VERSION 2018 FOR ALL CANADIAN PROVINCES

Transcription

1 1 Instruction Manual VERSION 2018 FOR ALL CANADIAN PROVINCES

2 Instruction Manual VERSION Thank you for choosing Pivot Accounting Pro Your Own Virtual Accountant. This revolutionary business tool is the product of collaboration between dedicated individuals drawn from diverse disciplines of education, software engineering, taxation and finance. Collectively, our unified mission statement is to help educate and empower self-employed Canadians to navigate through all relevant tax regulations governing self-employment. We also allow them through our user-friendly app to create detailed business records and accurate financial statements. No experience is required; your virtual accountant will be right beside you and as you progress through 5 interview-like steps. Ultimately, this tool will allow freelancers to focus more on their core business activities and reach their financial goals quicker. This project required years of technical research, industry interviews and a human-based approach to software development. We are elated to create a national software tool that is available to any freelance contractor in Canada; at no cost nor graduated premiums. It s 100% free. Available for both Mac OS and Windows. 2

3 TABLE OF CONTENTS Getting Started 4 Capital Assets (Vehicles, Tools & Equipment) 4-8 Home Office Expenses 8-9 How to record revenue & sales taxes 9 Vehicle Expenses 9-10 Tracking Business Expenses Create a Back-Up to Save your Work Exporting your Accounting Reports to PDF 12 Listing of Accounting Reports Available to you 13 Accounting & Tax Tips Listing of Expenses Available to Freelancers Capital Assets + Vehicle Expense Proration 18 What is the GST/HST/QST Quick Method? 19* Other elegant uses for Pivot Accounting Pro 20-22* 1. I am an employee entitled to claim employment expenses 2. I incorporated a small business and need a way to track all the expenses I that paid for from my own pockets on behalf of the small business corporation. *new 3

4 GETTING STARTED Once you have installed the Pivot Accounting Pro software onto your Mac or PC desktop please proceed to the Basic Information module. Enter your Name or Trade Business Name. Enter your GST/HST number or Social Insurance Number for Identification. Enter your postal code. Select the tax year from 2009 to 2018 that you want to work on. Select the province of your business. Pivot Accounting Pro will automatically select the applicable GST/HST rate and PST/RST/QST rate based on the province and the tax year selected. The GST/HST/QST rate will determine the amount of Input Tax Credits (ITCs) to extract from your business expenses and from the purchases of Capital Assets utilized in your business. 3 Business Capital Assets This powerful module will allow you to accurately determine the amount of depreciation expense (otherwise known as Capital Cost Allowance or 4

5 CCA) that you can deduct as an expense and the amount of GST/HST/QST input credits you can claim from the acquisition and % business use of these Capital Assets in your business. This module achieves compliance with the CRA s strict guidelines regarding how much Depreciation (CCA) and GST/HST/QST input tax credits you may claim on your vehicles, tools and equipment. All these technical rules are embedded in the programming. Vehicle Used in Your Business Previously depreciated vehicles: If your vehicle(s) had been depreciated in prior year tax returns, enter the carry-forward amount or ending balance into this current tax year. If there are more than one vehicle depreciated in previous years, enter the pooled amount of all the vehicles balances after depreciation was previously claimed. Tip: Talk to your accountant about previously depreciated vehicle(s) that were used under 90% and above 10% for business purposes. You may be eligible to receive GST/HST input tax credits (in the current tax year) for the carry-forward vehicle amount from the previous tax year. At this range of % business use (<90% and >10%), GST/HST/QST input credits cannot be claimed to the maximum allowable amount in the firstyear of business, but must be claimed in successive years based on the current year s depreciation (CCA) and based on any changes to % business use over the previous year. If business use is above 90%, the full maximum GST/HST/QST amount can be claimed in the first year. 5

6 Vehicles used under 10% for business use cannot claim GST/HST input tax credits Never depreciated vehicles: If you have never claimed any depreciation on your vehicle in any prior year tax returns, click the Add Item and enter the following information: 1. The Make, Year, and Model of the Vehicle. 2. The Purchase Price or Fair-Market value, whichever provides greater accuracy. 3. Enter the % of business use relative to personal use. 4. Enter the year of the vehicle purchase Refer to the tax tables on the Getting Started module to find the correct GST/HST rate and if applicable the correct PST/RST/QST sales tax. 6. If you did not pay GST/HST on the vehicle enter 0% for the GST/HST rate. Other Assets used in Your Business Computers, Equipment, Tools, and Fixtures: The same rule applies for previously depreciated capital assets used for business as they do for vehicles. Enter the carry-forward pooled amount if applicable. If you have never claimed any depreciation on your business assets in any prior year tax returns, click the Add Item and enter the following for information: 1. Describe the item. For example, HP Laptop. 6

