Here in Canada, there are two ways to insuring a mortgage: you can tie your insurance premiums to your mortgage in the form of mortgage insurance, or you can purchase personal life insurance to cover this most unfortunate tragedy. But which way is better? I say go the route of personal life insurance, if you qualify.

Here is a comparison of the two:

#1) Paying premiums to protect the mortgage through mortgage insurance:

You pay a premium every month for mortgage insurance, which is usually built right into the mortgage payments. If you die, the insurance pays out the principal of the mortgage. Of course, we know that every payment you make reduces the principal on the mortgage, therefore it costs the mortgage company less to pay out a mortgage in the case of death every month you successfully make a payment to reduce its principal. Plus, the premiums you pay on the mortgage never decrease, so in fact you receive less value on the premiums every month!

For example:

You pay $45 a month of insurance on a $200,000 mortgage today. Ten years from now you suffer an unfortunate death. The mortgage has been reduced to $120,000 in this time. Furthermore, the beneficiary of the mortgage insurance is the mortgage company. The mortgage insurance company has had you pay that $45 per month the whole time and they just saved themselves $80,000 in payouts because you worked so hard to have that mortgage paid down.

#2) Paying premiums to protect the mortgage through personal life insurance:

If you have a personal life insurance policy on the value of the house instead, you still pay monthly premiums on the life insurance, but in the case of death, the entire policy amount will be paid out to the beneficiary of your choice.

Here is an example using the same scenario as above:

You get a $200,000 personal life insurance policy and the premiums are the same $45 per month. Ten years from now you suffer an unfortunate death. The mortgage has been reduced to $120,000 in this time. The life insurance company who has had you pay that $45 per month will pay out the entire $200,000 policy to the beneficiary you listed, not the mortgage company. Your beneficiary has now the option to pay off the $120,000 mortgage and the remaining $80,000 will go to either your estate or to your beneficiaries.

Here is a suggestion from one of my insurance colleagues: take the mortgage insurance while the personal insurance company is in underwriting, then you can cancel it once the personal insurance is approved. This way if something shows up in your personal application you still qualify for your mortgage insurance and can maintain the terms of your mortgage. There are more advantages to having a personal policy vs. a mortgage insurance policy, I just wanted to point out the cash and beneficiary advantage of using personal life insurance. Check with your life insurance agent about what options you may have when it comes to using personal life insurance to protect your home and family.

#1) Keep a mileage log – the Canada Revenue Agency demands that you keep a mileage log for business purposes. Here is a direct quote from the CRA’s website:

“The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year, showing for each business trip, the destination, the reason for the trip and the distance covered.”

Reference:

http://www.cra-arc.gc.ca/whtsnw/lgbk-eng.html

Without this documentation, the CRA can disallow vehicle expenses. A mileage log also determines an accurate percentage of vehicle use for business purposes, because it correctly calculates the business use against the total kilometers driven over the entire year.

#2) Keep all pertinent vehicle receipts – another important supporting measure for auto expenditures is to keep all your receipts for your vehicle. Although bank and credit card statements can be a supporting measure to show vehicle expenses, the CRA expects original receipts for expenses pertaining to your vehicle business use.

#3) Designate one vehicle for business purposes – it is important to only designate one vehicle for business use. If you change vehicles partway through the year, however, you close off the old mileage log upon the disposition of the old vehicle with the closing mileage, and then open up a new mileage log for the new vehicle.

#4) What can be expensed – vehicle fuel, repairs and maintenance, vehicle insurance, business parking, licensing and registration, vehicle loan interest and a vehicle lease can be eligible claims against your business income. Keep in mind, if you are using your own private vehicle for business use, only a percentage can be claimed of these eligible expenses.

We hope this blog is helpful to you as you conduct business in your vehicle!

Seianna Financial Services is “Serious About Your Business”. Go to our bookkeeping page and check out our prices, service guarantee and to contacts to find an office most convenient for you. We can do bookkeeping for clients in every province and territory except Quebec.

My take on this subject is this: extra tax money given to the federal government through payroll taxes is “out of sight, out of mind”.

