Outsourcing in the Business world today. There are both pros and cons to outsourcing, all of which must be considered before reaching a decision.
Outsourcing production can have some advantages for a new start-up product provided there are existing suppliers qualified to manufacture the items to your specifications. Control over the new product can be documented in contractual agreements. It is always a good idea to have more than one supplier, if possible, to ensure you can meet your product delivery demands.
However, multiple suppliers can create problems with maintaining consistency of quality.
Outsourcing also means you would not have to invest heavily in developing your own infrastructure. Your market research and your business plan should give you a basic idea of your potential sales volume and selling price, from which you could calculate a break-even point in terms of recouping your initial investment when you switch to outsourcing.
Here are some advantages of outsourcing:
Financial benefits—Clean up your balance sheet by eliminating assets, and have a more stable cash flow
Strategic optimization—Think about your company’s core mission and whether it is relevant to continue certain operations
Better management of the outsourced activity—In theory, you can choose a supplier that is a leader in the field
Market discipline—You can align your costs with those of suppliers in the field
Technology—In theory, you gain access to state-of-the-art technologies
Flexibility—The resources no longer used in one area can be redirected to the company’s core operations
Here are some risks of outsourcing:
Loss of expertise—You lose know-how and skills that may prove critical to your long-term competitiveness. Information from suppliers helps in new product development.
Dependence on the supplier—If you resume carrying out the outsourced activity yourself, it can take years to reach the level of performance you used to enjoy. But if the supplier’s service deteriorates, or if their price rises, you may want to take back the activity.
Loss of control over costs—Improved production facilities may generate larger gains than outsourcing. Look at internal solutions before considering external solutions.
Here are some reasons not to outsource a production facility:
You have highly qualified employees
You need contact with suppliers and customers
Research and development is done in the plant
Production operations are properly focused
You have control over production costs
Here are some lessons on outsourcing
Look for compatible goals
Focus on the best solution, not the lowest price
Use a very detailed contract and up-to-date legal experts
Involve key players
Document the transition phase
Communicate clearly from the beginning
When outsourcing, look for suppliers who are credible in the field and compatible with your needs, remain flexible as needs change, have the skills you need, can save you money and offer the quality of service you need.
How do deal with your Cryptocurrency Bookkeeping. When you buy and sell cryptocurrency whether it’s through trading or mining you must keep records of all transactions for your bookkeeping record. If you are a business that accepts cryptocurrency as payment you will need accurate bookkeeping.
Since all the cryptocurrency exchanges are different you must keep your records yourself. It is not the responsibility of the exchange but you to keep accurate bookkeeping records.
Dealing in Cryptocurrency’s is a very complicated asset class. I would recommend working with a professional who can help guide you through what is required to be compliant with CRA.
Here are the main items you must keep in your bookkeeping records:
Date of when the transactions occurred
Proof of the transaction
Canadian value at the time of the transaction
Records of cryptocurrency addresses and details of digital wallets
Details of the transactions and the other side of the trade i.e. who the transaction was with or at the minimum Cryptocurrency address
Cryptocurrency exchange records
All bookkeeping, record keeping, legal and accounting details
All operating costs including software
For mining purposes you will also need to keep these records:
The hardware related costs associated Cryptocurrency mining
Proof of operating costs that would include maintenance hardware mining pool fees and power costs.
Details of mining pool records
When you value the cryptocurrency as either income or capital property you must keep accurate records of your adjusted cost base.
Value each item in inventory at the cost or format for market value when it was acquired. Secondly valuing the inventory the inventory annually at the fair market value is also required.
GST/HST does apply to cryptocurrency services. We’re taxable event occurs when the services provided in cryptocurrency the GST/HST must be calculated at the fair market value.
Barter and Cryptocurrency. When you dispose of one cryptocurrency in exchange for another cryptocurrency the barter rules apply. You must value the current cryptocurrency in Canadian dollars. The future cryptocurrency must again be in Canadian dollars in calculating the trade.
The resulting barter transaction must be reported as operating income or a capital gain depending on how the trade is carried out. These results must be reported on your income tax return.
Here are three examples of barter system using crypto:
1. Nick plans to buy and sell cryptocurrency‘s to make a profit.
He pays attention to the fluctuations in pricing of cryptocurrency‘s and profits on the volatility. Since Nick‘s activities are consistent with trying to make an operating income and is actively involved in daytrading these profits are losses can be considered as operating income. Nick sold $1 million of cryptocurrency in 2020 which he had purchased for $500,000.
