn't know how to combine tax knowledge with how to get accounting software to end up giving you the answers you need to get to...
And then there's the whole dilemma I have about how on earth do I scare these bookkeepers into realizing that they really need to hire a tax expert whenever there's capital property or tax free rollovers, or elections to sell receivables, and that they need to hire a professional valuator to establish the value of goodwill...
Because you know what? if you don't know what you're doing when it comes to this stuff, it will cost your client many multiples of what you are charging to fix it once it's messed up.
The commentator on the forum that started this whole rant today is right. It can be fun fixing the 'button pusher's' (read bookkeeper's) errors and it's definitely very lucrative.
So, if you want to know how to record the transactions to make sure you've dealt with the tax consequences of a transition from proprietor to corporation, sign up for my course.
So, if you want to know how to record the transactions to make sure you've dealt with the tax consequences of a transition from proprietor to corporation, sign up for my course.
If you are a bookkeeper, or an accountant who has taken up bookkeeping to service their clients, I admire your course and tenacity, your constant curiosity about how to record transactions and to get it right.
IPBC members attend this course for free.
And if you think the line is blurry, you would be absolutely right. And I'm not even going to touch on how accountant's should or shouldn't merge.
I will tell you I believe that we've all paid way too much to isolate and contain the three breeds, CGA, CA and CMA via multi-media branding instead of to education of everyone in the industry about compliance with law. We have a country full of accountants who look askance at bookkeepers who want to understand how they can help with compliance. I'm confused.
Something to think about discussing whether or not to incorporate?
T1-Efile requires the e-filer to see and vet the veracity and authenticity of every document on which you are reporting. You can't just take a NTR and pop in the numbers and e-file.
T2's not the same rule. NTR and the signature of the owner/manager/signing officer will suffice. Why the double standard? No idea. Maybe because it's easier to analyze when there's a balance sheet required..or to watch for ending RE and the opening RE that don't agree, or continuity of capital assets that doesn't add up to be audit prompts?
And if you think the line is blurry, you would be absolutely right. And I'm not even going to touch on how accountant's should or shouldn't merge.
I will tell you I believe that we've all paid way too much to isolate and contain the three breeds, CGA, CA and CMA via multi-media branding instead of to education of everyone in the industry about compliance with law. We have a country full of accountants who look askance at bookkeepers who want to understand how they can help with compliance. I'm confused.
Something to think about discussing whether or not to incorporate?
T1-Efile requires the e-filer to see and vet the veracity and authenticity of every document on which you are reporting. You can't just take a NTR and pop in the numbers and e-file.
T2's not the same rule. NTR and the signature of the owner/manager/signing officer will suffice. Why the double standard? No idea. Maybe because it's easier to analyze when there's a balance sheet required..or to watch for ending RE and the opening RE that don't agree, or continuity of capital assets that doesn't add up to be audit prompts?
Update Do NOT Call status today!
Cell phone #'s go public this month.
You will be charged for these calls!
To prevent this, go to the following website for Canadian Telephone #'s and update or register all of your phone #'s.
Take a minute to upate your #'s on the Canadian DO NOT CALL REGISTRY here:
https://www.lnnte-dncl.gc.ca/index-eng
Stretching the umbilical cord
New spring topic, just for the fun of it! Let's talk tech. Who needs all this tax and accounting drivel? If you're looking for a spring speaker to stretch your networking cord...
What? You’re still wired to your desktop 24/7? And just like that, everyone else is Poof! Gone! Vanished into a cloud?
Eileen Reppenhagen, aka the TaxDetective® takes you on an adventure tour to show you how to soar above the clouds with everyone else. It’s easy and way too much fun.
Outlook®, Evernote®, Microsoft OneNote®, Windows SkyDrive®, Twitter®, Blogger®, Facebook®, LinkedIn®, SmartArt®, SnagIt® and YouTube®
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