So many people in Canada and the United States have a difficult enough time paying bills, tackling debt, and saving money for their retirements. I see payroll taxes as a way to set money aside, a little at a time, over a whole year. Once you file your taxes, the overpayment comes back as a refund. This, of course, is so long as there are no other “snags” in your tax return which forces you to owe the government money, instead of receiving a refund.

Here are some tricks I teach people who want to participate in such a method to save money:

#1) Just claim your basic amount (in Canada), or list yourself as single (in the U.S.) and do not claim the extra deductions on your payroll tax reporting forms. In Canada this is called a TD1. The provincial counterpart will have the province’s identifier attached, such as TD1BC for British Columbia. In the United States it is called a W-4. Many states use their own variation of the W-4 to track state withholding amounts. Ensure to follow all the steps on your form properly, however, to satisfy all government requirements.

#2) You can request extra income taxes to be deducted from your paycheque using these forms. In the United States, you would put that amount in box 6 of the W-4 form. In Canada, you would write in the amount listed on the second page of the form TD1.

#3) As the year goes by, you manage to live from less money on your paycheque, but you do not notice the money missing because it is already gone; the company you work for has remitted the extra taxes taken off to the government for you!

#4) Once you receive your tax refund, you can then use it for many things: pay bills, pay down debt, buy something special, or even re-invest it in a RRSP (Canada) or an IRA (United States). With the latter your investment agent can then get your business!

A side note to getting your tax refund – avoid getting an “instant refund” from tax preparation companies that offer it. The reason? You pay extra for that service, and often you will not notice how much it cost you because you are so excited to get money in your hands right away! If you wait just a little longer for your refund cheque to come in the mail or the refund be direct deposited to your account, you could be saving a significant amount of money! Don’t give more money than you have to to the tax preparation companies, put that money in your pocket!

Seianna Financial Services provides tax services to Canadians (except Quebec). Call a representative to give you a free consultation over the phone. See our contact list.

Advantages:

1) Quick money when you need it

2) If used rarely, it can help you navigate through a temporary financial difficulty

3) If you have no credit, the payday loan companies generally will give you financing anyways

Disadvantages:

1) Repayment terms can be very high, through high interest and fees

2) Frequent use of payday loans will eventually erode your income in the form of charges and interest payable to the payday loan company; making it more difficult to make purchases and payments on other items needing your attention in your home and family

3) Payday loan companies do not report to credit bureaus, and will not help you build your credit score

4) Payday loans can lull you into a false sense of security; as their sheer presence can make you believe you have a financial “out” if you get into a financial bind

So why talk about payday loans? Well, I want to tell you there is a better way than payday loans, pawn shops, loan sharks, instant refunds on your tax returns, or other “quick” ways to get cash. These guys are expensive to use. Even getting an instant tax refund can be expensive. Take a look at your invoice from the company you got an instant refund from, and see how much you paid for that service. As for the others listed, read the fine print in their agreements and see how much interest and other fees and charges they have. You will be astounded as to how fast your money will disappear from you using these guys!

Ask yourself these questions:

Q1: Who can I look to for financial guidance so I can avoid the habit of going to a place like payday loans?

Answer: Look to friends and family (those you know who have good spending and saving habits already); or your financial advisor for financial guidance to help you build a budget and help you navigate through financial difficulties. Do not be afraid to ask for help!

Q2: What can I do to avoid any kind of advance or payday loan?

Answer: Resist the temptation for getting a payday loan in the first place. Second, build a budget! Listen to our audio series to help you learn the key steps towards getting your spending under control, or look for ways to increase your income.

Q3: Where am I going, financially?

Answer: Having a written-out budget in place will help you see where you are spending money, and help you determine what cuts may need to be put into place. Also, look to using money-saving techniques like coupons, perimeter shopping and flyers to purchase key items like groceries, household items, and clothes.

Q4: When can I start a budget so I can avoid this?

Answer: Right now! The sooner you understand your personal financial situation, the better it will be for you! If you need help getting started, find someone who is willing to assist you and help you be “financially accountable”. The “buddy” system works!