The $500,000 profit in operating income will be reported on next 2020 tax return.
2. Michael bought it new living room set from a vendor that excepted bitcoin.
Michael had acquired $5000 worth of bitcoin to buy the items with. As time went on before the transaction had closed Michaels bitcoin increase by $1000 so there was a capital game that Michael needed to report. When Michael converted the 5000 bitcoin into Canadian dollars it actually came out to $6000.
Michael and had to pay 50% of that gain in taxes.
3. Connor bought 500 units of light coin which had a value of $500.
For this purchase Connor traded in 10 units of bitcoin for the 500 units of litecoin. And since Connor‘s value in bitcoin has increased vs. litecoin at the time of purchase Connor would have to convert the money to Canadian dollars take the capital gain and then purchase the litecoin at the cost base.
Connor would have to report the capital gain on his tax return.
Cryptocurrency Mining, is it a Capital Gain or Business Income? Profit from selling Cryptocurrency can be considered as capital gains or operating income.
Since Cryptocurrency is generally looked at as an asset that is traded for value, you would assume it is always treated as a capital asset. There are instances when you work in the industry of Cryptocurrency where there is legitimate business income being produced. Hence this should be tax at the operating income rate.
Here are some guidelines to help define what the case is for you:
Do you buy and sell cryptocurrency on a regular basis for the objective of making profits and is this a legitimate business?
Are you running the operation as a true business?
Where do you acquire assets in inventory and have a a proper business template?
Do you advertise your services or products in the cryptocurrency space?
Do you have the purpose of making profits even if they are not currently in the short term?
Do you have the purpose to make a profit in the future?
Are your Operating processes generally comprised of a repetitive process? All processes must be evaluated separately.
Sometimes even a single transaction can be considered as operating income. All cases must be looked at separately.
Here are types of cryptocurrency operating businesses:
Cryptocurrency exchange platforms
Cryptocurrency buying and selling
How to treat income from cryptocurrency mining:
First we must determine is the cryptocurrency mining a hobby or a business. When a minor is involved in cryptocurrency they will be paid once the cryptocurrency is validated. Fees are payments in cryptocurrency and fees associated to the validation. If the mining is treated as a business operation with consistent mining tasks occurring. And the intention of making a profit then they should be looked at as operating income.
Is the sale of cryptocurrency an asset disposition or operating income?
Reporting Cryptocurrency as Operating Income or Capital Gain. The sale can be looked at as either operating income or a capital gain or loss. This event could create a taxable transactoin depending on your cost base.
If you do the any of the following things there’s a possibility of a taxable event:
The events consist of selling or making a gift of cryptocurrency trading cryptocurrency on an exchange which would include selling or buying of cryptocurrency.
Converting cryptocurrency into government issued currency or any Fiat currency which could create a capital gain or loss.
Using cryptocurrency to buy goods and services that didn’t in in essence are an asset that could’ve had a store of value.
If someone has cryptocurrency is part of a regular business operation then it will not be deemed as a capital gain or loss. Buying cryptocurrency with the intention of trading it down the line for a profit, may not be considered as a capital gains and could be treated as income.
Day trading Crypto with the intention of making a profit can be considered as operating income. Having a business plan will help to show that your intention is to be a business over keeping it as a store of value that will be traded at some point for a gain.
Cryptocurrency gains from the sales are generally included as in the income for the year but only half of it is taxed as capital gains. Unfortunately capital losses cannot be used to reduce income from other sources during that same year. You can carry back the capital losses for three preceding years as long as there is no current capital gains to offset them against in the current year.
Reporting Cryptocurrency as operating Income or Capital Gain.
Guideline for Crypto
Cryptocurrency and Taxes. As cryptocurrency has become a new way to store value. I have created some guidelines to help. Canadians must be aware of how a cryptocurrency is taxed and their obligations to pay it. Therefore, information hasn’t been updated since 2014 since the Senate reviewed guidelines but here it is.
Taxes of cryptocurrency and how they affect income tax for you
Cryptocurrency is a store of value not a Fiat currency. As well, Crypto is a digital asset that is used more like in a barter system to trade for another asset. Both parties will agree to the value when using it and it is also considered an altcoin.
Transactions of crypto coins are verified through encryption processes. All coin or crypto‘s work independently of central bankers. This is why many have found this very attractive form to store value versus with traditional banks.
Canada revenue agency treats all coin or crypto as a as a commodity under the in Canadian income tax act.
Depending on how the crypto or alt-coin is earned it can qualify as business income or a capital gain. This can subsequently offset it as business loss for capital loss.
