How to Read a Balance Sheet, With a Small Business Balance Sheet Example

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How to Read a Balance Sheet, With a Small Business Balance Sheet Example

Targeted Accounting

How to Read a Balance Sheet

A balance sheet is a snapshot of your business on one day: what it owns, what it owes and what is left for the owners. Most owners read the income statement first because profit is easy to follow. The balance sheet is where problems show up early, such as a tax balance that keeps growing, money the owner took out that the CRA can treat as income, or a cash figure that no longer matches the bank.

This guide walks through a sample balance sheet for a small Canadian corporation line by line, then covers the ratios a lender calculates and the red flags we check when we take on a new client. It is part of our series on monthly financial statements and year-end reporting. If some of the terms are new, our guide to bookkeeping basics is a good place to start.

The Balance Sheet Equation: Assets, Liabilities and Equity

Every balance sheet follows one equation: assets = liabilities + equity. The left side lists what the business owns or is owed. The right side shows who has a claim on those assets: lenders, suppliers and the government first, then the owners. If the two sides do not agree, the books are wrong.

Both sides are split by timing:

Current assets: cash and anything expected to turn into cash within 12 months, such as accounts receivable, inventory and prepaid expenses.
Long-term assets: things the business uses for more than a year, such as equipment, vehicles, computers and leasehold improvements.
Current liabilities: amounts due within 12 months, including supplier bills, HST owing, payroll remittances, corporate tax and the next 12 months of loan principal.
Long-term liabilities: debt due after 12 months, such as the rest of a term loan.
Equity: what the owners paid for their shares, plus profits kept in the company.

The split matters because current assets pay current liabilities. A profitable company can still run short of cash when most of its money is tied up in equipment and its bills are due next month.

Balance Sheet Example for a Small Canadian Corporation

Here is a simplified balance sheet for a fictional Ontario renovation company, Northfield Renovations Inc., at its December 31, 2025 year end.

Northfield Renovations Inc., December 31, 2025	$
Current assets
Cash	48,200
Accounts receivable	36,500
Inventory	12,300
Prepaid expenses	3,000
Total current assets	100,000
Equipment and vehicles, at cost	85,000
Less accumulated amortization	(32,000)
Total assets	153,000
Current liabilities
Accounts payable and accrued liabilities	18,400
HST payable	7,600
Deferred revenue (customer deposits)	9,000
Corporate income tax payable	5,000
Current portion of term loan	10,000
Due to shareholder	15,000
Total current liabilities	65,000
Term loan, less current portion	30,000
Total liabilities	95,000
Share capital	100
Retained earnings	57,900
Total equity	58,000
Total liabilities and equity	153,000

Total assets of $153,000 equal total liabilities of $95,000 plus equity of $58,000. That check is the first thing to look at on any balance sheet.

Balance Sheet Lines That Confuse Business Owners

Most lines above explain themselves. These are the ones clients ask about most:

Due to shareholder: money the owner put into the company, or business costs the owner paid personally, that the company has not yet repaid. Northfield owes its owner $15,000 and can repay it without tax. Because the owner can ask for it back at any time, it usually sits in current liabilities.
Due from shareholder: the reverse, where the owner has taken out more than they put in. This debit balance is the one that causes tax problems, covered in the red flags below.
HST payable: HST charged to customers minus input tax credits on purchases, for periods not yet paid. It is not your money, and it should match what your filed returns say you owe plus the current period.
Deferred revenue: deposits for work not yet done. Northfield’s $9,000 is deposits on January jobs. It becomes revenue when the work is done, so until then it is a liability.
Accumulated amortization: the wear on equipment recorded so far. Northfield’s equipment cost $85,000 and $32,000 has been expensed, leaving a net book value of $53,000. That is an accounting estimate, not a resale value, and it usually differs from the capital cost allowance claimed on the tax return.
Retained earnings: all profits since the company started, minus all dividends paid. This is the line that ties the balance sheet to the income statement.

Northfield’s retained earnings reconcile like this: opening balance of $42,400, plus 2025 net income of $25,500, minus dividends of $10,000, equals the closing balance of $57,900. Your accountant should be able to walk you through the same calculation for your company.

Balance Sheet Ratios Lenders Calculate

A banker reading your balance sheet will work out a few ratios within minutes. Using Northfield’s numbers:

Working capital and current ratio: current assets minus current liabilities gives working capital of $35,000. Current assets divided by current liabilities gives a current ratio of 1.54 ($100,000 ÷ $65,000). BDC’s definition of the current ratio notes that most businesses aim to keep it between 1.70 and 2.0.
Debt to equity: total liabilities divided by total equity. Northfield’s is 1.64 ($95,000 ÷ $58,000). Lenders compare it with other businesses in the same sector, as BDC explains in its debt-to-equity glossary entry, and a ratio that rises every year tells them the company is growing on borrowed money rather than profit.
Quick ratio: current assets less inventory and prepaid expenses, divided by current liabilities. Northfield’s is about 1.30 ($84,700 ÷ $65,000). It tests whether the business could pay its short-term bills without selling inventory.

Northfield’s current ratio sits below the BDC range mainly because of the $15,000 owed to the owner. A lender in that position may ask the owner to sign a postponement agreement, promising to leave the money in the company while the loan is outstanding. Our guide to financial statements for a business loan covers the cash flow ratios lenders add to these.

If you need projections and lender-ready reporting rather than just clean books, see our outsourced CFO services.

Balance Sheet Red Flags to Watch For

When we take over a set of books, these are the balance sheet items we check first:

Negative equity: total liabilities larger than total assets. Past losses or withdrawals have used up everything the owners put in, and the company often depends on the owner’s money to keep going. Lenders treat it as a serious warning.
Growing suspense or uncategorized balances: an “Ask my accountant” or uncategorized expense account that is never cleared means transactions are being posted without anyone understanding them. A few hundred dollars at month end is normal. Thousands carried for months is not.
A bank balance that does not match the statement: the cash line should equal the bank statement on the same date, adjusted for outstanding cheques and deposits. If it does not, the reconciliation has not been done and every other number is suspect.
A debit balance owing from the shareholder: under the CRA’s shareholder loan rules in Income Tax Folio S3-F1-C1, a loan from the company to its shareholder is generally included in the shareholder’s income unless it is repaid within one year after the end of the company’s tax year in which it was made, and the repayment is not part of a series of loans and repayments. Our guide to shareholder loan planning explains the usual fixes.
HST payable that does not match filed returns: if the balance sheet shows $7,600 owing but your CRA account shows $12,000, either a return or the books are wrong. Both need to be fixed before year end.

How Often to Review Your Balance Sheet and What to Ask Your Bookkeeper

Read it every month, once the bank accounts are reconciled. A balance sheet you only see at year end gives you 12 months of problems to fix at once. Compare each month with the month before and with the same month last year, and look for lines that moved more than you expected.

Each month, ask your bookkeeper for:

Reconciliations: confirmation that every bank, credit card and loan account is reconciled to the month-end statement.
Receivables: the aged receivables list, with any customer over 60 days flagged.
Tax balances: HST, payroll remittances and corporate tax owing, checked against your CRA accounts.
Shareholder account: the balance and what changed it this month.
Suspense items: a list of anything uncategorized, with a date to clear it.

At year end, your accountant uses the same balance sheet to prepare your annual financial statements. The level of statements you need depends on who will read them, which we explain in our comparison of a compilation vs review engagement.