Q5: Why I would need a payday loan?

Answer: You won’t if you follow a solid budget, keep to strict spending habits, resist the temptation to overspend, pay down your existing debts (including what you owe for payday loans), and live inside your means.

Q6: How much financial pain will I have to endure if I stop receiving assistance from places like payday loans?

Answer: It truly depends on several factors – your current income level, current expenses, your existing debt load, and current spending habits. All these will play a factor in how much “financial pain” you will endure to stop using the payday loan company. Here I go again: a written-out budget will help you see what you are spending, how much money you will need, and how much you will need to “cut-down” on.

I think by now you see the picture. I hope you do well to learn the art of “living inside you means”, and put yourself on a positive path towards good personal financial control, and eventually financial freedom! Listen to our audio series, you won’t regret it!

To help you get organized, we compiled a basic list below of what might be needed to carry your books into the new fiscal year and help prepare for your taxes at the same time:

#1) Sales Invoices and Expense Receipts – Collect all your invoices and expense receipts, then enter them into you bookkeeping software or ledger book. I don’t know how many times when I have had my clients give me “last year’s receipts” six months later! To increase your level of organization, get yourself an envelope, accordion file, or filing cabinet (depending on the size and type of business you have), and be consistent in filling it with your receipts. As soon as you invoice someone or make a purchase, put the paper in your filing system, immediately! Don’t forget about your bank and credit card statements, utilities and cell phone statements too. The more organized you are, the easier it will be for you and/or your bookkeeper or tax preparer. This will save you time and money.

#2) Accounts Receivable – If you are using the accrual method, you must have an accounts receivable set up in your accounting system. Accounts receivable, simply put, is work or a sale completed and invoiced to the customer but the total payment of the invoice still has not been received. This still must be reported as income in the fiscal year that the sale has been completed. A list of customers with the proper outstanding balances must be produced for year-end. Applicable sales taxes must also be reported and paid to your proper government authority at the appropriate reporting period and deadline.

#3) Accounts Payable – The same applies to accounts payable. When using the accrual method, you must have an accounts payable set up in your accounting system. Accounts payable, simply put, is a purchase or eligible business expense that has been made but the outstanding balance has not totally been paid. This is still permitted to be claimed as an expense in the fiscal year the purchase was made. Some exceptions may apply, however, such as a purchase prepayment (like an advertising contract) and the expense must be outlaid over a period of time, such as a year to reflect the payments being made monthly for that particular expense. A list of vendors with the proper outstanding balances must be produced for year-end. You are also permitted to claim back the taxes paid on the accounts payable in the fiscal year, where your government authority permits.

#4) Government Remittances – Ensure you file and pay all your applicable taxes for payroll and sales tax. State, provincial and federal governments mail you your tax remittance forms well in advance of the required deadline. Many government bodies also provide an easy form for you to fill out, process and file through the Internet. Payments to these remittances can also be processed online through the government website or using your bank’s online payment system. The point we want to make here is by filing on time and in full you will avoid unnecessary penalties and interest. You do not want the government on your back! One more thing: don’t forget to file and pay your Worker’s Compensation premiums too where applicable.

#5) Inventory – If your business has inventory, it is best to use an inventory system right in your accounting software. It will be updated right at year end using this method. If you don’t have such a system in place, you must count your inventory at year-end at minimum. For businesses in the very first year, all inventory must be taken out of purchases (credited) and put into inventory (debited) on the balance sheet. For every year thereafter, you must take the old inventory numbers out by crediting the inventory on the balance and debiting it back to purchases, and replacing them with the new inventory numbers. I call this Inventory – out, and Inventory – in.

#6) Capital Cost Allowance – Capital Cost Allowance is used for items that are identified as Capital Assets. Check with the Canada Revenue Agency (CRA) (www.cra.gc.ca) or the Internal Revenue Service (IRS) (www.irs.gov) for asset classifications and qualifications as to what is deemed a capital asset. Capital cost allowance is also known as depreciation or amortization. You get to claim an amount from the capital asset as an eligible expense at year end to help lower your taxable income on your business. The best and easiest way to calculate the capital cost allowance on each capital asset is to use a tax software program. This is where a tax preparer can be very valuable to you.

