The State of the Economy: July 22nd, 2022
Hello All,
As most of you might know, the Canadian and global economy is experiencing some significant challenges.
The most significant impact for us, as individuals, can be seen in the guise of inflation. We have all noted the increase in prices of groceries and gas (I know for me it has started to become a common topic of discussion with friends and family as we bemoan the price of vegetables or contemplate the alternatives to driving our cars).
There are also other manifestations of a problematic economy which include a labour shortage, negative consumer sentiment, supply chain disruptions (emptier shelves and longer waiting times) and a plummeting stock market. Additionally rising interest rates, to curb inflation, are most notably being felt in the housing market.
All of these factors are leading to growing concerns that there will be a recession in Canada (and the US) in 2023. A recession, according to the National Bureau of Economic Research, is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. GDP refers to gross domestic product that essentially calculates all the money spent by consumers, businesses and the government.
Recessions are bad because as growth in the economy weakens, businesses tend to see lower sales which results in reduced expenditures, layoffs and increase in bankruptcies.
There are however some economists that think that if there is a recession, it won’t be too severe (also referred to as a “soft landing” in the jargon of economics). According to two economists at Scotiabank, pent up demand for “discretionary” (non essential) spending such as food and travel is still strong despite inflation. Whether this “fun” spending continues remains to be seen.
Additionally Canada's unemployment rate fell to 4.9 per cent in June, which is the lowest level since this metric started to be measured in 1976. This will counterbalance the effects of a potential recession since it will take some time for unemployment rates to rise meaningfully.
So while the risk of an economic contraction and recession is still high, there are some factors that indicate it might not be so bad. If the increase in interest rates (and other monetary policy measures by the government are successful) in curbing inflation, supply chain pressures start to ease up, and labour becomes more readily available, then there is hope that we will indeed experience a “soft landing”.
I received a question recently about the alternate way of reporting your GST/HST and QST. For those of you with minimal expenses, the Quick method of reporting can actually result in substantial savings, depending on your sales levels. More details in my article:
MON, JUN 08
Is the Quick Method of Reporting GST/HST & QST the Right Choice for your Small Business
If you are self employed or a small business with annual sales between $30,000 and $400,000, it might make sense to select the Quick Method of reporting your GST/HST and QST, which is essentially a
Small Business Articles/Tips
An article in the Financial Post about how Canadian monetary policy will impact the direction of the economy i.e. raising interest rates and buying back government bonds (also known as Quantitative Tightening or QT)
Tax News:
Tax implications of working from home are addressed in this article including establishing a remote work policy, issuing the T2200 (tax documents for employees who work remotely) and provincial/cross border issues that might crop up.
Tax implications of the evolving labour market where a significant number of Canadians are now employed in the “gig” economy and are therefore technically self employed. Consequently, CRA is in a position where they have to “evolve to meet the requirements of a shifting workforce”
QuickBooks Tip - GST/HST/QST Quick Method
Normally, with QBO, you simply “file” the GST-QST return either monthly, quarterly or annually depending on your filing frequency. This closes the period and ensures any subsequent adjustments are carried over to the next period.
With the Quick Method, generally you would not reflect GST/QST and HST on expenses (if you are a service based business) or at the very least you would do a calculation of the GST/HST and QST owing outside of QBO (usually in a spreadsheet or calculator). Once calculated, you can adjust the amounts of sales tax collected and paid directly on the sales tax return in QBO. After selecting “prepare” return, you would click on “adjust” next to the line item to be adjusted. For the adjustment account, I generally create a new income account called “Quick Method differences” as this is still (of course) taxable income.
Books and Resources
Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed Workers)
This book helps you have a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.
FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.
QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.
FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.
Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).
Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.
Please note that all books on my website are in PDF format.
If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.
Free Resources
Business 2022 Tax Deadline Calendar
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters.
Consultations
I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here.
Note that I no longer provide ongoing accounting or tax preparation services.
Reviews/Feedback
I would love to hear your comments on my current blog posts, topic ideas for new blogs, book feedback or anything else that you want to talk to me about. You can use my feedback form or email me directly at ronika@montrealfinancial.ca.
For anyone who has purchased my books through Amazon or directly and found them useful, I would be very grateful for a review on Amazon (to leave a review you only need to have an account with Amazon even if you did not purchase the book from there).
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Hope everyone is continuing to enjoy the summer (and the accompanying heat and humidity) and has a great weekend!
Ronika