This is general information as of October 2026, not advice for your situation.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Want Monthly Financial Statements You Can Actually Read?

Targeted Accounting prepares monthly financial statements for owner-managed Canadian businesses and walks owners through them line by line. Our CPA-led practice has 10+ years of experience. See our financial reporting services or get in touch.

How to Reconcile Shopify Payouts in Your Books: A Guide for Canadian Sellers

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How to Reconcile Shopify Payouts in Your Books: A Guide for Canadian Sellers

Targeted Accounting

Why Shopify Payouts Never Match the Sales Report

Every Shopify seller hits the same wall. The sales report says one number, the bank deposit says another, and the gap is made up of refunds, processing fees, chargebacks, sales tax and timing. If you record each deposit as sales, your revenue is understated, your fees disappear and your GST/HST return is built on the wrong figures.

The fix is a standard bookkeeping method called a clearing account. It takes a little setup and then works the same way every payout. This guide walks through it with a worked example. It is part of our guide to ecommerce bookkeeping in Canada.

What Is in a Shopify Payout

Open any payout in Shopify and you will see it is built from several pieces:

Gross sales for the orders included, after discounts.
Shipping you charged customers.
Sales tax collected, which depends on where each customer is.
Refunds, including the tax and shipping refunded.
Processing fees deducted by Shopify Payments.
Chargebacks, dispute fees and reserves, if any.
Adjustments, such as reversed disputes or currency differences.

Payouts also lag behind orders by a few business days, so a sale on 30 June can arrive in July. That timing difference is another reason deposits and sales reports never line up month by month.

The Clearing Account Method, Step by Step

Create a current asset account called Shopify Clearing. Think of it as money Shopify is holding for you. Then, for each payout (or each day of sales):

Record the sale: debit Shopify Clearing for the total charged to customers, and credit sales, shipping income and sales tax payable.
Record refunds: debit sales returns and sales tax payable, credit Shopify Clearing.
Record fees: debit merchant fees expense, credit Shopify Clearing.
Record the deposit: debit the bank, credit Shopify Clearing.

Here is one payout worked through for an Ontario seller charging 13% HST:

Item	Amount	Recorded as
Product sales	$1,800.00	Sales
Shipping charged	$100.00	Shipping income
HST collected	$247.00	HST payable
Refund (one item plus HST)	-$113.00	Sales returns $100, HST payable $13
Processing fees	-$62.40	Merchant fees
Payout deposited	$1,971.60	Bank

After all four entries, the clearing account is back to zero, your sales are recorded at $1,800, your fees show up as an expense and your HST payable is exactly what you owe on these orders.

Getting Sales Tax Right on Shopify Orders

Shopify calculates tax on each order based on where the customer is, so a single payout can include 13% HST from Ontario, 5% GST from Alberta and 15% HST from Nova Scotia. Your books need to keep those apart, because your GST/HST return reports the tax you collected and the PST in some provinces is filed separately.

Use Shopify’s taxes report to split each period’s tax by province and record it to the right liability accounts. Sales to customers outside Canada are usually zero-rated. Our GST/HST guide for small business covers registration, rates and filing.

Other Channels and Payment Methods

Every place money is collected needs its own clearing account and its own reconciliation: Shopify Payments, PayPal, Shop Pay Installments, Amazon, Etsy and any wholesale invoices paid by e-transfer. Mixing channels in one account is the fastest way to end up with a balance nobody can explain.

Gift cards are another trap. Selling a gift card is not a sale yet; it is a liability until the card is redeemed, and sales tax applies when it is used, not when it is bought.

Shopify Bookkeeping Apps That Do the Heavy Lifting

Recording every order individually floods your accounting software and is hard to reconcile. Most sellers are better served by a connector that posts one summary entry per payout, already split into sales, tax by province, refunds and fees, into QuickBooks Online or Xero. You then only have to match each summary to its bank deposit.

Whichever tool you use, review the clearing account balance at every month end. A balance that keeps growing means something is not being recorded. Our guide to accounting software for small business in Canada covers how to connect your store, and inventory and cost of goods sold are covered in our ecommerce bookkeeping guide.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Want Your Store's Books Reconciled Every Month?

We set up clearing accounts, sales tax by province and payout reconciliations for Canadian online sellers, then keep them current every month. See our bookkeeping services or get in touch.

T5018 Slips in Canada: How Contractors Report Subcontractor Payments

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T5018 Slips in Canada: How Contractors Report Subcontractor Payments

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What Is a T5018 Slip?

If your business is mainly in construction and you pay subcontractors, the CRA expects you to report those payments every year on a T5018 Statement of Contract Payments. The slips let the CRA match what you paid against what each subcontractor reported as income, which is exactly why they matter: they are one of the main ways the CRA finds unreported construction income.

Most contractors only think about the T5018 when the deadline is close and they are digging through a year of supplier payments. This guide covers who has to file, which payments count, the deadline and how to set up your bookkeeping so the slips take minutes rather than days. It is part of our guide to construction bookkeeping in Canada.

Who Has to File T5018 Slips

The rule applies to individuals, partnerships, trusts and corporations whose primary source of business income is construction. The CRA treats construction as your primary source when more than 50% of your business income comes from construction activities.

Construction activities are broad. They include erecting, installing, altering, modifying, repairing, improving, demolishing, dismantling or removing any structure or part of one, from houses and commercial buildings to roads, bridges, dams and pipelines. General contractors, renovators, electricians, plumbers, HVAC companies, roofers, landscapers who build structures and site-preparation outfits are all commonly caught.

If you meet the test, you file for payments you make to Canadian-resident subcontractors for construction services, whether the work was done inside or outside Canada. The details are on the CRA’s T5018 slip page.

Which Payments Go on a T5018

Report the total you paid each subcontractor for construction services in the reporting period, as long as that total is more than $500. For the threshold you leave out GST/HST, but the amount you put on the slip in box 22 includes GST/HST and PST.

Payment	Report on a T5018?
Framing subcontractor paid $18,000 plus HST	Yes, $20,340 including HST
Electrician who supplied labour and materials	Yes, the full amount
Lumber yard, for materials only	No, goods only
Your own employees	No, they get T4s
Subcontractor paid $450 in total for the year	No, under the threshold

A slip is required whether the subcontractor is a sole proprietor, a partnership or a corporation. You report payments in the period you paid them, not when the work was invoiced.

T5018 Reporting Period and Deadline

You can report on a calendar-year basis or on your business’s fiscal period. Many contractors with a non-December year end choose the fiscal period so the slips line up with the year-end books.

The return, made up of the T5018 slips and the T5018 Summary, is due six months after the end of the reporting period. Using the calendar year, payments made in 2026 are due by 30 June 2027. With a 31 March fiscal year end, the slips are due by 30 September.

Put the date on the same calendar as your other filings. Our Canadian business tax filing calendar shows where it sits alongside your T2, GST/HST and payroll deadlines.

How to File T5018 Slips

You file the slips and the summary with the CRA, and you can also give each subcontractor a copy, which helps them reconcile their own income. Online filing through the CRA’s web forms or a payroll or accounting program is the norm, and electronic filing is mandatory if you file more than five slips.

Each slip needs the subcontractor’s name and address and their business number, or their social insurance number if they are an individual without one. Missing identification numbers are the most common reason the job drags on, so ask for them up front.