What we recommend: Get a good bookkeeper and a good tax preparer who is not a family member to prepare your books and taxes. The reason: they are at “arms-length” from you and your business and therefore will be better able to represent you to the CRA or IRS.

Seianna Financial Services is “Serious About Your Business”. Go to our bookkeeping page and check out our prices, service guarantee and to contacts to find an office most convenient for you. We can do bookkeeping for clients in every province and territory except Quebec.

I work with the CRA, in its many branches all the time. I generally have no issues talking to them. They are human beings, just like you and I. If you know exactly what you need to address when it comes to your personal taxes, they will provide timely and good answers to you and for you. But for those agents who behave less than stellar towards you, remember these rules:

(This “Bill of Rights” is verbatim from the Canada Revenue Agency website:

http://www.cra-arc.gc.ca/E/pub/tg/rc4417/rc4417-09b.pdf)

Bill of Rights

1. You have the right to receive entitlements and to pay no more and no less than what is required by law.

2. You have the right to service in both official languages.

3. You have the right to privacy and confidentiality.

4. You have the right to a formal review and a subsequent appeal.

5. You have the right to be treated professionally, courteously, and fairly.

6. You have the right to complete, accurate, clear, and timely information.

7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review.

8. You have the right to have the law applied consistently.

9. You have the right to lodge a service complaint and to be provided with an explanation of our findings.

10. You have the right to have the costs of compliance taken into account when administering tax legislation.

11. You have the right to expect us to be accountable.

12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances.

13. You have the right to expect us to publish our service standards and report annually.

14. You have the right to expect us to warn you about questionable tax schemes in a timely manner.

15. You have the right to be represented by a person of your choice.

Commitment to Small Business

1. The Canada Revenue Agency (CRA) is committed to administering the tax system in a way that minimizes the costs of compliance for small businesses.

2. The CRA is committed to working with all governments to streamline service, minimize cost, and reduce the compliance burden.

3. The CRA is committed to providing service offerings that meet the needs of small businesses.

4. The CRA is committed to conducting outreach activities that help small businesses comply with the legislation we administer.

5. The CRA is committed to explaining how we conduct our business with small businesses.

Seianna Financial Services provides tax services to Canadians (except Quebec). Call a representative to give you a free consultation over the phone. See your contact list.

#1 – Desire to achieve my goal – when I opened my doors back on February 15, 2005, I didn’t want to be just any bookkeeping and tax preparation company; I wanted to have a company that made a difference in people’s lives, and to be able to also do this in several locations so I could create more income streams; thus the adage: “working smarter, not working harder”

#2 – Have a plan – before I even opened my doors, I was blessed with the privilege of taking an independent employment course, provided for free by the government. There I learned how to establish short, medium, and long term goals; developed a fourteen-point business plan, and fleshed out some “out-of-the-box” ideas. For instance, I placed fifteen short-term goals (in this case, short-term meant inside a year to complete), each on a 8 1/2′” x 11” piece of paper in very large writing, then taped them all to the wall. They were taped up on opening day. Once I achieved a goal, I took that piece of paper down. By December 2005, I achieved all fifteen of those goals, no more papers on the wall!

#3 – Think Big, Act Big, Start Small – I understood that if I was going to be noticed, I needed to have the “look and feel” of a big business, and I started this process on less than $1,000 in start-up costs. What did I do? I started with a service guarantee for bookkeeping services. I had a plan to offer more services in the future (like business consulting and the $75 Challenge) then got a 1-800 number so clients outside of my city could call me toll-free (1-800 numbers are cheap to add to your regular business line), used vanity telephone numbers like 250-384-SERV and 866-HOPE4U8 (I still have them). I got fancy business cards, and even handed out over 800 flyers in my local neighbourhood, advertising my services in my first tax season. A web site, great looking logo (thank you Jon Valade of J Valade Studios), slogans, etc. I even “opened“ up two “satellite“ offices in other towns north of where I lived to make it look like I had more than one location. The locations really existed, I just had to drive there to serve those clients in that area