7 2. The Purchase Price or Fair-Market value, whichever provides greater accuracy. 3. Enter the % of business use relative to personal use. 4. Enter the year of the Asset purchase. 5. Refer to the tax tables on the Getting Started module to find the correct GST/HST and applicable provincial sales tax rate If you did not pay GST/HST on the purchase enter 0% for the GST/HST rate. Home Office Expenses This module will allow you to determine the amount of home office expenses you can deduct and the amount of GST/HST/QST input credits you can claim from house expenses such as hydro, telephone line, internet and other utilities. Enter the amount of square footage you utilized for business purposes. Enter the total square footage of your residence. Tally up the yearly figures on applicable expenditures for: 1. RENT 2. INTERNET 7

8 6 3. TELEPHONE LINE 4. GAS 5. MORTGAGE INTEREST 6. PROPERTY TAXES 7. MUNICIPAL UTILITIES 8. HOUSE INSURANCE 9. STRATA FEES 10. HOME REPAIRS & MAINTAINANCE Revenue and Sales Taxes This module will allow you to track, in detail, how much sales revenue your business has generated and how much GST/HST (and if applicable, PST/RST and QST) your business has collected. (This tax software also has built-in historical piggyback features for PEI and Quebec for the years 2009 to 2013). These two provinces charged their provincial sales tax by using the combination of the pretax Subtotal and GST as a cost base. Additionally, there are built-in features to address all sales tax rate changes from 2009 to 2018 for all provinces). You have the option to track the above figures on a daily, weekly, monthly or yearly basis. It is advisable to track sales and taxes collected on a monthly basis so that you have the monthly figures of sales and taxes collected required for monthly-centric reporting for GST/HST filings (and PST/RST filings, if applicable). There is flexibility provided by this module to record sales that are GST/HST taxable or sales that are not GST/HST taxable, such as sales shipped to the US or services delivered to the US. For example, web design services provided to US clients from Canada are not subject to GST/HST. This flexibility is also available to accommodate sales that are PST taxable in conjunction with being GST taxable. For example, 8

9 computer repairs, retail sales, legal services, and automotive repairs are both GST taxable and PST taxable in British Columbia. Automobile Mileage Module: This module establishes the pro-rata basis with which vehicle expenditures can be claimed as expenses and the GST/HST input tax credits from vehicle expenditures based on business mileage use %. There are numerous mileage apps available online that can greatly assist self-employed individuals in maintaining your business driving log. Enter the total number of kilometers of business driving use during the calendar year. Enter the total number of kilometers driven during the calendar year. 7 The % of business use will be applied to vehicle expenditures such as fuel, repairs & maintenance, insurance, vehicle leasing, and car washes. Parking is not subject to proration. 100% is deductible. NOTE: If your vehicle % business use is (90% or higher), then 100% of your vehicle expenses are deductible and are not subject to pro-ration. 9

10 Business Expenses Tracking: This module allows the self-employed proprietor to record direct business expenses such as materials, supplies, and all other Cost of Sales expenses. GST/HST input tax credits (also QST) paid on eligible expenses is automatically calculated for you on this module. This software factors in provincial sales taxes also for all applicable provinces on specific expenses and has built-in features to handle rate changes from 2009 to 2018 in all Cdn provinces. The expense accounts provided in this module are nearly exhaustive in scope. They include: Advertising & Promotions Automobile Gas (prorated) Automobile Repairs & Maintenance (prorated) Automobile Insurance (prorated) Automobile Car Lease (prorated) Bad Debts 8 Cellular Phone Contracted Services (GST/HST charged) Wages + Employer s Portion of EI and CPP + Vacation Pay + WCB premiums for employees Contracted Services (no GST/HST charged) Equipment Rental Equipment Repairs & Maintenance Liability Insurance Interest Charges, Merchant Fees, and Bank Charges Licenses, Permits, and Membership Dues Legal & Accounting Costs Meals & Entertainment Expenses (50%) 10

11 Office Expenses Office Supplies & Software Parking Rent (Facility, Office, & Storage) Supplies Travel (Flight, Meals, Hotel, Car Rental, and Tolls) WorkSafe Premiums Workwear and Equipment This workhorse module allows users to perform detailed bookkeeping functions in the tracking of their business expenses and the GST/HST/QST input credits paid on those expenses. How to save your work Pivot Accounting Pro allows the user to save all their entries and inputs by creating a back-up file that is reloadable and portable. This feature allows you to this file to a participating tax professional and they can reload & edit your saved work. 9 Simply click on the Menu Bar on the upper right hand of the screen and select Save Report. Create a name for this back-up and save it to a desktop or a folder. To reload a saved backup, simply run Pivot Accounting Pro again, then from the Menu Bar select Load Report. The software will prompt the user to browse where the back-up file is located in order to restore it again for continued work. This back-up file can be ed to a tax professional of your choice or you can choose from our listing of professional tax practices that routinely work with this app s users in your city or town. 11