Late or missing slips attract penalties based on how many slips are involved and how late they are. A CRA review of a contractor who never filed T5018s also tends to widen into questions about whether those subcontractors were really employees.

Set Up Your Books So the Slips Write Themselves

The work is in the bookkeeping, not the form. A few habits make year end painless:

Onboard every subcontractor properly. Get their legal name, address, business number and GST/HST number before the first payment, and store them on the supplier record.
Flag subcontractors in your software. QuickBooks Online and Xero both let you mark suppliers or tag their bills so you can run a payments report for exactly that group.
Code labour and materials separately on bills, so materials-only suppliers never end up on a slip and mixed bills are reported in full.
Pay through the books. Cash and e-transfer payments that never get recorded are what makes a T5018 report wrong.

Our guide to accounting software for small business in Canada covers how to set this up. Getting the subcontractor’s GST/HST number also protects your input tax credits, which our GST/HST guide explains.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Want Your T5018s Done for You?

We keep construction clients’ supplier records, sales tax and subcontractor reports in order all year, so the T5018 is a quick review rather than a scramble. See our bookkeeping services or get in touch.

How Much Does Bookkeeping Cost in Canada? Pricing Explained

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How Much Does Bookkeeping Cost in Canada? Pricing Explained

Targeted Accounting

Key takeaways

Outsourced monthly bookkeeping for a Canadian small business usually costs $300 to $1,500 a month.
Hourly rates run $30 to $60 for freelancers and $60 to $110 for firms.
Transaction volume, payroll, sales tax and how clean your records are drive the price.
The cheapest quote is often the most expensive one by year end.

How Much Does Bookkeeping Cost? The Short Answer

For a typical Canadian small business, outsourced monthly bookkeeping usually costs $300 to $1,500 a month. Very simple businesses sit at the bottom of that range. Businesses with payroll, sales tax in several provinces, inventory or more than one company sit at the top of it or above. Billed by the hour, freelance bookkeepers often charge $30 to $60 and firms $60 to $110.

Those ranges are wide because “bookkeeping” covers very different amounts of work. A consultant with one bank account and a credit card is a different job from a restaurant with two locations, daily sales, tips, payroll and suppliers. This guide explains the pricing models, what drives the price, what a fair quote should include and the hidden costs of cheap bookkeeping. For what bookkeepers do, see our guide to bookkeeper vs accountant.

Typical Bookkeeping Costs in Canada

These are broad market ranges for outsourced bookkeeping, not quotes. Your price depends on the factors in the next section.

Business profile or model	Typical range
Micro business: one or two accounts, under about 100 transactions a month, no payroll	$300 to $600 a month
Small business: payroll, GST/HST filing, several bank and card accounts	$600 to $1,500 a month
Growing business needing monthly reporting, forecasting or controller-level support	$1,500 a month and up
Freelance bookkeeper, billed hourly	$30 to $60 an hour
Bookkeeping firm, billed hourly	$60 to $110 an hour

For comparison, an in-house full-time bookkeeper typically costs a salary of $50,000 to $70,000, plus roughly 15% for employer CPP, EI, benefits and vacation, before software and the time spent managing them. Outsourcing is usually cheaper until a business needs someone on site every day.

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Get a range for your own transactions, accounts and payroll

The Three Bookkeeping Pricing Models

Hourly. You pay for the time spent. It is common with independent bookkeepers and for irregular work. It is fair when the work is unpredictable, but it makes costs hard to budget and gives the bookkeeper no reason to work faster.

Fixed monthly package. A set fee covers a defined scope, often tiered by transaction volume. It is the most common model for ongoing bookkeeping. You know what you will pay, and the provider absorbs the risk of a busy month. Read the scope carefully, because packages differ mainly in what they leave out.

Per project. Used for one-off jobs such as catching up a year of books, cleaning up a messy file, or setting up a new accounting system. Most providers quote a fixed price after seeing the books.

What Drives Bookkeeping Prices

Transaction volume. More bank and card transactions mean more coding and reconciling. This is the biggest factor.
Number of accounts. Each bank account, credit card, loan and payment processor such as Stripe, Square or Shopify Payments needs its own monthly reconciliation.
Payroll. Running payroll, remittances, T4s and Records of Employment adds cost per employee or per pay run.
Sales tax. Preparing and filing GST/HST returns, and PST or QST where it applies, is often priced as an add-on. Filing monthly costs more than filing annually.
Receivables and payables. Invoicing customers, chasing payments and paying suppliers are bookkeeping-adjacent services that many owners assume are included and often are not.
Inventory, job costing and classes. Tracking stock, projects or locations adds work every month.
Frequency and turnaround. Monthly books closed by the 15th cost more than quarterly catch-ups.
State of the books. Clean, current books with bank feeds and receipt capture cost less to maintain than shoeboxes and spreadsheets.

Catch-Up and Cleanup Bookkeeping

If your books are behind, expect a separate charge to bring them current before monthly service starts. Catch-up work is usually priced per month of backlog, often at a similar or slightly higher rate than ongoing monthly work, because the bookkeeper has to reconstruct transactions without the benefit of fresh memory.

Cleanup is different: the books exist, but they are wrong. Duplicated transactions, unreconciled accounts, personal expenses mixed in and sales tax that does not tie to filed returns all take time to unwind, and the cost depends on how far back the problems go. A good provider will review the file before quoting a cleanup rather than guessing.

Both are one-off costs. Once the books are current and set up properly, the monthly fee should be stable.

What a Bookkeeping Package Should Include

When comparing quotes, ask each provider to confirm in writing whether these are included:

coding every transaction and reconciling every bank, credit card and loan account monthly;
a monthly or quarterly profit and loss statement and balance sheet;
preparing and filing GST/HST returns;
payroll, if you have employees;
accounts receivable and payable, if you want them handled;
a named contact and a response time for questions;
year-end support: handing a clean, reconciled file to your accountant.

Year-end financial statements, corporate tax returns and personal tax returns are accounting work. They are usually billed separately, even when the same firm does both. Our guide to bookkeeper vs accountant explains the split.

Bookkeeping Software Costs

Most bookkeepers work in cloud software you subscribe to, such as QuickBooks Online or Xero. Subscriptions run from roughly $30 to well over $100 a month depending on the plan, payroll add-ons and number of users. Some firms include the subscription in their fee, often at a discount. Receipt capture, bill payment and payroll tools can add more.

The software is usually worth the cost because it cuts the bookkeeping time through bank feeds and automation. Our guide to accounting software for small business in Canada compares the options.

The Real Cost of Cheap Bookkeeping

The lowest quote is often the most expensive one by year end. Common problems with bargain bookkeeping include unreconciled accounts, sales tax returns that do not match the books, personal and business expenses mixed together, and no one who understands CRA rules. Each of these turns into cleanup fees, a higher accounting bill at year end, or reassessments with interest.

Red flags when you are getting quotes:

a price given without asking about your transaction volume or accounts;
no mention of monthly bank reconciliations;
no experience with Canadian sales tax or payroll;
no written scope of work.

A good bookkeeper should save you more than they cost, in time, missed deductions avoided, penalties prevented and a lower year-end accounting fee. If you want a quote to compare, our virtual bookkeeping services page is a good place to start.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Want a Quote for Your Books?

Tell us how many accounts you have, roughly how many transactions a month, and whether you run payroll. We will put together a quote with the scope set out clearly, plus an estimate for any catch-up work needed first.