#4 – Free and cheap is good! – I truly believe I got help from the Lord when it came to the free and cheap, but I still had no shame in receiving free gifts from those who wanted to help me succeed in my fledgling new business. What did I get for free? A brand-spankin’ new printer, four used file cabinets, a car (it was my grandfather’s car!), two used computers, a manual typewriter (which I still use for certain forms today) and some office supplies from my old boss. What did I get cheap? My office desk (it was 50% off at the furniture store), shelving unit (from a discount wholesaler that dealt with bankruptcies, overstock, etc.), telephone (bought that at a second hand store), and a fax machine (second hand store)

#5 – Develop Standard Operating Procedures – A key element in creating residual income through the process of duplication was that I had to create standard operating procedures so that the other offices would function the same way mine did (like fast food franchises do). With everything from what business materials to have, invoicing system, managing day-to-day operations, to having an employee handbook, no detail was overlooked to ensure the person joining my team had a tactical advantage in setting up and running an office out of their own home

#6 – Stay away from the “nay-sayers” – another important aspect of developing a big (and sometimes risky) idea is to surround yourself with people who will cheer you on, but also challenge you to be a critical thinker. Nay sayers are people who tell you that “it will never work”. Avoid conversations with them (meaning, do not talk to them about your business, but any other subject!) until you have a good handle on your operations and growth, even if they are your family or best friends

#7 – Bring in people who are smart, driven and loyal to the company cause – another key to my success was bringing in people who are genuine assets to the business. Each member of my team had to have a certain level of training before coming onboard. That may not be the case for your business idea, but you still want to look for quality people to be on your team

#8 – Give your team members incentives to be the best they could be and earn as much as they want – in my case I set up a franchise-style program to give each office the following – control over their hours, client base, and invoicing; opportunities to open offices of their own in the future (when they meet all requirements outlaid by the company), plus great educational opportunities (I teach them everything thing I know and I want them to actually know more than I!). Give them incentive to perform well; foster their trust, and don’t be intimidated by their success or knowledge. More often than not that will breed their loyalty to you, and ONLY you!

#9 – 80% Inspiration, 20% Perspiration – I must give credit to my Lord and Saviour Jesus for much of the development of Seianna Financial Services. I am a firm believer that both inspiration and perspiration go hand-in-hand when taking on a large endeavour like starting a new business from scratch; with the full intention of duplicating it in less than five years (my goals were achieved in just under five years. The first two Independent Contractor offices opened their doors on January 1st, 2010). Inspiration and perspiration – one is tangible, the other intangible, but both, in my opinion, are essential to one’s success

#10 – The result – residual income. The company is earning money whether or not I work. The goal is achieved. The business is still growing!

Now that I have shared my story, what can you do? Here are some ideas:

- Start your own business and model it similarly to mine, tweaking it to suit your personal style, type of business, and location

- Join a business that is multi-level marketing and has a good residual income plan

- Invest in stocks that pay decent dividends

- Start rental units

- Start a website, blog and run affiliate programs on a passion or idea you have

All the above ideas produce income so that you work smarter, not harder. I am sharing all this and I still haven`t provided a concrete answer on how for you to proceed. That is because it is up to you and how you want to pursue it!

Seianna Financial Services – A Big Answer To Small Business™

So many businesses are doing their best to reduce costs – especially the cost of labour. With wages, vacation pay, the employer’s portion of CPP and EI, plus payments to WCB (WorkSafeBC in British Columbia), these items can often make the difference in winning or losing a contract, purchase order, exclusive deal or even just making financial ends meet. I have seen businesses just say to their hirees, “you are a subcontractor and are responsible for your own deductions,” without considering that the hiree is, in fact, an employee. Much must be considered when designating individuals as a subcontractor.