12 How to export your accounting summaries Pivot Accounting Pro allows users to export summary and detailed reports in a PDF format for 3rd party review. To export a report, click on the Menu Bar and select Export PDF. The software will prompt the user to browse where the PDF file is to be located and saved. The PDF file can be ed to an accountant or tax practitioner. This PDF export contains all the information required to file an income tax return for self-employment and to file a GST/HST return to the CRA. Accounting Reports: in the Summary Module Income Statement Summary GST/HST Summary on Taxes Collected and Input credits claimed 12

13 GST/QST (Quebec) Summary on Taxes Collected and Input credits Monthly, quarterly, semi-annual, and annual Sales Revenue Breakdown PST/RST/QST collected monthly, quarterly, semi-annually +annually Detailed Log of Invoices and Sales Taxes Collected Detailed Log of Expenses Entries for the Year and GST/HST/QST ITCs Detail log of Capital Assets recorded Details of Depreciation Expenses (CCA) claimed on Capital Assets Details of GST/HST QST input credits claimed on Capital Assets Summary of Home Office Expenses Home Office Space Proration Vehicle Mileage Proration GST/HST Quick Method Analysis (all Cdn Provinces outside Quebec) GST/QST Quick Method Analysis (Quebec) 11 13

14 Tax and Accounting Tips How to organize your paperwork for Pivot Accounting Pro: 1. Create a separate folder for your each of your bank statements. 2. Create a separate folder for each of your credit card statements. 3. Create separate folders for each household bill such as hydro, internet, cable, and telephone. 4. Keep your purchase receipts in an envelope large enough to hold a month s worth of paper receipts. 5. Avoid using cash to make purchases and payments for your business. The chances are you might not have the receipt or documentation of the payment when you are sorting through year-end paperwork. Using debit cards, credit cards, interac transfer, or paypal leaves an electronic and paper trail. Bookkeeping Tips for Using Pivot Accounting Pro 12 Bookkeeping on the Revenue & Sales Tax Module: 1. It is advisable to keep current on how much sales revenue you have generated and how much sales taxes (GST/HST and if applicable, PST/RST/QST) you have collected each month. 2. Being proactive allows you to plan-ahead and it greatly reduces stress and uncertainty when left to the last minute. 14

15 3. Pivot Accounting Pro s revenue module allows you to track sales revenue and sales taxes collected from an array of sources such as: Your Invoice Records POS Printouts Bank Statement Deposits Statements from Agencies like UBER, LYFT and Skip- The-Dishes. Online Billing Systems like Freshbooks, Wave, and QB Smartphone Invoicing Apps Etc. Bookkeeping on the Business Expense Module 1. How to work efficiently with Pivot: When inputting entries into the Business Expense module it is more efficient to work off monthly bank statements and credit card statements. 13 The underlying paper receipt or source document is stored in the envelopes and folders you had created. These source documents corroborate the items on your bank statements and credit card statements. That s why we advocate avoiding the use of physical cash as a means of payment. If you do use cash, ensure you have a paper record or receipt. 15

16 2. Cash Basis vs Accrual Basis Accounting: You must record your revenues and expenses on an accrual basis for income tax and GST/HST/QST reporting purposes. For tax purposes, the year-end date for a sole proprietorship or partnership is calendar based. Meaning that December 31st is the effective year-end date of your business activities for the year. (Unless you ceased business activities during the year). Revenue and GST/HST (collected) Implications: Payments received in the new tax year (say January 2017) that were really earned in December 2016 (the prior year) must be reported as accrued receivables in December. You generated the sales revenue in December and you collected GST/HST in December upon successful completion or delivery of a product or service. Record these items on an accrual basis on your Pivot module. Do not defer them by recording them in January Expense and GST/HST (ITC) Implications: Payments that were made by you in the new tax year (say January 2017) that were really incurred in December 2016 (the prior year) should be reported as accrued payables in December. You incurred the expense in December and you re entitled to claim the GST/HST input tax credits associated with those expenses. Record these items on an accrual basis on your Pivot expense module. That is, input them in for December 2016, not January Entering the expense both in December 2016 and January 2017 is not permitted. Exceptions: The CRA does allow for cash-basis accounting for self-employed individuals if their business involves: 16