Bookkeeping for Canadian Consultants & Professional Services

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Bookkeeping for Canadian Consultants & Professional Services

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The One-Client Problem: Personal Services Business Risk

Incorporating is normal for consultants, and for a substantial minority it creates an exposure most never hear about until an assessment arrives.

The personal services business rules apply where an individual provides services through a corporation and would reasonably be regarded as an employee of the client but for that corporation, where the worker is a specified shareholder and the company doesn’t employ more than five full-time employees.

Where they apply, the corporation loses the small business deduction and the general rate reduction, leaving it at the unreduced 28% federal rate, then pays an additional 5% federal tax on top, for 33% federally before provincial tax, and is denied deductions for almost everything except salary and benefits paid to the incorporated employee. Rent, equipment, software, professional fees, home office: all denied. Assessments typically cover every open year.

Consultants placed through agencies at a single client site, IT contractors on long engagements, and interim executives are the profiles most exposed. Our guide to the personal services business rules for consultants explains the test and how to reduce the risk, and the corporate tax mechanics are covered in our T2 corporate tax guide.

What you need to know

A corporation with one client and one worker is the classic personal services business profile: the most punitive classification in Canadian corporate tax.
Revenue belongs in the period it is earned, not invoiced or collected. Project work spanning a year end needs deliberate treatment.
A retainer is a liability until the work is done.
Rebilled disbursements are revenue and expense, not a netting exercise, and they usually carry GST/HST.
Utilisation and realisation matter more than revenue in a service business.

Reducing PSB Risk

There is no single fix, because the test looks at the whole relationship. But the factors that count are known, and several are within your control.

Multiple clients. The most effective single factor. Even a second meaningful client changes the picture substantially.
Your own tools and workspace. Working from your own premises with your own equipment, at least part of the time, weighs in your favour.
Control over how and when. Deliverable-based engagements beat hourly arrangements with set hours.
Financial risk. Fixed-price work where you absorb overruns, and the ability to profit from efficiency, are genuine indicators of business.
Right of substitution. A contract permitting you to send a qualified replacement, and the practical ability to do so, is strong evidence.
Your own insurance, marketing and business presence. Professional liability coverage, a website, business cards, active client development.

Contract language alone will not save an arrangement whose substance is employment: the CRA’s employee-or-self-employed tests look at the whole relationship, just as they do in Canadian small business payroll. It also isn’t irrelevant: a contract that reflects an independent arrangement supports the position. If your corporation has had one client for several years, get the arrangement reviewed properly.

Recognising Revenue on Projects and Retainers

Revenue is recognised when earned, which for services means as the work is performed. Three situations need care.

Work in progress at year end. Time spent and costs incurred on unbilled work represent revenue earned in the current year. Ignoring it understates income now and overstates it next year. Certain professions have had specific rules and transitional treatment for WIP; confirm the current position for your profession rather than applying a general rule.

Milestone projects. A fixed-fee engagement billed on milestones may have work performed well ahead of, or behind, the billing schedule. Where the amounts are material, recognise proportionate to work completed.

Multi-year contracts. A two-year retainer paid annually in advance is not two years of revenue this year.

For most small consultancies the difference between invoice-date recognition and properly earned revenue is immaterial and the simpler approach is fine. Once projects routinely span a year end, it stops being immaterial.

Retainers and Deposits

A retainer received before work is performed is deferred revenue, a liability, until you’ve earned it. The balance sheet mechanics are in small business accounting basics. Booking it as revenue on receipt inflates the current period and leaves the following one showing costs against nothing.

It matters more than it sounds. A consultancy collecting several large retainers in December looks highly profitable in a year it wasn’t, pays tax accordingly, and then delivers the work in a year with poor reported margins.

Where a retainer is refundable and held on account, the liability treatment is clear. Where it’s a non-refundable commitment fee, the analysis differs. Track the balance explicitly in either case.

Expenses and Disbursements

Consultants routinely incur costs on a client’s behalf (travel, subcontracted specialists, software licences, printing), and rebill them.

The correct treatment in most cases is gross: record the cost as an expense and the rebill as revenue. Netting them hides real activity, understates revenue in a way that can affect GST/HST registration timing, and makes margin analysis meaningless.

Rebilled disbursements generally carry GST/HST at your applicable rate, even where the original cost didn’t. An expense you incurred as principal and rebilled is part of your consideration for the service, not a pass-through, and the distinction between acting as principal and acting as agent determines the treatment. Getting this wrong systematically is a common finding on review.

Travel to a client site is business travel. Meals with clients remain 50% deductible. A home office used as the principal place of business follows the standard business-use-of-home rules set out in our sole proprietor tax guide.

What a Consulting Business Should Track

Service businesses have no inventory and few assets, so the meaningful numbers are about time and pricing.

Utilisation: billable hours as a share of available hours. Anything much above 70% for an owner-operator usually means business development has stopped.
Realisation: amount billed as a share of standard value of time spent. Persistent write-downs point to scoping or pricing problems, not effort problems.
Effective hourly rate: revenue by engagement divided by all hours spent including unbilled. Frequently reveals that the prestigious client is the least profitable one.
Revenue concentration: share from your largest client. Above 50% is a business risk; above 80% is also a PSB risk.
Days to collect, from invoice to payment.

Concentration is worth watching for both reasons at once, which makes it the most useful number on this list.

Working With Clients Outside Canada

Consultants reach international clients more easily than almost any other small business, and the tax treatment differs from domestic work in ways worth understanding before the first invoice.

GST/HST. Services supplied to a non-resident who is not registered in Canada are, in many cases, zero-rated: you charge nothing but continue to claim input tax credits on your costs. The rules are more specific than that summary suggests, with exceptions turning on where the service is performed, whether it relates to Canadian real property or goods, and whether the non-resident is in Canada when the service is supplied. Advisory work delivered remotely to a foreign company usually qualifies; a service connected to something physically in Canada often does not.

Two practical consequences follow. Foreign revenue still counts toward the $30,000 GST/HST registration threshold, because zero-rated supplies are taxable supplies at 0%. And a consultant with mostly foreign clients is typically in a refund position, which makes registration worthwhile even below the threshold and argues for filing more frequently than annually.

Withholding tax. Some countries require a payer to withhold tax on payments to foreign service providers. Where that happens, you receive less than you invoiced and may be able to claim a foreign tax credit against Canadian tax on the same income. Keep the withholding documentation; without it the credit is difficult to support. The relevant tax treaty often reduces or eliminates the withholding, but usually only if you provide the payer with the right residency certification before payment (for US clients, usually Form W-8BEN-E).

Currency. Invoice in a foreign currency and you carry exchange risk between invoice and payment. Record the receivable at the Bank of Canada rate on the invoice date and the difference on settlement as a foreign exchange gain or loss. Over a year of US-dollar invoicing this is a real number, and it belongs in your books rather than being absorbed into revenue.

Contracts worth having

A written engagement letter is worth more to a consultant than to almost any other small business, because the deliverable is intangible and disputes are therefore about memory. Define the scope, what is explicitly out of scope, the fee basis, what triggers additional fees, payment terms and interest on late payment, ownership of intellectual property, and how either party ends the engagement.

The scope and change-fee clauses do most of the work. Scope creep is the largest single cause of poor realisation in professional services, and it is far easier to raise a change fee against a written scope than to argue about what was originally agreed.

