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Category Archives: Business Tips

Business tips for Canadian independent contractors in IT, including guidance on accounting, insurance and other tasks that come with running a technology consulting business.

Lifetime Capital Gains Exemption – Rules

Lifetime Capital Gains Exemption – Rules

This post by Shaun Hope first appeared on the CPA4IT Blog on July 23rd, 2019

As the owner of an active business corporation, you’ve probably heard about the lifetime capital gains exemption that can apply to the sale of qualifying private company shares. If you and your family members can claim this exemption when you sell the shares of your business, you could each realize substantial tax savings, providing that the shares you’re selling meet certain requirements.

Every individual is entitled to a lifetime “capital gains exemption” on qualifying small business shares (and farm and fishing property). This exemption, which is indexed for inflation annually, is limited to a lifetime amount of $848,252 for 2018 (and $866,912 for 2019). It’s important to note that you don’t have to claim the exemption all at once – you can carry forward any unused amount to use in the future.

To qualify for the exemption, three tests must be met at the time of disposition.

  • Small business corporation (SBC) test: All, or substantially all, of the company’s assets must be used in an active business carried on primarily in Canada. “All or substantially all” is generally considered to mean at least 90%, using fair market value. Only the company’s assets are considered in the criteria; debt and other liabilities have no impact. Assets not listed on the balance sheet are also included, such as goodwill and internally generated patents. The reference to “primarily in Canada” generally means at least 50%.
  • Holding period test: The disposed share must have been owned by the shareholder or a related person throughout the 24-month period prior to the disposition. This is an attempt to limit the CGE to longer-term investments rather than rewarding quick flips.
  • Basic asset test: Throughout the 24 months prior to the disposition, the corporation had to have been a Canadian-controlled private corporation and more than 50% of the company’s assets had to have been used in an active business carried on primarily in Canada.

For example:

You sell shares of a small business corporation in 2019 and make a $900,000 profit (also called capital gains). Without the LCGE, you would have to pay taxes on half of this amount, i.e., $450,000. However, seeing as the LCGE allows you to subtract $866,912 from your profits in 2019, you only pay taxes on ($900,000 – $866,912) x 50% = $16,544 rather than on $450,000.

Watch out for these pitfalls

  • The alternative minimum tax (AMT) can cause an unexpected tax liability in the year CGE is claimed. Generally, this can occur when a taxpayer crystallizes in a year of otherwise low income. While AMT is refundable, a refund is generated only when AMT is less than the regular tax calculation in the subsequent seven years.
  • A balance in a taxpayer’s cumulative net investment loss (CNIL) account can restrict access to the CGE. As the name implies, this is a cumulative calculation that considers all of an individual’s investment income and investment expenses incurred after 1987. If the calculation results in a net loss, the CNIL could impact a CGE claim.
  • An allowable business investment loss (ABIL) could impact a CGE claim. If an ABIL is realized in the year, whether or not it is claimed on the tax return, it is used in the CGE calculation.

If you are considering selling the shares in your active business corporation, please contact us to discuss what steps you should take to ensure that you benefit fully from the Lifetime Capital Gains Exemption.

Quick Poll Results: How do independent contractors handle health insurance?

Last month’s contractor quick poll tackled a topic that many independent contractors don’t like to think about — health insurance. There are a number of considerations when making the decision and plenty of research you could do on the topic, first about the type of insurance you’ll use and then on a specific supplier. While we do not have any recommendations on the best path or supplier for you, we do now have a bit more insight into what others are doing.

The results below show what our respondents do for health insurance and provides some insight if you’re currently evaluating your choices. Interestingly enough, the majority of respondents either get coverage through a spouses program or don’t have any medical coverage at all.

If you have any questions, leave them in the comments below and we’ll find you the answer or a resource that can help you.

How do you get medical coverage as an independent contractor?

