Ten Ways A Chartered Accountant Can Hurt Your Business / or Lose Your Money

Just like a bad investment advisor can hurt your stock portfolio, an inexperienced Chartered Accountant can hurt your business or lose your money.  How do you know if you’re safe?To help you answer this question, I’ve compiled a list of “10 Ways a Chartered Accountant Can Hurt Your Business or Lose Your Money.”

 This article lists how a Chartered Accountant in Mississauga Ontario Canada can hurt your business or lose you money. If you are in another location in Ontario Canada, it is equally relevant.

1.    Errors in Financial Statements  

Errors in your company’s financial statements can hurt your business, because you will not have reliable information to make effective management decisions and you will not have a clear picture of the health of the business.  

To avoid this scenario, it’s important that you have an in-depth discussion with your local Chartered Accountant about your company’s financial statements.

2.    Errors in Tax Returns

Errors in Tax Returns:  If there are mistakes in your company’s tax returns, it’s likely that you paid too much or paid too little in tax.  If your company paid less than it should have in tax, and this is uncovered in a tax audit, then the Canada Revenue Agency may levy significant interest and penalties.

Therefore, you should always review your company’s tax returns with professional skepticism, even if they were prepared by your current Chartered Accountant.

3.    Filing Tax Returns Late

Corporate tax returns are due within 6 months of the corporation’s year end.  If your current Chartered Accountant  files past the due-date, then a penalty of 5% of the balance owing will apply, plus a penalty of 1% per month that the returns are past due.

4.    Paying Taxes Late

Corporate taxes owing for the year must be paid within 3 months of the corporation’s year end for Canadian Controlled Private Corporations.  If you pay past this due-date, then the Canada Revenue Agency will charge interest on the balance owing.  

Your current Chartered Accountant can estimate the amount of taxes owing, even if he/she hasn’t prepared your corporation’s tax returns within 3 months of the year-end.

5.    No Compensation Planning 

As an owner-manager, you would like to pay the least amount of tax on the compensation (e.g. salary) that you receive from your corporation.  The tax rates that apply to your earnings depend on whether you received dividends, salary, management fees, or shareholder loan repayments, or a combination of these.

Therefore, you should review your compensation structure with your current Chartered Accountant to ensure that it’s optimal for you.

6.    Ignoring Small Business Deduction  

The first $500,000 of taxable income earned by a corporation is subject to a low rate of tax of 16.5% (i.e. 5.5% levied by Ontario and 11% levied by the Canada Revenue Agency).  Every dollar over and above $500,000 is taxed at 33%.  This threshold of $500,000 is know as the Small Business Deduction (SBD) Limit.

Firstly, if your corporation has earned more than $500,000, you should speak with your current Chartered Accountant about declaring a bonus to reduce your corporation’s taxable income to $500,000.

Secondly, you should inform your current Chartered Accountant of any other corporations that you own, because the SBD limit must be shared by associated corporations.

Failure to bonus down to the SBD limit or allocate the SBD limit properly can cost your corporation a significant amount in tax.

7.    Poor Internal Controls – Not Evaluated 

A company needs strong internal controls to allow for growth in its business.  Internal controls are policies and procedures that allow a company to conduct its business in an efficient manner, safeguard assets, detect errors, and ensure accuracy of financial information.

Your Chartered Accountant should perform an evaluation of your company’s internal controls and suggest improvements to address control weaknesses.  Failure to do so can materially hurt your business.

8.    No Creditor-proofing – Not Performed

As your business grows, it will accumulate valuable assets, including cash.  If there’s a lawsuit against your corporation or hawkish creditors on your tail, you risk losing your corporate assets.  

To protect your corporate assets from lawyers and creditors, your Chartered Accountant can undertake a strategy know as ‘creditor proofing’, which essentially transfers valuable corporate assets to a holding company owned by you.

If your Chartered Accountant hasn’t spoke to you about this strategy, he/she is already hurting your business.

9.    Improper Budgeting and Forecasting  

Larger corporations should ask their current Chartered Accountant to help them prepare forecasts / budgets for the coming year.  Forecasting is essential so that you can properly allocate company resources and reliably estimate future cash-flows.  

10.    Not Claiming SR&ED Tax Credits 

The 10th way your current Chartered Accountant may be costing you money, is if he/she has not discussed the Scientific Research and Experimental Development (SR&ED) Program with you.

The SR&ED Program is run by the provincial and federal governments, in which Canadian companies receive up to 50% (approx.) cash back of the monies they spend in the performance of SR&ED.  Software development and manufacturing companies are ideal candidates for this program.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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