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Bookkeeping for Real Estate Agents and Investors in Canada

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Bookkeeping for Real Estate Agents and Investors in Canada

Targeted Accounting

Reporting Rental Income

Rental property is taxed on the same accrual basis as any business (explained in small business accounting basics), but with a set of rules that reward patience and punish the obvious moves.

Individuals report rental operations on the statement of real estate rentals filed with the T1, one per property or grouped where appropriate. Income is rent earned, not rent collected. Deductible costs include mortgage interest (never principal), property tax, insurance, utilities you pay, repairs and maintenance, property management, advertising for tenants, and reasonable travel to inspect or maintain. Our full list of rental property expenses you can deduct in Canada covers each one, plus repairs versus improvements.

Where you co-own, report according to ownership percentage, not who does the work or whose account the rent lands in. Allocating income to the lower-income spouse when title and capital contribution say otherwise is a straightforward reassessment.

Keep a separate bank account per property where practical. Rental files are among the most commonly reviewed, and a clean account is the difference between a short review and a long one.

The essentials

CCA on a rental property cannot create or increase a rental loss, and claiming it can cost you more on sale than it saved.
A renovation that improves a property is capital, added to cost base, not deducted this year.
Converting a property between personal and rental use triggers a deemed disposition at fair market value.
Residential rent is exempt from GST/HST; commercial rent is taxable. The difference decides whether you recover tax on costs.
Ontario and BC agents may incorporate through a personal real estate corporation, with regulator-specific conditions.

The CCA Trap on Rental Property

You may claim capital cost allowance on a rental building (buildings acquired after 1987 sit in a class written off at 4% on a declining balance), but two rules make it a decision rather than an automatic claim.

First, CCA cannot create or increase a rental loss. If your rental operation is already at or below break-even, the claim is capped at the amount that brings income to nil.

Second, and more importantly: CCA claimed is recaptured on sale. Every dollar of depreciation you took comes back as fully taxable income in the year you sell, while the gain on the property itself is a capital gain taxed at the 50% inclusion rate. You have converted future capital gain treatment into future ordinary income.

For a property expected to appreciate, which is most Canadian residential real estate, claiming CCA is frequently a poor trade: a modest deduction now at your marginal rate, against a fully taxable recapture later, often in a year when the sale has already pushed you into the top bracket. Many advisers default to not claiming it on residential rentals for exactly this reason. Run the comparison rather than accepting either default.

Repairs vs Improvements on Rental Property

The same current-versus-capital question that runs through all business tax (see the sole proprietor tax guide), with higher stakes because the amounts are larger.

A repair restores the property to its previous condition and is deductible now: replacing broken windows, patching a roof, repainting between tenants, fixing a furnace.

An improvement betters the property beyond its original state, extends its life, or adapts it to a new use. It is capital, added to the adjusted cost base, and reduces your gain when you sell. Adding a bathroom, finishing a basement, replacing a roof entirely with better materials, or a full kitchen renovation are capital.

The line is blurry in the middle, and the CRA weighs factors including whether the work restored or enhanced, the value relative to the property, and whether it was part of acquiring the property in usable condition. Work done before a property is first rented is generally capital regardless of its nature: a point that catches many first-time investors who renovate before the first tenant and expect a deduction.

Change of Use Rules

Converting a property from personal use to rental, or the reverse, is treated as a deemed disposition at fair market value, followed by a reacquisition at that value. You may realise a taxable gain without selling anything or receiving any cash.

Elections exist that can defer this treatment in certain circumstances, with conditions attached, including limits on claiming CCA during the period covered. They must be filed properly and on time, and the interaction with the principal residence exemption is where the real value or damage sits.

Partial changes of use (renting out a basement suite, or using part of a home for business) raise the same issues on a proportionate basis, and can affect the principal residence exemption on that portion when you eventually sell. This is the most common way Canadians accidentally make part of their home taxable.

Any change of use is a point to get advice before acting, not after. The election deadlines are not forgiving.

Selling a Rental Property: Capital Gains and Recapture

On disposition you may face up to three amounts: a capital gain on the property’s appreciation, included in income at 50%; recapture of any CCA previously claimed, fully taxable; and, where applicable, a terminal loss if the remaining tax value exceeds proceeds.

Your adjusted cost base is what you paid plus capital improvements plus acquisition costs such as land transfer tax and legal fees. Selling costs (commission, legal, staging directly attributable to the sale) reduce proceeds. Keeping records of capital improvements over a long hold period is the most valuable habit for a property investor, because an improvement you can’t substantiate is one you can’t add to your cost base.

A separate and important question is whether the transaction is a capital gain at all. Property bought with the intention of resale, frequent flipping, or assignment sales can be treated as business income, fully taxable, with no capital gains treatment and no principal residence exemption. Canada also has specific rules deeming gains on residential property held for short periods to be business income, subject to limited exceptions. Intention at purchase matters, and so does your pattern of transactions.

GST/HST on Property

Long-term residential rent is exempt. You don’t charge tax, and you can’t recover tax on related costs: repairs, management fees, supplies all carry unrecoverable tax.

Commercial rent is taxable. Landlords of commercial property generally register, charge tax on rent, and recover tax on operating and capital costs: a much better position.

Short-term accommodation below certain duration thresholds is treated differently from long-term residential rent and can be taxable, which brings short-term rental operators into the registration question once they pass the small supplier threshold (see our GST/HST guide for small business).

New residential construction carries its own regime (self-supply rules, the new housing rebate, and the rental property rebate) that is specialised enough to need direct advice rather than general guidance.

Real Estate Agents and PRECs

Real estate agents are generally self-employed, receiving commission income with no tax withheld, which makes the instalment obligation and the set-aside discipline the defining financial habits of the job. Deductible costs include brokerage fees and desk fees, board and association dues, advertising and photography, vehicle costs on a logbook basis, client-related expenses within the usual limits, and licensing.

Ontario and British Columbia both permit agents to incorporate through a personal real estate corporation, subject to regulator conditions covering the corporation’s name, share ownership, and the requirement that the agent remain personally registered. Ontario’s rules are set out in O. Reg. 536/20 and administered by RECO; BC’s by the BC Financial Services Authority. Where permitted, a PREC offers the standard corporate advantages: the small business deduction on retained income (see our T2 corporate tax guide), deferral, and flexibility in how and when income is taken (see tax planning for owner-managers).

The threshold question is the same as for any incorporation: are you consistently leaving profit in the business? An agent spending everything earned gains administration and cost without the deferral benefit that justifies it. The provincial rules also change, so confirm current requirements with the regulator before setting one up.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Rental Portfolio or Commission Income?

Our bookkeeping service handles property-level bookkeeping, capital versus current decisions, and the CCA question properly, before you sell, not after.

Dental Bookkeeping and Accounting for Canadian Dental and Medical Practices

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Dental Bookkeeping and Accounting for Canadian Dental and Medical Practices

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GST/HST Exempt Supplies in Dental and Medical Practices

Every other business in this series collects sales tax and claims back what it pays. Health practices mostly do neither, and that single fact reshapes the economics of running one.

Most services rendered by physicians and dentists to patients are exempt supplies for GST/HST purposes. Exempt is not the same as zero-rated. On a zero-rated supply you charge 0% but still recover input tax credits. On an exempt supply you charge nothing and recover nothing: the tax you pay on rent, equipment, lab fees, supplies and software is a cost.

