So, you are about to open a new practice?
Here are a few things to think about.
Incorporating or not
This is a decision that needs to be decided before you open your practice, as you will probably be signing leases for office space, possibly leasing equipment, trying to obtain loans, and hiring staff.
Typical decision making on this is potential tax savings and legal separation from you and the practice. You should have a discussion with your accountant and lawyer early on in your decision-making process.
As mentioned above, assuming you have incorporated, the lease would be negotiated and signed by the corporation to keep the liability within the corporation.
Consideration should be given to length of lease and space requirements for growth, based around your vision of the practice for the medium- to long-term. Negotiations with the landlord will include such things as what the landlord is willing to pay for up front regarding improvements to the space, and a potential rent-free period.
Payroll for you and your staff
Opening a payroll account with (other) CRA. Here is a link to opening a payroll account: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/How-open-payroll-account.html
Remittances to CRA for payroll withholdings are due the 15th of the month after the deductions are taken and the employee is paid.
There are several payroll processing companies available that will take care of the entire payroll process, from paying the employee, remitting withholdings to CRA, issuing Records of Employment, and issuing T4s. They are all quite reasonable and I recommend using one of them, which will allow you to focus on your practice.
Assuming that you are incorporated, you should speak to your accountant about the most efficient tax method to extract funds from your corporation. You could be taking a salary, dividends, repayment of monies you have put into the corporation, or a combination of two or more of these.
The typical loans are either private or through a bank.
It is often difficult for a new business to borrow money, as it has no track record. If you are looking to obtain a loan from a bank, through your corporation, be prepared to sign a personal guarantee against the loan.
Private loans, other than from friends and family, can be expensive, usually in the 8 – 10% interest per annum range, so I usually recommend against this type of loan.
This should be part of the early stages of considering opening a business. It is money well spent, to have your accountant walk through a 12-month cashflow forecast with you (on a monthly basis), to determine your businesses cash needs for the first year of operations. Preparing this by month will give you much needed insight as to low points of cashflow, until the revenue stream begins to increase.
After the first 12 months of operations, it would be a good idea to update the cashflow forecast for an additional 12 months of normal operations.
Lease or buy equipment
The upside to leasing is that it preserves initial cashflow, basically spreading the purchase price over several years. The downside to leasing is that it will typically cost you more for the same piece of equipment since you are purchasing it over several years.
Ultimately, whether you are buying or leasing, you will receive a tax deduction for the equipment.
It will come down to whether you have enough start-up capital to purchase equipment and, if so, if you need that start-up capital for other things.
This article is for general information purposes and may not apply to every person reading it. Due to the complex nature of taxation, you should consult a tax advisor prior to making any decisions based around the above general information.
Written by Peter Simpson, CPA, CMA, Simpson and Associates
CRA Chief Financial Officer
About Simpson and Associates
Simpson and Associates is a full-service accounting firm, located in downtown Burlington. Peter Simpson, CPA, CMA, has over 20 years of tax and management accounting experience. Services offered range from personal tax, corporate tax, management consulting, part-time CFO/controllership and assistance with SRED applications. Some of the industries that we specialize in are entertainment, manufacturing, software development and professional services. We have alliances with other professional service firms such as lawyers, bookkeepers, HR consultants, private financiers and valuators
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