Ask the Experts
Rick Chittley-Young, Partner
Canadian Business Franchise
1. I’m opening a franchised restaurant soon and would like to employ my three children as staff members. All are working age, but only my daughter is over 18. Are there any special accounting issues I’ll have to deal with if my dependents also work for me?
Having your children work in your franchise can be a valuable experience for them – while their wages are a tax deductible expense to your business. You may also be able to reduce your family’s overall income tax bill by splitting the family’s total income among family members.
At the same time, you will need to satisfy the Canada Revenue Agency that the wages you pay to your children are reasonable; that is, they should not exceed the amount you would pay to an unrelated person for the same work.
Your franchise should prepare T4 slips for salaries paid to your children, just the same as it would for other employees. Depending on the amounts of the salaries and the ages of the children, your franchise may also need to withhold and remit Canada Pension Plan, Employment Insurance and income tax. You should also know that the CRA often carefully reviews situations where relatives of an employer are laid off and apply to collect EI benefits. The CRA will usually try to verify that the relative earned the salary that was paid, and that the individual is in fact actively seeking new employment.
2. I’ve often used the services of an accountant for my personal finances. Today, I’m preparing a business proposal, in the hopes of getting a bank loan to buy a sporting goods franchise. Should I use my personal accountant for this, or should I be seeking out an accountant with a particular specialty in small business – maybe even franchising itself?
It’s always a good idea to work with professionals whom you know and trust so talk with your current accountant about your plans. Ask this individual about his/her experience and successes related to securing bank financing for small businesses, and also for franchises. Find out if he/she would be comfortable assisting you with this undertaking; if not, you might want to ask your accountant for a referral to a colleague who does have this expertise. Alternatively, you could ask the sporting goods franchisor if the company has a list of accountants it might recommend.
3. I’ve run an independent retail store in the past, but am about to buy a retail franchise for the first time. Will the Canada Revenue Agency require any special documentation beyond what I’ve always given it as a small business owner?
The CRA requires that any person who carries on a business must keep books of accounts and records to calculate taxes payable. The agency also requires source documents to substantiate these accounts and records. Source documents include invoices, deposit slips and cheques.
When it comes to filing income taxes, there are no special requirements for franchises. Rather, it is the type of business structure that determines the documents that must be filed. For example, if your franchise business is incorporated, you must complete a corporate (T2) tax return for the business, and a separate personal (T1) tax return. If your business is not incorporated, then you only have to file a personal (T1) tax return, which will include income from the business.
Rick Chittley-Young, is a partner in the Oakville office of BDO Dunwoody LLP. He has over 20 years of experience in accounting and specializes in working with owner-managed businesses and franchises with a focus on the retail and real estate sectors. He can be reached at (905)844-3206 ext. 226 or email him at rchittley@bdo.ca