For a practice paying $120,000 a year in taxable inputs in Ontario, that is roughly $15,600 in unrecoverable tax annually. It doesn’t appear as a line anyone reviews, because it’s embedded in every invoice.

The practical consequences follow directly. Budget in tax-inclusive terms. Compare equipment quotes tax-inclusive. And when weighing a lease against a purchase, remember that the tax on both is a real cost rather than a timing difference.

In short

Most health care services are GST/HST exempt, which means you don’t charge tax, and cannot recover the tax you pay on rent, equipment and supplies.
Practices with taxable or zero-rated elements may recover part of that tax, and most don’t claim what they’re entitled to.
Professional corporations are governed by your provincial regulator as well as the tax rules, and who may hold shares is restricted.
Associate arrangements structured as contracts carry genuine employee-reclassification and PSB risk.
Because tax on equipment isn’t recoverable, the real cost of a purchase is the tax-inclusive price, which changes lease-versus-buy arithmetic.

Mixed Practices and Partial Recovery

Few practices are purely exempt, and the exceptions are where recoverable money sits.

Certain medical devices and appliances are zero-rated rather than exempt. Orthodontic appliances are the most significant example, and the CRA has an established administrative approach allowing orthodontic practices to treat a portion of the fee as consideration for the zero-rated appliance, which in turn supports input tax credit claims on related inputs. Practices doing meaningful orthodontic work and not registered for GST/HST are frequently leaving a real annual amount unclaimed.

Purely cosmetic procedures performed for non-medical purposes are generally taxable rather than exempt. A practice with a significant cosmetic component may be required to register (the small supplier threshold rules are in our GST/HST guide for small business), and once registered gains partial input tax credit entitlement.

Other taxable elements appear in practices without anyone noticing: renting space to another practitioner, selling retail products, providing administrative services to an associate, or certain third-party reports and examinations not performed for treatment purposes.

Where a practice makes both exempt and taxable supplies, input tax credits are apportioned, and the allocation method must be fair, consistent and documented. This is technical, and it is worth a specific engagement rather than a general approach: the recovery usually exceeds the cost of the advice by a wide margin.

Dental and Medical Professional Corporations

Physicians and dentists in Ontario, Manitoba and British Columbia may incorporate, but a professional corporation sits under two sets of rules at once: the tax legislation, and the governing body for the profession in that province.

The regulator (the CPSO and RCDSO in Ontario, for example) typically dictates the corporate name, requires a certificate of authorisation to be obtained and renewed, restricts the business the corporation may carry on, and, most consequentially, governs who may hold shares. Ontario permits family members to hold certain non-voting shares in medical and dental professional corporations, a provision that does not exist for every regulated profession or in every province.

The tax advantages are the standard ones: the small business deduction on retained income, deferral, and the ability to time compensation (see our T2 corporate tax guide). What incorporation does not provide is protection from professional liability: malpractice exposure follows the practitioner regardless of structure. For the numbers and the decision itself, see our guide to dental professional corporations.

Where family members do hold shares, dividends to them are subject to the TOSI rules explained in our owner-manager tax planning guide, and professional corporations face a narrower set of exclusions than other businesses. Issuing shares without confirming the TOSI position is the most common planning error in this area.

Associates and Locums

Associate arrangements are usually structured as independent contractor relationships, with the associate billing the practice or retaining a percentage of billings. That structure is defensible when the substance supports it, and precarious when it doesn’t.

The same CRA control tests apply here as anywhere: who sets the schedule, who owns the equipment and the patient records, whether the associate can work elsewhere, who carries the financial risk. An associate working fixed hours set by the principal, using only the practice’s equipment, with no other engagements, looks like an employee.

An incorporated associate faces a second exposure: the personal services business rules. Reducing that exposure is covered in bookkeeping for consultants and professional services. A professional corporation with essentially one client (the practice) providing the services of its sole shareholder is squarely in the zone those rules target, and the consequences include loss of the small business deduction, an additional 5% federal tax, and denial of most deductions.

Locums and part-time associates working at a single location are the highest-risk profile. It is worth reviewing the arrangement properly rather than relying on the fact that it is common practice.

Dental Equipment and Leasehold Improvements

Practice equipment is capitalised and depreciated through capital cost allowance (the mechanics are in our sole proprietor tax guide), generally in the class covering furniture and equipment. Computer hardware and systems software fall into a faster class.

Leasehold improvements (the build-out of an operatory or clinic space) are their own class, written off over the term of the lease rather than at a declining-balance rate. Practices that invest heavily in a fit-out should confirm the lease term used, because a short initial term with renewal options produces a different result than a long one.

Because input tax on these purchases is largely unrecoverable in an exempt practice, the capitalised cost includes the tax. That raises the CCA base, which recovers part of the cost over time through deductions, but only part, and slowly.

Practice Cash Flow

Practice revenue arrives through several channels with different timing: patient payments at the point of service, insurance assignment with a lag, and provincial plan billings with their own cycle and their own adjustment and rejection patterns.

Reconcile each channel separately. Rejected and adjusted claims are the most commonly lost revenue in a practice, because a rejection that nobody follows up disappears rather than appearing as a bad debt. Track claims submitted against claims paid, monthly, and age the difference the way you would any receivable.

Buying Into or Acquiring a Practice

Practice transitions are among the largest transactions a health professional will undertake, and the structure is settled long before the money moves.

Asset purchase or share purchase. Buying assets means acquiring the equipment, leasehold improvements, patient records and goodwill, with cost allocated across them, which determines your future depreciation and is negotiated in the purchase agreement rather than decided afterwards. Buying shares means acquiring the corporation whole, including its history and any liabilities in it, and is generally preferred by the vendor because it may access the lifetime capital gains exemption.

The allocation of purchase price in an asset deal deserves real attention on both sides, because it is zero-sum: amounts allocated to depreciable equipment give the buyer faster write-offs and the vendor recapture, while amounts allocated to goodwill are treated differently again. It is a negotiable term with a measurable value, and it is frequently signed without anyone modelling it.

Goodwill typically represents the largest part of a practice’s value and is depreciated slowly, so the after-tax cost of a purchase is higher than the headline price suggests. Factor that into financing rather than assuming the purchase price is deductible over a few years.

Patient records carry obligations beyond their commercial value. Provincial privacy legislation and your regulator both govern their transfer and retention, and the retention period for clinical records commonly exceeds the CRA’s six years by a wide margin. Confirm what you are required to keep and for how long before agreeing who holds what.

Buy-ins and partial interests

Buying a partial interest in an existing practice introduces a further question: are you acquiring shares of the professional corporation, an interest in a partnership, or a cost-sharing arrangement with separate practices under one roof? These are different structures with different tax, liability and exit consequences, and the informal version (everyone shares the rent and splits the staff) is the one most likely to produce a dispute when someone leaves.

Whatever the structure, agree the exit terms at the start. Valuation method, notice period, what happens to patient records, restrictive covenants and how a departing party is paid out are all far easier to settle while everyone is optimistic. A practice agreement without an exit clause is the most common source of expensive disagreement in this sector.

Written by Targeted Accounting

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Practice Books That Account for Exempt Supplies Properly?

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Restaurant Bookkeeping and Accounting in Canada

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Restaurant Bookkeeping and Accounting in Canada

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The Daily Sales Entry for Restaurants

A restaurant generates hundreds of transactions a day. Importing them individually produces an unusable ledger; ignoring them produces an unauditable one.

