Blog

Employee vs Contractor

There’s a time when we cannot handle the day to day operations without help. When that day comes we always have this question: Should I hire someone has my employee or just give out portions of the work in contract? Maybe if the work position isn’t there and what you have is just an unusual and seasonal amount of work, you could consider to give away contracts for specific tasks. I’m outlining some of the considerations that are made to define if the work relationship is employer/employee or Service Owner/Service Supplier:

  1. Ownership of working tools – An employee uses his employer tools (from computer to pencils) a contractor invests in his/her own tools and usually has large year expenses in tools.
  2. Chance of profit and risk – Does the person in analysis has a chance of making a profit, does it run a risk of having a loss due to bad debts, damaged equipment, materials or delays? What kind of operating costs does this person have?
  3. Independence/Integration – Does the person in analysis work exclusively for one person or company? How does he/she integrates in the business? It’s obvious that someone that works several months 40 hours a week for someone has a relation of employee/employer. Is there a service contract? Can the work be performed by someone else designated by the contractor?
  4. Control – Who has control? Does the employer have the right to hire/fire, determine the wage/salary to be paid, decide when and where the work will be performed? The fact that the Contractor is incorporated it’s not a proof of independent contractor status, it’s a proof of a work relationship nothing else.

If a contract relationship is established is really important to have a written agreement where the object, length, expectations and compensation are outlined.

Business Travel Expenses

I will start by posting the information CRA provides on this matter. You can deduct travel expenses you incur to earn business and professional income. Travel expenses include: public transportation fares; hotel accommodations; and meals. In most cases, the 50% limit applies to the cost of meals, beverages, and entertainment when you travel. We discuss this limit in Meals and entertainment. The 50% limit also applies to the cost of food and beverages served and entertainment enjoyed when you travel on an airplane, train, or bus, when the ticket price does not include such amounts.

Here some comments:

Travelling usually means more than 40 kms of the usual place of work. 

You cannot deduct expenses that are not reasonable, Let’s say you took your wife, kids and mother-in-law to a business trip. Is it reasonable to expense all expenses incurred by family? I could give 100 examples but we all know what I’m talking about. 

Guest expenses – If you take a guest with you it’s generally not considered to be a legitimate expense except if the guest is your employee or the individual has relevance in the business you’re conducting and is important to achieve your Business Trip Goals.

Meals are only deductable in 50%. There are several Accountants that expense 100% if the meal expense is during travel. They claim that being away there is no way for a person to make food arrangements and therefore they should be entitled to expense 100% I kind of agree with this position. I know some cases where people expense 50% as meals and the other 50% as advertising and promotions – This is seriously wrong and in my point of view fraudulent. If you know you can only expense 50% in meals then you know the other 50% are not expense. I have seen a lot of fellow bookkeepers doing this. Make sure your bookkeeper is not doing it.

Mileage: I have to include this item in Business Travel Expenses: You are allowed to pay any employee Tax Free for mileage incurred while using their car on service travel. You can only pay this allowance if you did not reimbursed the employee for the expenses incurred in the use of the vehicle. The amount must be reasonable what in Ontario means:

$0.53 per kilometer for the first 5,000 kilometers driven

$0.47 per kilometer driven after that

Don’t forget to keep your mileage record on file

Please note that this is one of the most GREY AREAS of accounting and even if you comply with all the requisites your expenses may be not accepted by CRA if you get audited. It does help to keep all receipts and all possible notes on the business trip explaining every expense purpose and if possible the outcome of the trip. It’s easy to say but I don’t know anyone that keeps such detailed records.

In the end ”reasonable” seems to be the key, keep yourself within it and expect to be fine.

Accounting & Accountants for Business

Accounting is a very complex field that requires expertise from many different areas such as finance, accounting, management, marketing, and legal matters. It is essential to know how to handle all these various aspects of accounting effectively so that your company can achieve its goals efficiently. Here are some of the roles of accountants for businesses.

Record Data

Accountants need to keep track of business transactions and make sure that they are correctly recorded. They have to be very accurate in making the correct and correct payment of money to prevent fraud or loss of funds.

Report and Communicate Financial Information

Accountants have to keep track of thousands of transactions in a business every day. Keeping track of these transactions can be time-consuming and challenging to do. This report will help accountants get more done less time, with less effort.

Budgeting

The budgeting plan can be used by analysts, accountants, planners, and anyone who needs to keep track of their spending. A budget is a plan that an individual or organization has designed to manage their spending. This plan allows an individual or business to predict the amount of money they will have for the upcoming month. The budget also specifies what expenses are part of their monthly spending and where those costs will be spent.

Compliance and Legal

Accountants are the backbone of compliance and legal departments. They do a lot of things, from managing tax to managing contracts. They must be able to handle all the different types of accounts and regulations that lawyers have to deal with.