What do you Need?

The first question when preparing your records for your corporate tax filing is, what do you actually need. Many firms will over-step and over-provide service to charge more fees even though the client may not require the service being provided. 

It’s never in your interest to pay more fees for something you don’t need.

Review your Requirements

Depending on your industry or agreements you’ve entered into, you may have different requirements. All businesses are required to produce financial statements annually, but these don’t necessarily need to be prepared by an accountant.

When reviewing agreements, such as those with lenders or investors, it’s important to watch for key requirements. For instance, a lender agreement may require you to have Compiled Financial Statements, while an investor agreement may require Audited Financial Statements.

Beware of entering into agreements that create an additional financial burden on your company.  Audited Financial Statements are significantly more expensive than Reviewed or Compiled Financial Statements.

Some industries, particularly non-profit organizations and those industries that regularly receive government funding, may have higher financial reporting requirements than a typical small business. 

Be sure to have a clear understanding of what you need, and shop early. All levels of engagement take some time to complete properly, so you can’t have them tomorrow.

Check Qualifications

When shopping for an accountant, be sure to check that they are, in fact, an accountant in good standing with their governing body.  Not only that, but they need to be working for a registered CPA firm. If you need an audit or review, ensure they have a public accounting license.

Recently, there have been more and more incidents of people calling themselves “Accountants” and offering services they are not qualified to provide.

At KATA Accounting, we can provide Compiled Financial Statements, or connect you with a Licensed Public Accountant if you need an audit or review.

Informational Returns

Even if you produce your financial statements, corporate taxes and informational returns need to be filed annually. Though a registered CPA firm can usually provide corporate tax services, they can’t necessarily help you file your informational return.

This is something different. 

• If you incorporated your business provincially you’ll need to file the informational return with the province.
• If you incorporated your business federally you’ll need to file the informational return with Innovation, Science and Economic Development Canada.

Be sure to file your informational return annually to avoid the risk of your business being dissolved by the government.

Taxes

To prepare your taxes and ensure they are materially correct, your accountant requires specific documentation and will almost certainly have some questions for you. This article will help you prepare for your year-end more effectively. The more work you make your accountant do, the more expensive your tax preparation will be.

The Basics

Accounting Policies

Pretty much all businesses in Canada are required to report based on an Accrual Basis of Accounting, not on a Cash Basis. If your accountant is taking your bank and credit card statements, and using them to create a basic income statement and balance sheet, it’s highly likely that accrual accounting is not being applied. 

Refer to the Business Corporations Act and ensure you’re working with a qualified accountant in good standing.

For the purposes of this article, we won’t go into detail about the differences between accrual and cash basis accounting. Just remember, in the end, it is the responsibility of the person who signs the tax return to ensure that it is correct.

Corporate Record Book

We’ve written about this several times, so hopefully you’ve read some of these blogs. Failing to have the corporate record book regularly updated is the most common deficiency we see in small businesses. It is a legal requirement and failing to comply is punishable by up to 6 months in jail and a $25,000 fine. Stay compliant Avoid this pitfall by updating your corporate record book annually.

Of note, the answers to the questions you’ll be asked on your annual informational return are located in your corporate record book.

Key Information

A lot of the key information that your accountant will need is in your corporate record book.  However, to save your money by saving them time, outlining key information can be very helpful.

Some of the key information the accountant will need includes:

• Who the owners are. This is located on the Shareholders Register and the transactions are located on the Shareholders Ledger, which should both be part of your corporate record book.
• Who the directors are. This should be located on the Directors Register in your corporate record book.
• Who the officers are. Again, this should be located on the Officers Register in your corporate record book.
• Who will sign the tax return? This needs to be an authorized signing officer, usually a director, officer, or other individual authorized to sign on behalf of the corporation by the corporation’s bylaws, which are also part of the corporate record book. Should there be a tragedy, an individual with Power of Attorney can sign on behalf of an incapacitated signatory.
• Are there any related or associated corporations? If you own more than one corporation, it’s important to disclose this to your accountant and discuss the possible issues that may apply. It’s better to do things properly once instead of facing a big tax headache in the future.
• Key identifying information for the company. This may include:
  • Your Business Number
  • Your Provincial Corporation Number
  • The Legal and Operating names of the business.

Major Events

If there were major events that occurred with the business, it’s important to discuss them with the accountant.

This could include things such as:

• A merger or acquisition. This requires at least 1 additional tax return to be filed.
• A change in majority shareholder. This also requires an additional tax return to be filed.
• Issuance of new shares. This requires a motion in the minute book.
• Issuance of dividends. This requires a motion in your minute book.
• Changes of directors, officers or shareholders. All of these events will require you to update the relevant register in your corporate record book.
• Sale of assets. Depending on the nature of this sale, it may need to be recorded in the corporate record book.
• Amendments to the articles of incorporation or by-laws of the corporation.
• Entering into major agreements such as lending agreements, leases, contracts, and other possible events.

When do we get to the Books?

This is a lot to digest, so we’ll leave things here. Watch out for part 2 of this article which gets to the specifics of your bookkeeping and accounting team.