CanadianSME sat down with Frank Bilotta, CPA, CGA, Partner at SBLR LLP and discussed the taxing strategies for small businesses.
With over fifteen years in public practise providing tax consulting services to owner-managed businesses and their shareholders, and seven years of previous experience in the Canada Revenue Agency (CRA) business audit division, Frank Bilotta brings a unique perspective to clients at SBLR.
Frank has advised privately-held enterprises and high net worth individuals in various industries, to ensure they minimize their tax exposure and enhance profits, as well as assisting them with CRA assessments and disputes, estate planning, commodity tax, and succession planning.
Frank’s specialized knowledge and expertise in the area of owner-managed tax consulting is in high demand. He works closely with clients to identify opportunities for minimizing corporate and personal tax exposure, focusing on corporate reorganizations, estate planning, and representing clients on tax objections and appeals.
As a Partner at SBLR LLP, what would you say is the most important aspect that entrepreneurs should consider when planning their taxes?
One of the most important aspects that entrepreneurs should consider in developing and implementing a tax plan or strategy that is all-encompassing and part of their overall business plan. A proper tax plan will consider the entrepreneur’s tax position at the initial stages of the business, during the business’s growth/life cycle, and when it comes time to exit the business. There so much complexity in the Canadian tax system, entrepreneurs need to plan ahead. A proper tax plan may include minimizing current period taxes or deferring future taxes, and/or utilizing available tax credits and incentives. This will allow the entrepreneur to free up working capital for daily operations of the business, and for making investments to grow the business. Comprehensive tax planning will also consider the business owner’s future goals, such as major equipment or other purchases, and business expansions. As the business grows and matures, proper tax planning will ensure the entrepreneur and the business are structured to minimize tax on a future sale or exit from the business by the owner, while enabling the owner to keep as many after-tax funds as possible for retirement. Tax planning should be an ongoing component of the entrepreneur’s business plan as it could result in large differences to business and personal cash flow. It should be reviewed each year, as the entrepreneur’s personal and business goals may change, to give enough time to implement any beneficial tax strategies before each year ends and the next begins.
One of the most important aspects of an overall tax plan involves the ongoing consideration of the number of funds/remuneration an entrepreneur will need each year for personal living expenses. Tax planning involves various components and, as such, can be overwhelming and complex. This is why I recommend entrepreneurs seek advice and work with their tax advisors to implement a plan on a proactive rather than reactive basis.
As per your experience. What is the biggest mistake that entrepreneurs make when it comes to planning their taxes?
The biggest mistake entrepreneurs make is not investing the time to set up a proper tax plan before it is too late, causing them to lose out on great opportunities to minimize their overall annual tax bill. I have dealt with many entrepreneurs who have done very little planning for their taxes over the years, and wait until a big event has happened to reach out to their advisor rather than doing tax planning in advance of these transactions. One of the main reasons for this is the entrepreneur’s reluctance to invest in the professional fees of an advisor, or the feeling that tax planning is not necessary for their circumstances. When they are made aware of how much tax they had to pay versus what they could have saved, entrepreneurs then decide to engage a tax advisor to determine and implement a tax plan for the business and themselves. Entrepreneurs are experts in their business. Tax advisors are experts at tax planning. Working together, the entrepreneur and the tax advisor can develop a fully coordinated tax plan to enable tax-efficient control over the business’s tax liability and the entrepreneur’s personal tax liability.
COVID-19 has had a huge impact on small businesses. What approach has SBLR LLP taken to help small businesses during these challenging times?
SBLR has always had a proactive approach with our clients. We keep in touch with them regularly throughout the fiscal year to stay ahead of potential issues and provide assistance where needed. The pandemic did not change our approach, but only increased our interaction with our small business clients. From the onset of the pandemic and the introduction of the tax relief measures, we made sure to keep our clients informed via client webinars, direct emails, phone calls, and setting up a COVID-19 relief measure page on our website with a breakdown of the relief measures and updates as changes are announced. The partners and managers at SBLR reached out to clients directly to assess their needs and determine how SBLR could assist them during this time. For many clients, it has involved working with them on applying for certain tax relief measures, and for others, it has been working with them on developing short and long-term budgets. In essence, we have taken the approach of becoming a business advisor or outsourced CFO to many of our clients. The partners at SBLR are ourselves, small business owners, so we have been able to relate to the many issues small business owners have been experiencing; therefore we feel one of the best approaches has been to draw on our own experiences and do for small business what we would do or would want to be done for ourselves. We have also ensured that our team has been fully accessible throughout this time to handle new client issues and questions as they come up.
We have invested in staying up to date with technology, so it was a smooth transition to move our entire team to work from home, through very secure systems, including a client portal to enable sharing information electronically. Furthermore, all client files have at a minimum two points of contact to ensure our clients can always reach someone on the SBLR team, as we realize the timeliness of the need for information for small business owners.
In your expert opinion, what impact has the pandemic had on businesses tax-wise and what advice can you give to entrepreneurs to help them during the COVID-19 outbreak?
The government has been introducing various tax relief measures on a regular basis to help Canadians get through this pandemic. As things begin to stabilize and the economy opens up, businesses should expect more in the form of elimination and changes to current tax relief measures, with the introduction of new more long-term tax measures to help the economy begin to grow again. In addition, with all of this tax relief and government spending, there will be a need for increased taxes at some point in the near future. In this regard, businesses need to stay current on the tax measures and consider how they will impact cash flow and profitability. Entrepreneurs need to plan for things such as: maximizing their eligibility for government grants and credits; loss utilization to minimize current year taxes and/or recover prior year taxes; asset sale strategies such as disposing of or writing down obsolete assets to provide tax deductions in the current year; corporate tax planning to allow the owner to withdraw funds at a lower tax rate; amalgamation/windups to eliminate unprofitable businesses and use losses against profitable businesses; and managing employee/employer payroll tax through salary deferral planning, non-cash benefits, etc. All of these planning strategies have the potential to minimize a business’s tax burden by providing cash flow liquidity. It is a matter of identifying and planning for the right strategies that are the most suitable for a particular business to help in its recovery.
What is your key advice to small business owners in general that can be beneficial for them during these unprecedented times?
Business owners need to have a business plan and use this opportunity to take an in-depth review of their business. They should not just be budgeting for the short term. Entrepreneurs should be reviewing all aspects of their business, including:
- Business lines and products to determine which are profitable versus unprofitable, and which should be discontinued
- Opportunities for new business lines/products that this pandemic has created and their business could provide (”re-invent your business”)
- How their product or service is being delivered to the market place to get up to speed on technology and new customer habits
- Review and eliminate expenses which are not necessary for your business, for example, if working from home is an option, consider getting rid of excess office space
- Investing in marketing/business development to attract customers and stay current with their needs.
Overall, small businesses need to have a business plan for the near and distant future in order to be ready once the pandemic is over, as the past’s business and consumer environment has and will be changed forever.