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E-Myth – “Why most small businesses don’t work & what to do about it”

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Vancouver CPA | Lucky to Be Incorporated or Not

Vancouver CPA gives an example of a scenario where business owners will come to the serious and they’ll say that they’ve been in business for maybe just a year, three years. Or they are seasoned veterans and they have been in business for 10 years or more. They say they haven’t had a problem in dealing with the Canada revenue agency yet. However, Vancouver CPA gives the example of if you consider the fact that you are in arrears of doing something, or doing something wrong, chances are eventually it will catch up to you and you will get caught.

Give the example of a smoker. Potentially this smoker has been smoking for one, three, 10 years, or even longer. They have been very lucky in that they have not yet been feeling unhealthy, or have been diagnosed with any life altering diseases or fatal conditions. However, you know that it is just a matter of time and results will eventually become catastrophic. It’ll work until it in fact doesn’t, and at least a very challenging time. How many people do you know that has been successful and health problem free when they’ve smoked?

Big companies, says Vancouver CPA, often find themselves to be immune to the Canada revenue agency’s prodding’s and poking’s. They think that they have been in business long enough and they know the game so that they are definitely not going to get caught. However, it’s not quite simply that easy. If you’re being on a court incorporated contractor, the CRA doesn’t care about that. If you bring on an employee, the CRA will turn the other cheek on that one as well. However, if you have taken on a unincorporated contractor, that is where all the problem start. This is where all the risk can happen.

Big companies are not going to hire unincorporated companies. The big rule of thumb is simply “don’t hire unincorporated companies!”

There are in fact is a psychology to this. Entrepreneurs are wired in the brain set the right way with which they can do this is they are good at influencing people. They can influence their employees to do as they ask, they stay on task with their mission as they are looking for and working towards long-term goals. Their vision for their life and their business goes beyond just the immediate, and they mitigate, and work well when confronted with a dilemma or a problem. They are good getting people to buy from them in terms of their good or their service. They think that if you make a very passionate, dramatic, logical argument or plea that the CRA will then not worry necessarily about them because they are not guilty. They think they been online and they read a couple of considerations about if you’re a contractor, or an employee, then you will be safe.

Often times what happens is they think somehow the CRA is going to have to buy in to their argument and that they will not have any penalties or fines.

Vancouver CPA will ask what is going on with this so-called contractor when they are actually an employee within a business? Are they responsible for technically their own training from within their business? Or do they train themselves? Can they hire replacements to do their job? Or are the small businesses insisting on that particular person doing that particular work for their business?

Auditors are very stern in their work. They will ask does the person have any other clients? When confronted by an auditor for a interview, it is not often an interview or a chat, it is an interrogation. The list of questions is huge, probably in the neighbourhood of 40 to 50 questions long. Some of the questions will be asked is does this person have any other customers? Does this person have insurance? What costs are they responsible for? Are they buying materials and supplies for the business and for themselves with which to utilize? Can they hire replacements is huge! Other questions to be considered are whose training them? How are the hours and the schedule set? Are they set by yourself, the contractor, or are they set by the small business owner? Do the contractor bid on the project to begin with or did you just tell them how much they’re making? All the questions are going back to what’s the risk of profit and loss to this person.

From within a business, advises Vancouver CPA, you might know that you do have some risk. Ideally and obviously you want to mitigate that risk level. At the same time, however, changing people from contractors to employees is something that is often not very well received, and can cost the small business owner extra costs. The reason why it’s not very well received is because the fact that these contractors have worked as such for a very long time and now all of a sudden you are changing the rules on them.

Consider, says Vancouver CPA, that when they are due for an incremental increase, also known as a raise, that might be a good time to move them and change their classification from contractor to employee. This will be better received as they view it as a raise and a consideration of their work rather than changing the mechanism that you’re paying them.

As well, consider the fact of telling them also that if you want to make more money, it would be a great idea to incorporate their business. If you can do it in conjunction with a raise, sometimes you don’t rock the boat in terms of that contractors feelings of such or their particular and individual dealings.

Be careful, as the risks do tend to begin to get a very high. The CRA auditors will usually ignore a discrepancy of $500 or less. That is usually the number for their threshold. Any more than that however, you will begin to accrue some fines, and penalties.