This is what Employment Standards expects when you hire a subcontractor:

#1) Issue of Control – do you, as the employer, have control over the individual’s time, or does the individual be allowed to come and go as they please? Does the individual hired have control over his/her quality of work exclusively? Who controls breaks and time off?

#2) Ownership of Tools – did you, as the employer, provide tools to the individual to complete his or her task or does he or she have his/her own tools?

#3) Chance for Profit – does the individual hired have a chance to make a profit on the project or job?

#4) Risk of Loss – does the individual stand a chance of financial loss for costing out a job that may cost more than what they quoted for it?

#5) Payment – is the individual paid at regular intervals or is he/she paid out when they have an opportunity to invoice it out?

Anything less than what is outlined here, your hiree is considered an employee.

This is a very misunderstood part of business. Here at Seianna Financial Services, we employ both employees and subcontractors, titled “Independent Contractors”. When a new Independent Contractor is introduced to the company, they are hired as employees first so that I have control over their training for bookkeeping and/or tax preparation. Once their training period ends, they are set up in their own office, most often a home-based business, and are paid commissions on all invoiced items that have been paid. Seianna Financial Services meets all five regulatory requirements for subcontractors. Thankfully head office and the Independent Contractors have an excellent working relationship and high degree of trust so we function well together.

For a factsheet (for British Columbia) on this segment, please click on this link: http://www.labour.gov.bc.ca/esb/facshts/pdfs/employee-or-contractor.pdf

For provincial or state jurisdictional regulations outside British Columbia, please consult your proper government authority on this subject.

Seianna Financial Services is “Serious About Your Business”. Go to our bookkeeping page and check out our prices, service guarantee and to contacts to find an office most convenient for you. We can do bookkeeping for clients in every province and territory except Quebec.

This first segment we will cover vacations and vacation pay.

Did you know?

a) Employees who are employed for 5 days or less are not entitled to vacation pay – at all!

b) After being employed for one full year, an employee is entitled to an annual vacation?

c) Three weeks of annual vacation is awarded to an employee after being employed for 5 years?

d) The employer must allow an employee to have vacation time in one week or greater increments unless the employee requests a shorter stint?

e) Vacation pay can be paid out on every paycheque if it is agreed to, in writing, by both the employer and employee?

f) Vacation pay is minimum 4% of wages for the first five years and minimum 6% of wages when employed for five years or longer?

g) Vacation pay is payable minimum 7 calendar days prior to the start of an annual vacation?

For a factsheet on this segment, please click on this link: http://www.labour.gov.bc.ca/esb/facshts/pdfs/annual-vacation.pdf

Seianna Financial Services is “Serious About Your Business”. Go to our bookkeeping page and check out our prices, service guarantee and to contacts to find an office most convenient for you. We can do bookkeeping for clients in every province and territory except Quebec.

You are allowed withdrawals on the account too. However, there is a catch when it comes to contributions and withdrawals. You are not permitted to contribute more than the allowable contribution room you have in a single year, even if you make withdrawals to keep the balance underneath the allowable contribution room. If you do, you will be taxed. Many Canadians are not aware of this and use their TFSA accounts like it is a regular savings account. They put money in, take it out, put it in, then they take it out again. Not a good idea!

You see, the original intent for TFSA’s was for you to save for your future, most notably for retirement, although it can also be used for a host of other items including buying a house or paying for a trip. Your withdrawals, however, will not be counted into the TFSA until the following year.

Here is what the Canada Revenue Agency (CRA) has to say on this subject:

You cannot contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year. Withdrawals from the account in the year will be reflected in your contribution room in the following year. If you over-contribute in the year, you will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month you are in an excess contribution position.

Reference: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html

Here is an interesting tidbit worth noting: if you feel you were not adequately advised about the use of your TFSA and how it works, you can ask the government for interest relief on your over-contributions. But I recommend you contact your financial advisor to clearly outline how a TFSA works, or go online to the CRA website for TFSA`s for Individuals. Here is the link:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html?=slnk

Be careful with the use of your TFSA, avoid paying taxes on excess amounts.

Seianna Financial Services cares about your financial future. Take the $75 challenge!