The standard approach is a single daily journal entry from the POS Z-report capturing gross sales by category, sales tax collected, tips received, payment types, discounts and comps, and any cash over or short. That entry is then reconciled to the actual deposits and card settlements.

Two lines earn their place. Comps and discounts tracked separately reveal a cost most owners underestimate: free meals and staff discounts frequently run to several percent of sales. And cash over/short tracked daily is your only realistic internal control on cash handling; a consistent shortage pattern on particular shifts is information.

At a glance

Controlled tips are pensionable and insurable and must run through payroll. Direct tips generally are not. The distinction decides your CPP and EI exposure.
Record a daily sales summary from the POS, not individual transactions, and reconcile it to deposits.
Prime cost, food plus labour, is the number that predicts survival. Target is commonly 60–65% of sales.
Gift cards are a liability until redeemed, not revenue when sold.
Some food is zero-rated and some is taxable, and the dividing line is specific enough to need checking rather than assuming.

Tips: Controlled versus Direct

This is the highest-risk area in restaurant payroll, and the rules turn on who controls the money.

Direct tips pass from the customer to the employee without the employer determining the amount or the distribution: cash left on a table, kept by the server. These are generally not subject to CPP or EI withholding by the employer. The employee is still required to report them as income.

Controlled tips are those the employer handles or determines: a mandatory service charge added to a bill, tips pooled and redistributed according to a house policy, or tips on card payments that the employer collects and pays out. These are pensionable and insurable employment income, must be run through small business payroll, and appear on the T4.

The exposure arises because most modern restaurants are majority card payment, and any house tip-out policy tends to make those tips controlled. A restaurant treating all tips as direct while operating a pooled distribution can face assessment for unremitted CPP and EI on both sides, across every open year. Our guide to tips and gratuities in Canada covers the payroll treatment, Ontario’s tip pooling rules and how to record tips in your books.

Worth a specific review
Tip arrangements vary enough between establishments that a general rule isn’t safe. Have your actual policy (how tips are collected, pooled, allocated and paid) reviewed against the current CRA position. This is one of the most frequently assessed issues in the industry.

Food Cost Percentage

Food cost percentage is cost of food sold divided by food sales. Most independents aim for the high twenties to mid thirties depending on concept, and most calculate it wrongly.

The error is using purchases instead of cost of food sold. Purchases tell you what you bought; they only equal what you used if inventory didn’t move. The correct calculation is opening inventory plus purchases minus closing inventory, which requires counting inventory, weekly for high-volume operations, monthly at minimum.

Without inventory counts, a bad month and a stocking-up month look identical, and the theoretical-to-actual variance that reveals waste, over-portioning and theft can’t be calculated at all. Restaurants that count weekly and investigate variance consistently outperform those that don’t, and the gap is usually several points of margin.

Labour Cost and Prime Cost

Labour cost includes wages, employer CPP and EI, workers’ compensation, vacation accrual and any benefits, not just the payroll run. Scheduled against forecast covers rather than habit, it is the most controllable cost in the operation.

Prime cost, food plus beverage plus total labour, is the metric the industry manages by, commonly targeted at 60 to 65% of sales. Above that, the remaining margin rarely covers rent, utilities and debt service. Tracked weekly rather than monthly, it is early enough to act on.

Liquor Licensing and Provincial Rules

Alcohol is regulated provincially, and the requirements differ meaningfully between Ontario, Manitoba and British Columbia: licensing, permitted purchase channels, record retention and inspection regimes all vary. The regulators are the AGCO in Ontario, the LGCA in Manitoba and the Liquor and Cannabis Regulation Branch in BC.

From a bookkeeping standpoint the essentials are consistent: track beverage cost separately from food, because the margins and the variance patterns are entirely different; retain purchase records in the form and for the period the provincial regulator requires, which may exceed the CRA’s six years; and reconcile pour cost with the same discipline as food cost, since beverage shrinkage is both easier and more valuable to steal.

Gift Cards and Deferred Revenue

Selling a gift card is not a sale. You’ve received cash and incurred an obligation to provide food later. It belongs in a deferred revenue liability account, moving to revenue only on redemption, with sales tax applying at redemption rather than at sale. The balance sheet mechanics are covered in small business accounting basics.

Restaurants that book gift card sales as revenue overstate a strong December and then serve the meals in January against no recorded revenue at all. Track the outstanding balance as a real liability, and check the provincial rules on expiry, since consumer protection legislation in most provinces (Ontario’s Consumer Protection Act among them) restricts or prohibits expiry dates on gift cards.

GST/HST on Restaurant Sales

Food service is one of the more nuanced areas of GST/HST. Restaurant meals are taxable. Basic groceries are zero-rated. Registration, rates and filing are covered in our GST/HST guide for small business. Between them sit rules that turn on preparation, packaging and quantity, where a takeaway item, a bakery order above a certain count, or a beverage in a particular size can fall on either side of the line.

If you sell any mix of prepared food, packaged goods, catering and retail items, your POS tax mapping needs to be set up deliberately and reviewed when the menu changes. Errors here are systematic rather than occasional, which means they compound across every transaction until found.

Restaurant Payroll

Restaurant payroll is harder than the headcount suggests, because almost everything varies: hours, rates, roles within a single shift, and a workforce with high turnover.

Overtime and averaging. Employment standards set the threshold at which overtime applies, and it differs by province. Some provinces permit averaging agreements over multiple weeks, which suits a business with uneven weekly demand, but these require specific agreements and sometimes approval, and cannot be applied informally.

Statutory holiday pay. Every province calculates it differently, most using a formula based on earnings over a preceding period rather than a standard day’s pay. Getting it wrong is among the most common employment standards complaints in the industry, and the calculation cannot be carried between provinces.

Split shifts, call-in and reporting pay. Most provinces require minimum pay when an employee reports for a shift that is then cut short, and several regulate split shifts. These are easy to breach with last-minute scheduling changes driven by a slow night.

Turnover and ROEs. A restaurant issues more Records of Employment than almost any other small business. Building ROE generation into the departure process, rather than treating each as an exception, is the only way to stay current, and the insurable hours reported must reconcile to your payroll records.

Scheduling as a financial control

Labour is the cost most responsive to management attention, and the lever is the schedule rather than the wage rate. Scheduling against forecast covers (built from the same period last year, adjusted for known factors) rather than against habit typically recovers several points of labour cost within a couple of months.

Review labour as a percentage of sales by daypart, not just by week. A restaurant with acceptable overall labour cost frequently has one heavily overstaffed service period subsidised by the rest. That pattern is invisible in a weekly total and obvious in a daypart breakdown.

Integrating the POS with scheduling and payroll removes the re-keying that produces errors and, more usefully, makes labour cost visible during the week while it can still be changed. A restaurant that learns its labour percentage three weeks after month end has learned history. Integration quality is one of the tests in our guide to choosing accounting software.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Know Your Prime Cost This Week?

Our bookkeeping service handles restaurant books with weekly reporting, POS integration and tip compliance reviewed properly.

Ecommerce Bookkeeping in Canada: Sales Tax, Payouts and Inventory

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Ecommerce Bookkeeping in Canada: Sales Tax, Payouts and Inventory

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Why Ecommerce Bookkeeping Goes Wrong

An online store generates more transactions in a month than a service business does in a year, and almost none of them arrive in your bank account looking like what they were.