17 Farming Fishing Being a Self-Employed Commissioned Salesperson (real estate agents) With this cash method, the person reports income in the fiscal period it is actually received. Similarly, expenses are deducted in the year they are actually paid. 15 Expenses Available to Self-Employed Proprietorships GENERAL BUSINESS EXPENSES Accounting, legal, and consulting expenses Advertising and Promotion Bad debts Business-related memberships, dues, and subscriptions Continuing Education to improve business skills Delivery and freight Equipment rental Business Insurance Interest and bank charges Paypal Fees, Square Fees and Merchant Fees Office expenses Office Supplies Tools and Small Equipment Property taxes or rent on business property Purchases of materials and supplies Subcontractors costs Vehicle Expenses 17

18 Traveling expenses HOME OFFICE SPACE EXPENSES (PRORATED BY OFFICE SPACE sq. foot) Rent and Strata Fees Internet and Wi-Fi Hydro and Gas Municipal Utilities (Water and Sewage) Mortgage Interest House Insurance Property Taxes6 Home Repairs & Maintenance Expenses Home Telephone Line CAPITAL ASSETS (Used to determine depreciation expense and GST/HST/QST Input tax Credits) Work Vehicles Tools Equipment & Heavy Tools Computer and Laptops Office Equipment Office Furniture & Fixtures Smartphones and Tablets VEHICLE MILEAGE PRORATION (Business Use/Total Kilometers Driven = % Vehicle Expense Allowance) Proration % is Utilized to Claim Gas, Auto Repairs, Leasing, and Insurance Expense Parking expenses are 100% deductible (no proration required) 18

19 What is the GST/HST/QST Quick Method? The GST/HST/QST Quick Method is a streamlined method used to determine net amounts owing (or refund) on your filings. If your Pivot Accounting Pro summary indicates a lower GST/HST/QST net amount owing or higher refund due to you under the Quick Method, compared to the regular default method, talk to your accountant. If your self-employment industry involves little or few input costs in order to generate your revenues, then this quick method may be a better new default GST/HST/QST filing method for your business. Examples of possible candidates: 1. Consulting 2. Information Technology Services 3. Hair Professional 4. Uber, Lyft ride-sharing and Couriers Examples of non-candidates: 1. A retailer holding inventory 2. Trades with high materials & supplies input costs 19

20 How can Pivot Accounting Pro be utilized if I am an employee who has employment expenses or if I own and operate a small business corporation? 1. Employees with Tax Deductible Employment Expenses: For certain jobs that require the employee to work away from a static location and requires administrative & travel costs in order to fulfil the terms of employment, the employee can claim employment expenses to reduce their T4 (Box 14) gross employment income annual figure. In these cases, a T2200 form is completed by the employer to list and corroborate the employment expenses required in order for the employee to fulfil the employment contract. Pivot Accounting Pro allows an employee to track all the specific employment expenses to optimize your personal income tax refund. The withheld source deductions (EI, CPP and income taxes) from your pay were based on the Box 14 figure before adjustment. Therefore, a personal income tax refund is required to bring withholdings to actual levels to match the final Box 14 actual figure (gross income less employment expenses). You may also be eligible to receive a GST/HST/QST refund on the input tax credits paid and embedded within the employment expenses. Talk to your tax professional. 20

21 1. I incorporated and operate a small business how can I use Pivot Accounting Pro? For many small business corporations, the owner (shareholder) often pays for business expenses from their own pockets on behalf of the company. Typically, purchases and payments are made through the owner s personal credit cards, personal sources of banking cash, and debt instruments. These purchases through personal means are essentially loans to the company from the owner. The company can claim the expenses and associated GST/HST/QST input tax credits. The company repays these loans back continually through owner draws from the company s bank. (These draws are always recorded in the year-end process with the company banking statement reconciliations performed by a tax preparer). Pivot Accounting Pro allows the small business owner to track all the business expenses, capital assets purchased, and home office expenses, paid for by the owner personally. (These transactions may not necessarily be all captured/recorded in the year-end, for example, details like house insurance or mortgage interest). 21

22 No experience is required; your Pivot virtual accountant will be right beside you as you progress through 5 interview-like steps that prompts you to input your personal contributions to the business. The only difference with a sole-proprietorship is that the corporation s owner only records purchases made through their own personal credit cards, personal chequing, and lines-of-credit, etc. The tax preparer records and reconciles transactions on the corporation company s own bank and credit card statements. When both parts of the process are combined, it ensures a complete holistic picture, imbued with realizable tax and cash-flow efficiencies because everything is complete. The business owner simply forwards the details of all their shareholder contributions to the company (documented by Pivot Pro) to their tax professional. This owner-generated due diligence aids greatly in the year-end tax filing process for their corporations. The information provided will reduce paperwork costs, reduce personal income tax liabilities through dividends and owner salaries and bonuses. Documenting all your actual owner contributions will ensure that your vital details are complete, maximized and immunized in any shuffle; measurable in greater eventual cash position, when all is settled. 22