GST and QST
SOUND TAX MANAGEMENT FOR BUSINESS OWNERS
A recurring situation is the lack of money to pay taxes collected on our sales (product or service).
It is easy to overlook the fact that the tax money (gst/tvq) that we charge our customers does not belong to us. In fact, it belongs to the government. Some are right in saying that they can keep the taxes that they pay on their own purchases. However, it becomes an issue when we decide to spend all the money and work it out when the time comes to pay it back.
The best approach is to separate this money from the sales proceeds and put it aside. You can even invest it and generate profits with the government’s money. You just have to wait until the GST/QST return is filed to find out how much you have to pay and how much you can keep for yourself.
The same applies to tax money. The average tax rate for most self-employed workers is 30% (more or less, depending on income). Sound tax management implies that each time you cash in from a sale, 30% of that money should be put aside until you pay your taxes.
Cashing in sales money, appropriating it and using it as if it belonged entirely to us can lead some business owners to serious trouble with the government (outstanding balances, interest and penalty fees) and their business (debt, shutdown and ultimately bankruptcy).
Sound cash flow management must be implemented by understanding precisely what amounts belong to us and what amounts belong to the government. This will help you worry less, improve your quality of life and continue managing your own business. If you are not sure whether you are acting correctly or if you feel the situation is starting to get out of control, do not hesitate to contact us.