Get the Best References and Testimonials for Your Independent Contracting Business

Get the Best References and Testimonials for Your Independent Contracting BusinessA stunning testimonial can grab a recruiter or new client’s attention and get you considered for an interview before they begin to look at your qualifications. The right reference will seal the deal on a new contract and might even help negotiate a better offer. Above all, a well through-out approach to securing and displaying these assets is invaluable to your IT contracting business.

Testimonials and references are a marketing tool used by all businesses, from international corporations with thousands of employees and selling hundreds of products to independent contractors going from gig to gig. Regardless of the business size, it’s a struggle to get detailed references and not everyone uses them to their highest potential.

Having a list of great references is a mandatory requirement for any job seeker. It’s often advised to have a number of recent ones up your sleeve, guaranteeing you have a back-up if one is suddenly unavailable, a new client or recruiter requests something else, or you learn that a reference you thought liked you is actually giving some unpleasant feedback.

And what about testimonials? A great description from a client explaining your invaluable contributions to a project or from a recruiter vouching for your work ethic and dependability can go a long way if you use it correctly. For example, adding more chunks of text to your resume is bound to be ignored by a busy recruiter or hiring manager; however, glowing reviews fit perfectly on a LinkedIn profile or personal website and immediately add credibility to your story.

Given the benefits, what strategies can an independent contractor or technology professional use to source the best testimonials and references?

  • Develop a formal process. Work out the exact plan and approach of how and when you’ll ask for references for every single project you work on. It will get easier every time and you’ll end up with consistent information saved in one file, plus a variety to choose from to match on relevant project applications.
  • Keep notes. Make a note every time you receive a compliment or great feedback during a project. Remind your client of that when asking for their support. You’ll also have specific examples for your client to reference.
  • Do the legwork. It is certain that whoever you are asking is busy, so make their life as easy as possible. Prepare all of the details, contact information and a draft testimonial of what you think they would say. The only work left for them will be minor edits and a signature.
  • Understand what they can say. Recruiters and staffing agencies can rarely give a reference about your work because they were not there and their feedback is only second-hand. They may, however, confirm you worked on that project for a period of time, as well as speak to your ethics and work habits. Asking “Can you give me a reference” may not be successful, but phrasing it as “Would you be willing to speak to my work ethic and ease of working together” can have a positive impact on your relationship with future recruiters.
  • Use LinkedIn testimonials. Ask for testimonials on LinkedIn. Once you have them, display them proudly on the social network and ask the person for permission to use their words elsewhere in the future.
  • Timing is key. Asking for a reference or testimonial is generally not a good idea while simultaneously seeking payment or when you know the project went terribly wrong. Wait until you’ve added value and they’re already giving you positive feedback before you ask “Would it be alright if I shared your words on my marketing material?”
  • Endorse them. Your clients and recruiters are also running a business so testimonials are just as important for them as they are for you. Before or after you receive a reference, look them up on review sites like Google, Glassdoor, Indeed, Yelp or LinkedIn to tell other independent contractors how happy you were working with them.

For every reference or testimonial you receive, always remember to show appreciation. It doesn’t have to be complicated and showing gratitude for a favour is necessary to build relationships. Like so many situations, a hand-written thank you card goes such a long way, it’s incredible.

How do you solicit client and recruiter feedback?

Ensure You’re Working on a Secure Device… But Don’t Spend Time Securing It

The following guest post was provided by NPC

IT and professional contractors are the definitive mobile professional.  Moving between jobs that can be anywhere from a few days to a few years, mobility, adaptability and professionalism are essential to their success. They’ve been mastering the “gig economy” long before it was topical. Many contractors make exceptional money, better sometimes than their permanent-staff counterparts. The difference between the winners and losers may not be the luck of the draw on the positions they land, but how they organize and present themselves. Running an efficient and secure one-person office is critical to being able to focus on the work opportunity, and to maximize revenue generating hours.

But as solo entrepreneurs, how a contractor spends their time doing just that is important.  Like it is for any professional, time is money. It’s reasonably certain that someone who owns a car dealership no longer changes their own oil. Smart producers look carefully at their operational responsibilities and how they spend their time. They watch for opportunities to offload a task to someone that can do it faster-better-cheaper. Even though it may be a task they know how to do themselves, once the value of their skills overtakes the value of the task, they offload it.

