Business Record Keeping
I've been looking at your site and come to realize that you're also in the online business - as am I - so hopefully you'll be able to answer my question below.
I've just set up a business bank account for my company (incorporated). I'm not able to get a business credit card until I've had the bank account open for 3 months.
I'm going to see if they can make it happen - if not, I will dedicate a personal credit card solely to expenses incurred related to the business. Do you see any problems with dedicating a personal credit card for business expenses for the incorporated company?
Also, if I'm going to dedicate a personal credit card for the expenses of my incorporated business - this brings up the question of paying off the credit card. Should I be paying off the credit card using my personal bank account or business bank account? and why?
And 2 - do you have a list of 'legitimate' deductible expenses for an Internet business? or know where I can find one?
I'm going to chat about two things to respond to your questions; and (a) the importance of separating business and personal expenses and (b) reasonable expectation of profit.
Separating Business and Personal Expenses
In my article on Audit Trails
, I talk about a GAAP concept called the Business Entity Concept
. Here is an excerpt from that article:
"This principle provides that the accounting for a business should be kept separate from the personal affairs of its owner. This is not to be confused with the legal concept where, if you are a sole proprietor, you are your business."
Having a separate bank account for your business ... and a separate credit card for business expenses is an easy way that banking can assist you with your business record keeping ... although it doesn't replace actually doing your books; it just facilitates data entry ensuring you never claim personal expenses as a business deduction. It also helps you capture your business income ensuring you are not inadvertently skimming.
As your business is incorporated, it has a separate legal identity from your own person. CRA requires you keep records for your business
. To open a bank account for an incorporated company, you don't have any options ... it must be a corporate account. Due to its separate legal entity, banks will not allow you to have a personal account for an incorporated company. (This is not the case for sole proprietorships.)
Unfortunately, the cost of operating a business banking account is more expensive than operating a personal bank account. Banking fees are higher, cheques cost more, obtaining overdraft protection can be harder to get and it often feels like they are getting to sign your life away with all the paperwork.
You will need to remember to have customers pay your business, not you personally in order for you to deposit your customer payments to your business banking account. (This is not the case with sole proprietors.)
As you discovered, obtaining a credit card for your incorporated business is harder than obtaining a personal credit card.
that obtain any kind of third party financing require a personal guarantee from the shareholder/director, in effect removing the liability protection a corporate structure offers.
So if you are truly going to set aside a personal credit card for corporate business ... not charging any personal expenses to it, I think for bookkeeping purposes, I would treat it as a corporate card.
I would setup a separate liability account for it called "Owed to Owner"
to distinguish it from your true shareholder loans, as you have an expectation of being reimbursed for your business expenses. If you are using QuickBooks, I would use a "credit card" type account to facilitate ease in reconciling.
I would have the company make all payments to this card. I would not pay the credit card debt from your personal account.
So as long as you keep all your ducks in a row, you should be fine ... but that is just my opinion as a bookkeeper. You would be well served to have this conversation with your accountant who would be familiar and aware of all of your circumstances.
While you should be fine using a personal credit card solely for business purposes, I do recommend submitting an expense report prior to having the company pay the credit card amount each month
. You need to remember to keep all receipts to attach to each expense report.
Reasonable Expectation of Profit
With regards to your second question on 'legitimate' deductible expenses. Use one of the search boxes located on the site and key in the phrase reasonable expectation of profit
. That is the key to legitimate expenses.
CRA expects income earned online (electronic income)
to be treated the same way as traditional commerce income.
You may be interested in my chat on web related outlays
You may also want to peek at CRA's "E-commerce" link which is all about conducting business on the internet. You can find the link by going to their website (www.cra-arc.gc.ca). Click on Businesses. It will be on the top navigation bar or on a drop down menu in the upper right hand side ... it depends on the size of your browser how the home page shows up. Then look on the left hand side navigation bar mid way down the page until you find Information For> E-commerce.
While there, make sure you take time to read / click on GST/HST and e-commerce> GST/HST zero-rated supplies (exports).P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.