Canadian taxpayers must establish a methodology of how they’re earning the cryptocurrency or alt-coin. The taxpayer must show how it was treated either as income or capital gains. Only a small percentages of cryptocurrency users are treating it as business income as they run an operation with cryptocurrency.
In Canada transactions using bitcoin to trade for another item is considered barter. As cryptocurrency and alt-coins are not considered fiat or legal currency In Canada.
You must use a reasonable method to determine the value of the cryptocurrency, when an alt-coin transaction is created. In general the you must take the market value at the highest price a buyer and seller is willing to except for the cryptocurrency Or alt-coin.
If you hold several cryptocurrency’s or alt-coins in your digital wallet they must be accounted for separately.
Cryptocurrency and Taxes
New Business Pitfalls to Avoid
As a new business owner you will face many challenges. This article will explain some of the pitfalls to avoid and how to save money.
1. When starting your business in sure that you can differentiate a product from a business.
A business will have different aspects such as HR culture, IT systems, legal etc.
We’re looking at a product ensure that there is an actual demand for this in the marketplace 40% of businesses fail to recognize a demand for a product and fail in coming to market with something that is not required.
2. A major pitfall is not differentiate in your business from your competitors. My favorite way to start a business is go into a niche that is underserved. Once you can dominate this niche you can then expand into other niches. Start by location and an area were you are the expert.
3. Start out lean. Do not have large marketing plans and an office that you can afford. Do not over staff do the items yourself to learn the processes and then eventually hire fractional staff.
4. Test out your products first or business services. You can do this by doing surveys doing a kick starter or simply try marketing on social media for free.
5. The biggest mistake any business can make and the main pitfall to avoid is do not scale to quickly. It is better to lose a few sales and scale slowly then to scale quickly and lose all sales based on a poor reputation.
New Business Pitfalls to Avoid
Here is some info on the new Ontario grant. If you were a business that has suffered a 20% loss from April 2019 in income compared to April 2020. You are more than likely eligible for the Ontario grant. You must have an incorporated business prior to March 2020. The grants range from 10,000 20,000. They are available for businesses that have suffered a 20% reduction. The revenue in comparison from April 2020 to April 2019. There is also a rent subsidy offered by Ontario, and a wage subsidy plus a utility subsidy.
Also CEBA has been increased from 40,000 to 60,000. If you were a business and incorporated prior to March 2020 please get in contact. There is possibly is money available for you. I’ve spoken to many businesses that essentially gave up and never applied based on the rumours and horror stories about the application process. This is not the case. You are eligible especially if you have a payroll account prior to March 2020 and again if your business has reduced income you’re more than likely eligible.
The BDC program is also available for businesses that have a 50% reduction in income. You must show 3 months of reduced deals and they do not have to be consecutive. The 3 months of 50% reduced income must be within 8 months of the application. This loan is through your bank but is guaranteed by the BDC. The loans are at 4% and can have a maximum amortization of 10 years.
For Help with the Ontario Grant, Call or text me today at 416-265-6170 to get help with CEBA Loan application, Wage Subsidy, or the Rent subsidy program. You can also email me at firstname.lastname@example.org. I will connect you with one of our accountants and we can start to get you back on track and save your business
How to claim business expenses
What is personal versus what is corporate.
The first thing to recognize is the Canada Revenue Agency will allow reasonable business expenses.
It is very important to keep separate bank accounts for your personal and business. Tax planning and tax and a business expense organization is critical in in determining how much tax you pay each year.
Reasonable is different for every type of business. A sales person might be taking out clients for lunch and 50% of this expense would be reasonable. But a plumber I would not be taking our clients for lunch rather than would have different types of expenses i.e. materials and supplies.
The reasonableness factor also comes to scrutiny when looking at the actual level of cost. Expensing an $800 lunch for two people is not reasonable.
It can be reasonable to expense part of your home as a home office if you do actually work from home. Also driving a car to and from a clients office can be reasonable.
All business expenses must be documented with receipt. Whether it’s digital or in paper format these receipts must be kept for seven years. HST audits are very detailed and must have supporting documents showing HST paid.
Putting things in the business his name is a very very smart strategic way to separate operating business expenses versus personal expenses. One strategy if you are married is to have your personal expenses go through the after tax income and operating expenses organized into the business.
Every business is different and requires a personalized tax plan and strategy. Please contact me today as this is something we do for all of our clients and I have been very successful at organizing and minimizing taxes for a personal and business clients.