As-a-Service models are related to and fast becoming as ubiquitous as Cloud Computing. They are great opportunities for professionals of all types to offload some of the time-consuming and low value work that is not only a bit of pain to keep up with, but takes away from either their revenue producing work, or, more importantly, precious personal and family time.

An example of this is NPC DataGuard’s secure managed computer offering. For a single monthly fee NPC will provide a professional with a top-of-line laptop, desktop or hybrid tablet, that is already sourced, configured, and secured with industry leading backup and security tools.  Giving the responsibility to someone else to provide a computer that is built, managed and monitored, always in warranty, with single-point-of-contact 24/7 support, can be a big time saver for the Contractor.

For those jobs that require the contractor to “BYOD”, being secure and protecting their business interests, and that of their clients, is essential. The level of security that can be achieved in these types of specialized models is exceptional. Fully encrypted and biometric access devices will impress those clients that require you to work on a secure device. As well, as an example, NPC DataGuard’s Pro product comes with $5M in privacy breach remediation insurance if an NPC ever failed to protect critical personal information you may work on for your client.

The impact on a contractor from a lost, stolen or compromised device while in a contract can be devastating.  What is your plan today for such an event? What’s your personal Business Continuity Plan?  A secure managed computer includes a full back-up completed each day into a secure data centre.  A lost, stolen or damaged device can be replaced with data restored, saving you countless hours doing it yourself and getting you back to work.

“As-a-Service” models offer products and services to ensure the contractor does not waste time on tasks that pay him or her less than what they can make, as well as levels of  technology performance that even an IT professional might find hard to achieve on their own.

Spending a lot of time buying, configuring and securing your own computer can now be a thing of the past. Key to driving top revenue is showing up professionally with military-grade security on a slick new computer and being able to focus on the opportunity at hand.

This guest post was submitted by our friends at NPC. Visit this page to learn more and to get a special offer for all of our readers.

Contractor Quick Poll: How do independent contractors cover their medical expenses

Towards the end of last year, we shared a post about health insurance options for independent contractors in Canada. It described two specific routes if you’re looking for coverage – standard insurance plans similar to those typically offered by employers, and Private Health Services Plans (PHSPs) which allow your contracting business to provide a non-taxable reimbursement for health expenses. Of course, there is also the option to forego any health insurance, possibly because you’re already fully covered through a spouse or you’d rather risk that any medical expenses will be less than insurance expenses. This month’s contractor quick poll seeks to find the most common practice among Canadian IT contractors.

How to Organize Your Business Accounting

Everybody organizes themselves differently based on how their mind works, their own routines and what will ensure their productivity is maximized. For IT contractors, those skills come in handy in a number of places — project work, job applications, past projects and reference information, and the dreadful accounting.

Many people we speak with admit that organizing accounting is not a strength compared to their other skills that make them in high-demand with clients. Very often, that’s only because they are not sure where to start. If that sounds like the situation you find yourself in, and especially if you’re a visual kind of person, then we strongly recommend watching this video by Alicia Butler Pierre. She is a small business owner who has perfected her own organization of accounting records. While you may not be able to copy her exactly, you are sure to get a few great tips from her.

Should You Buy or Lease a Car?

This post first appeared on the CPA4IT Business Resources section on June 22, 2018

Is it better to buy a car under your name personally, or through a corporation? And is it better to lease – or borrow money to acquire a vehicle?

These are the two most common questions we hear all the time when it comes to buying a car.

Questions to Consider

Should You Buy or Lease a Car?

First, let’s address the question about whether it’s best to lease or buy. While most people believe this to be an accounting question, there are other factors that have a greater impact on your decision. For example:

  • Do you want a brand new car or would you be a happy with a car that is a few years old?
  • What are the current finance and lease rates?
  • How many kilometres will you drive?
  • Are you the type of person that will drive the same car for 12 years – or do you want a new car every few years?