A customer pays $113 including tax. The platform deducts a processing fee. A refund from last week nets off. The payout lands three days later as $1,847.23 covering forty orders. Recorded as a single revenue line, which is what happens by default, your books show $1,847 of revenue instead of roughly $2,000 in sales, $130 in fees, $90 in refunds and the tax you now owe.

Everything downstream is then wrong: gross margin, sales tax owing, and any decision based on either.

Summary

Sales tax follows where the customer receives the goods: an Ontario store shipping to Alberta charges 5%, not 13%.
Platform deposits arrive net of fees, refunds and chargebacks. Recording the deposit as revenue understates both sales and expenses.
LIFO is not permitted in Canada. Use FIFO or weighted average, and apply it consistently.
Marketplace facilitator rules mean some platforms collect tax on your behalf, but not all, and not on everything.
Inventory sitting in a Canadian fulfilment warehouse has tax consequences that catch out non-resident sellers.

Ecommerce Sales Tax Across Provinces

For goods shipped within Canada, the place of supply is generally where the goods are delivered. Selling nationally means charging the destination province’s rate on every order: 5% to Alberta, 13% to Ontario, 14% to Nova Scotia, 15% to New Brunswick. The full rate table and registration rules are in our GST/HST guide for Canadian small business.

Your platform can do this correctly if configured correctly, and this is worth a proper setup session rather than a guess: our guide to accounting software for Canadian businesses covers how sales tax codes should be configured. Confirm that every province has a tax code, that the rates are current, and that shipping charges are taxed at the same rate as the goods, which is the setting most often missed.

The separate provincial taxes are the harder layer. Selling into BC, Saskatchewan, Manitoba or Quebec can create an obligation to register and file with that province directly, depending on your level of activity there and what you sell. Those registrations are independent of your GST/HST number, and a business can be perfectly compliant federally while accruing a provincial liability.

What Ecommerce Platforms Do About Sales Tax

Shopify is a storefront, not an agent. It will calculate and collect tax based on how you configure it, but it does not register for you, does not remit, and does not file. The obligation is entirely yours. Businesses that assume otherwise discover it at their first return.

Marketplaces (Amazon, Etsy, eBay and similar) can be treated as distribution platform operators under Canada’s digital economy rules, required to collect and remit tax on certain sales made through them. Where that applies, you must not also collect on the same sale, and you need to identify those sales separately in your records so your return reconciles.

The practical consequence is that a seller on both Shopify and Amazon has two different tax treatments running simultaneously, and needs their bookkeeping to distinguish them. Blending the channels into one revenue account makes the return impossible to support.

Reconciling Platform Payouts

The discipline is simple to state: record gross sales, then record each deduction separately. One payout of $1,847.23 becomes gross sales, sales tax collected, platform fees, payment processing fees, refunds and chargebacks, with the net agreeing to the bank. Our step-by-step guide on how to reconcile Shopify payouts works through a full example with a clearing account.

Doing this by hand at volume is impractical, which is why a sync tool between the platform and the ledger is close to mandatory above modest volumes. Whatever tool you use, reconcile the platform’s own settlement report to your books monthly. The point is not to catch fraud; it’s to catch configuration drift, which happens silently whenever a platform updates a fee structure or you add a channel.

Chargebacks deserve their own account rather than being buried in refunds. A rising chargeback rate is an operational signal, and it is invisible if it’s netted against sales.

Inventory Costing and Landed Cost

Inventory is an asset until sold, at which point its cost moves to cost of goods sold. This is the accrual principle explained in small business accounting basics. Treating purchases as an immediate expense (the most common e-commerce bookkeeping error) makes a stock-building month look catastrophic and a stock-depleting month look excellent.

Canada permits FIFO and weighted average cost. LIFO is not acceptable for Canadian tax purposes. Choose one method and stay with it; changing requires justification and consistent restatement.

Landed cost is where margins are determined. The cost of a unit isn’t the supplier’s price: it includes freight, duty, customs brokerage, and any non-recoverable taxes. Sellers who cost at supplier price routinely believe their margin is eight to twelve points better than it is, and price accordingly.

Count physical inventory at least annually, at year end. The difference between your system quantity and the real one is shrinkage, and it needs recording rather than explaining away.

Amazon FBA Bookkeeping

Fulfilment by Amazon adds two wrinkles. Your inventory sits in warehouses you don’t control, sometimes in provinces you have no other connection to, and the settlement reports are among the more complex to reconcile, with fees in several categories, reserves, and reimbursements that arrive without obvious reference.

For Canadian resident sellers the main discipline is reconciling settlements properly and tracking inventory by location. For non-resident sellers holding stock in Canadian warehouses, the position is more involved and can create Canadian registration and filing obligations; that situation needs specific advice rather than a general guide.

Ecommerce Numbers That Matter

Beyond the standard set, e-commerce has its own:

Contribution margin per order: price less landed cost, platform fees, processing and shipping. The figure that says whether growth helps.
Inventory turns: cost of goods sold ÷ average inventory. Low turns mean cash sitting on shelves.
Return rate by SKU: a product with a 20% return rate is usually unprofitable regardless of its margin.
Cash conversion cycle: days from paying a supplier to collecting from a customer. The reason growing stores run out of money.

Selling Across the Border: Exports, Imports and US Sales

Most Canadian online sellers reach US customers eventually, and the tax position changes in two directions at once.

On the Canadian side, exports of goods to customers outside Canada are generally zero-rated. You charge no GST/HST, but you continue to claim input tax credits on related costs: inventory, packaging, advertising, platform fees. Sellers with a substantial export share are often in a permanent refund position, which is a strong argument for filing monthly rather than annually and getting that money back promptly instead of lending it to the CRA for a year.

On the US side, the question is sales tax nexus. Following the 2018 Wayfair decision, US states may require out-of-state sellers to register and collect sales tax once they exceed a threshold of sales or transactions into that state. Thresholds, rules and marketplace-facilitator treatment differ by state, and there are more than forty separate regimes. The Streamlined Sales Tax Governing Board publishes each state’s thresholds.

For most small Canadian sellers this is manageable: marketplace platforms handle collection for sales made through them in most states, and direct sales through your own storefront only create obligations once you cross a state’s threshold. But it is a real obligation, not a theoretical one, and it is tracked by sales volume you may not be monitoring by state. If US direct sales are becoming material, get the nexus position reviewed rather than assuming Canadian residence protects you.

Separately, US federal income tax is a different question from sales tax, and generally turns on whether you have a permanent establishment there. The Canada–US tax treaty offers meaningful protection, but holding inventory in a US warehouse can complicate the analysis.

Customs, duty and landed cost

Importing inventory brings duty, brokerage fees and GST collected at the border. The GST paid on import is recoverable as an input tax credit provided you have the customs documentation, and that documentation is separate from your supplier’s invoice, which is why import GST is one of the most commonly unclaimed credits among e-commerce sellers.

Duty, by contrast, is not recoverable. It is part of the landed cost of the goods and belongs in inventory valuation. Sellers who expense duty separately understate their cost of goods and overstate their margin, then price accordingly.

Foreign currency adds a final layer. Purchases in US dollars must be recorded in Canadian dollars at an appropriate rate (the Bank of Canada daily rate is the usual reference), and the difference between the rate at purchase and the rate at payment is a foreign exchange gain or loss: a real item that belongs in your books rather than being absorbed silently into cost of goods.

Written by Targeted Accounting

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