Have you ever wondered about the complexity of starting a small business in Canada? And maybe wondered how to get started with financial statements and real estate investing?

When we relocated to a new province, one thing my husband and I knew we needed to figure out to help us get going right away was an understanding of how business works, what is needed and our responsibility for having a business in Canada.

Since 2018, we had registered two businesses, and as we got settled in Ontario, we registered a third organization (our church).

The year-end of both businesses was around June and July and that was when I discovered there was a lot of money needed for accounting or financial statements preparation, which we didn’t have because both businesses were not making any money at that time.

So I started researching and learning about preparing financial statements, preparing corporate taxes, Having a business in Ontario province. Needless to say, I learned a lot.

And as I continue to grow and learn about a successful life, I discovered that this is something I need to know. At least someone needs to know in my family how these statements work, and how these business financial statements are organized.

So I learned to prepare the income tax statement I learned to prepare the balance sheet I learned to prepare the T2 tax return, T4, and T5 tax return.

In this blog, I share how to prepare financial statements, how to purchase a new home with your business, and the best tax write-off for small businesses. I hope this information helps you a little to get going or get started with building your small business in Canada.

6 steps – How to prepare financial statements

Step one: get yourself organized

1. Start all expense receipts by month put it in a folder or envelope
2.  Print all bank and credit card statements
3.  Attach receipts to related statements

Step two: Prepare an expense spreadsheet for your small business

1. Prepare this spreadsheets on a monthly basis enter expenses before HST into spreadsheets
2. Subdivide expenses by category
3.  Best practice is to do monthly spreadsheets
4.  Calculate the percentage of your Home Office expenses

 Step three: Calculates balances of special accounts such as income tax, accounts receivable, accounts payable, dividends, and HST

Step four: Calculate tax depreciation. Depreciation is a decline in value over the year. Obtain depreciation rates for small business in Canada from the CRA website

Step five – Prepare the Income statement

1. Profit equals revenue less expenses
2.  Revenue includes all invoices issued in the year, but does not include asset purchases.

Step six:  Prepare balance sheet

This is the most difficult statement to prepare, it is always linked to all special accounts, and the cash is included in the year-end bank statements. It includes physical assets, accumulated depreciation since inception, retained earnings which are all profits minus all dividends paid. But ultimately assets equal liability plus equity.

Action:

• Register small business to collect sales tax or HST or GST from customers
• Remember your T4 and T5 for your small business in canade are due end of February.

The best tax write off for small business in Canada

1. Home office expenses including mortgage interest on residence, utilities, property tax, repair and maintenance, home insurance, home office space percentage.
2. Vehicle expenses including fuel, insurance, parking fee. If the business on your vehicle you can claim depreciation for 30% of the vehicles cost each year under the declining balance method (capital cost allowance)
3. Accounting and legal fees are tax deductible
4. Office space rent are deductible, keep copies of receipts
5. Online advertisement or any advertising is fully deductible including websites domain name registration, and web hosting fees.  Canadian magazine and newspaper advertising costs can be fully deductible this condition applies if at least 80% of magazine and newspaper material must be journalistic information if it contains less than 80% then only 50% of the advertising expense may be written off.
6. 50% of meals and entertainment ( of the cost) can be deducted from your business income assuming that you are able to provide a receipt. There are certain circumstances where you can the doctor 100%, such as staff events or parties, maximum of six per year. meals and entertainments that are provided for a registered charity fundraiser.
7. Insurance including general business liability insurance, business property insurance, business interruption insurance, life insurance, individual pension plan, health and welfare trusts are all tax write off.
8. Capital assets include furniture and fixtures, equipment’s, computers ( these have depreciation rates ) vehicles. Always make capital purchases right before the year, so you can take maximum advantage of depreciation deductions on purchased assets.

How to purchase a new home with the corporation for real estate

Step 1, incorporate a Canadian company

Step 2, make a tax free loan from the existing company to a newly incorporated company

Step 3 charge a 1% interest on this loan by December 31 of each year, prepare a loan agreement on documents of this loan.

Step 4, the new corporation will use this loan to buy or construct a home

Step 5, the new corporation should get a mortgage from a Canadian bank

 step 6 you must start paying monthly rains to new cooperation then-new corporation will then pay corporate income tax on rent received less relevant expenses

Obtain mortgage personally, prepare an agreement that says the new corporation is the beneficial owner, you are holding it in trust for the new corporation.

A loan agreement should also be prepared between you and the new corporation, for the mortgage you personally got from the bank. The new corporation will pay you back with biweekly or monthly payments.

Disclaimer: I am not an accounting professional so the information presented here is for information only, if you need accounting or business advice please contact an accountant.