These are the questions that ultimately affect your decision.

Tax Deduction

There are 2 methods for calculating the automobile expense: 1) mileage – and 2) actual expenses. In most situations the mileage nets a higher deduction. If you use the mileage rate, the deduction is the exact same whether you lease or buy. However, if you have an expensive lease – or simply don’t drive much – then using actual expenses may result in a greater deduction. So let’s evaluate the differences in deductions when using the actual method.

With leases you can deduct the total amount of the lease – up to a maximum of $800 a month (assuming you are Toronto-based as an example). With a purchase, you can deduct a percentage of the purchase price of the vehicle each year due to the vehicle’s depreciation in value. The maximum amount that can be depreciated for a passenger vehicle is $30,000. The vehicle can be depreciated at a rate of 15% in the first year, and 30% of the remaining balance for each subsequent year. While there is a difference between these two methods the bottom line savings is marginal.

If you’re going to buy or lease a car, we usually recommend that you do so under your own name and have your corporation reimburse you for its use of the vehicle. On the other hand, if the car is under a company name – and you use the car personally – you must reimburse the company for your personal use percentage of expenses, or take a taxable benefit into your personal income. You’ll also need to calculate a gain or loss when you sell the vehicle: this means more paperwork for your accountant and higher accounting fees for you. One of the great benefits of a corporation is limited liability. However, if your assets are owned by the corporation, you’ve limited the liability to all of your assets – which defeats the purpose.

When you’re making major life decisions such as purchasing or leasing a vehicle, we highly recommend you speak with your accountant to ensure you’re making the best decision. If you have any questions about automobile expenses – or are considering the lease or purchase of a new car – please feel free to contact us directly so we can discuss your particular situation, and assist you in making the right decision – for you.

Expenses and Tax Deductions for Canadian Businesses

April 30th is coming faster than you think so if you’re not already thinking about taxes, it’s time to start. While we always recommend working with a professional to do your books, it’s also wise to have a good understanding yourself.

Knowing which expenses you can claim and how to do it is valuable year-round, and makes tax season less stressful on you and your accountant. This video posted by Answer W Bradley (a Retirement Planner from Ottawa) provides a general list of deductible business expenses for Canadian small businesses. You can also see the complete list and explanations here.

How to Take the Perfect LinkedIn Photo by Yourself, Without Paying a Penny

How to Take the Perfect LinkedIn Photo by Yourself, Without Paying a PennyHopefully this doesn’t come as a shock to you, but Recruiters use LinkedIn… a lot. They look for new candidates, research applicants before calling them, and generally use it as one of their primary recruiting tools. It’s safe to say that if your LinkedIn profile is not up-to-date, you’re kissing opportunities good-bye.

This Fast Company article further outlines the importance of an updated profile and when you need to make sure your profile is updated which pretty much translates to “always”.  For example:

  • When you’ve landed a role but haven’t started
  • When you’re just starting a new role
  • When you’re several months/years in
  • When you get promoted
  • When you’re ready to move on (but don’t want people to know)
  • When you’re obviously job searching

There are plenty of sections in your profile to prioritize and keep updated, but your profile photo is the only element that creates a visual first impression and can make or break you. Getting that perfect picture doesn’t have to be as daunting and expensive as you may think, but it does take a bit of time if you want to get it right. This LinkedIn post by Michele LaCagina might be the most detailed and helpful advice on taking pictures by yourself that we’ve ever come across. It’s quite lengthy but extremely worth the read (and entertaining). Here’s a summary of the steps:

  1. The Set-Up: Prop your phone or camera up so it’s the right height and will perfectly capture your headshot, including shoulders and upper torso. Set the timer for about 3 seconds and run multiple tests to make sure it’s working as expected.
  2. Make Yourself Look Great: The author gives advice both for putting on make-up and selecting the right wardrobe. If you decide to wear make-up, she recommends making it heavy, and everybody should wear a blazer while avoiding any jewelry or accessories.
  3. Getting the Best Shot: When you’re looking your best, it’s time to take 50-100 shots (if you don’t feel silly, you’re doing it wrong). For something that sounds easy, LaCagnina proves that there are a lot of details on how you pose and what to do, but she stresses plenty of times that smiling is the most important.
  4. Selecting and Testing: What are you going to do with all of those pictures of yourself? If you’re a narcissist, print them all and hang them up around your house. For everyone else, you need to narrow it down to your favourite few, then let strangers judge away. The article links to Photofeeler, a helpful app where people you’ve never met look at your pictures and rate them on competence, likeability and influence. It sounds terrifying, but certainly is the best way to get a subjective opinion.
  5. Photo Editing: The final stage is optional, but can make a huge difference. Even without Photoshop, there are free online tools that will help you perfectly crop your photo and adjust the lighting as suggested in the article.

Can your LinkedIn profile picture, or any other professional headshot for the matter, use an upgrade? If so, why not get started today and let us know how it goes. We’d love to hear about your experience creating the perfect picture.

Discussing Your Rate with Colleagues is Rarely Ever a Good Idea

Cameron McCallum By Cameron McCallum,
Regional Vice President at Eagle

Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one. –Benjamin Franklin

I can’t count the number of times throughout my career that I have been approached by a contractor asking for an immediate increase to their hourly rate mid-contract. And when asked what has changed, the reason was not that the role had morphed into a more senior position with added responsibilities. Instead, it turned out that the contractor had discussed rates with a colleague and found out that there was discrepancy in rates and they were not earning as much as the individual sitting next to them on the project. While it is tempting to be a party to these conversations, in fact they can have serious negative consequences. Ask yourself the following questions next time you run into this scenario:

  1. Do you really have the complete story? There are so many variables that determine a contract rate and there is no way that you will likely ever have the complete story. Contract rates are based on project budgets and there can be ranges between rates for the same position. A hire early on in the process might have had access to a bigger pot but if you are hired last, there may have been less money left. Perhaps the person you are comparing yourself to had a history with the client and they were willing to pay more to get them. I’ve also seen a client hire a number of “senior” resources at a higher rate and then determine that they need to add someone but change the category to “intermediate” with lower rates. And are you completely certain that your colleague is telling you the truth. Some people feel very uncomfortable having this conversation and they may feel inclined to embellish the truth. The point is, we often end up making assumptions without having the full story.
  2. Didn’t you sign a contract? A contract is a contract and when you sign a legal document agreeing to the terms and conditions that exist within that contract, the expectation is that you will. Make sure you do the heavy lifting up front. Just as any business owner/operator should do, ask questions so that you understand completely and have considered everything about the role you are potentially signing up for, not just the qualifications needed, the end client or the duration and rate. You are running a business and ultimately are responsible for the decisions you make to accept or decline an opportunity. Can you imagine the contractor who has agreed to renovate your kitchen coming to you in the middle of the renovation demanding more money because they’ve heard that a fellow contractor got more money for doing a kitchen down the block. They wouldn’t and for good reason!
  3. Are you thinking long term? Trying to renegotiate your contract in the middle demonstrates short term thinking and rarely turns out positive. You risk destroying relationships and burning bridges, something I have witnessed countless times. Instead, before you act on your assumptions, go back to the reasons you accepted the contract in the first place — the technology, the location, the duration, whatever it was that made it attractive. Think about the valuable relationships you’ve forged with your Recruiter, the client and your colleagues on the project. Then think about what delivering a successful outcome will mean when you are pursuing your next project. The more you build your reputation as a professional and the more you are associated with positive project outcomes, the easier it is to negotiate higher rates for future contracts.

I believe that if you want to make more money, the trick is to be patient, think like an entrepreneur, be professional and good things will happen. So next time, instead of getting caught up in the moment and feeling like someone has taken advantage of you, don’t lose track of the end goal.