Author: Rob Farrow

Business Financing

Canada Emergency Business Account

My bank (CIBC) contacted me to offer their support…

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Contact your own bank to discuss details.

Canada Emergency Response Benefit

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For self-employed individuals or freelancers that don’t meet the requirements of either wage subsidy program, the Canada Emergency Response Benefit may provide relief.



The government is proposing a 75% wage subsidy, up to a maximum of $847 per week for each eligible employee. The subsidy would be available for qualifying businesses who have suffered a decline of 30% in monthly revenue for a period of 3 months (March 2020 through May 2020).

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For businesses that don’t qualify for the 75% subsidy, there is an alternative 10% subsidy for businesses (a person – including a CCPC – or a partnership) with CRA Payroll Account (Business Number with an RP0001 extension) that existed as at March 18, 2020.

The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA) by 10%, to a maximum of $1,375 per employee.


The Federal Government has announced emergency support for individuals and families:

  1. Increases to the Child Tax Benefit will be automatically be adjusted for families receiving the benefit.
  2. A one-time special payment for recipients of the GST credit will be sent automatically

In addition, the filing deadline for personal tax returns has been extended from April 30th to June 1st.

More details can be found online:

The End of Bookkeeping?

Originally transactions were actually recorded in journals or “books” – hence the person recording them was called a bookkeeper. Today we still refer to accounting records as “the books of account”, but they’re almost never found in books any more.

Today transactions either begin in a digital form or are soon converted into electronic form. In 1985 97% of all payments were made by cheque. By 2017 only 14% of payments were made by cheque. However we generally don’t have cheques ‘returned’ any more. An image of the cheque is made available online – typically as a PDF file.

With online banking there is no longer any need to “record” bank transactions. Instead we download them – and “import” them into accounting software. Our cheque images can be reviewed online if we need to see them.

40 years of technological and societal change has had a profound effect on the way in which transactions are recorded in “the books of account”

In many ways this means less work – however the work is now more complex. So the traditional role of the bookkeeper has pretty much disappeared. Today we can simply download bank transactions from our online banking system.

For our smallest companies, the transactions can be summarized and compiled
using sophisticated spreadsheet software. For somewhat larger companies,
transactions are pulled automatically from the bank and imported into
accounting software.

Today a CERTIFIED PROFESSIONAL BOOKKEEPER (“CPB”) uses accounting software. While we
still call it bookkeeping, it is actually much more sophisticated and complex than small business bookkeeping used to be. Unfortunately, the certification for CPBs is limited to examination by accounting software publishers in the use of their accounting software. 

In our view at least, post-secondary training in accounting and tax should actually be mandatory for anyone providing accounting services to the public. That is why some of our associates formed the RECORDS MANAGEMENT TECHNICIANS OF CANADA in 2019.

Taxing Online Purchases and Sales

These days tax jurisdictions are struggling to deal with online transactions. In British Columbia we are subject to both Federal GST and BC PST. If the jurisdictions themselves are struggling, that means that small businesses may find that they are caught up in a dizzying array of complex rules for multiple jurisdictions. By and large it is likely that most small CCPCs (Canadian-controlled private corporations) are flying blind.

While government tax authorities can be saddled with complex tax laws to administer, they often aren’t adequately resourced to ensure compliance. In the case of the Federal government and the Goods & Services Tax, they hire people straight out of school with no accounting training or experience. Even the supervisors typically learn on the job without the benefit of the discipline that comes from having to justify their time to clients and actually collect fees in a competitive environment.

For their part smaller CPA firms focus on basic compliance for both PST and GST. Unlike the tax authorities, CPAs in practice do work in a competitive environment.

Their clients won’t thank them for doing a “deep dive’ into PST and / or GST issues and uncovering additional tax liabilities. Particularly when they charge more than competing firms that don’t bother.


While I’m not a sales tax (aka “indirect tax”) specialist, I had to bring in a specialist when one of my clients had a bit of a home run in the first month of a new product launch. The issue surrounded the “place of supply rules” for GST. While the issue is too complex to discuss here, we needed to establish where their online customers resided and whether or not they were GST registrants.

If we were unable to document that, the tax authority would have been in a position to assess 15% GST on all online sales. This, in spite of the fact that 95% or more of the customers were non-residents and shouldn’t have been subject to GST. Luckily the specialist was able to keep us out of that minefield.


For startups (and anyone else for that matter) purchasing online services from other jurisdictions, there is a requirement to self-assess PST on the taxable portion of those services. Most of us simply pay for online services as billed. We don’t question whether the vendor properly excluded BC PST from the invoice.

However consider that most SAAS (software as a service) companies are located in other jurisdictions and know even less about BC PST regulations than we do here. If the service is taxable – and some are – our local startup would be required to self-assess and remit tax on the purchase.

Currently GOOGLE is billing me $12.50 a month for 3 users of email services. I must confess that I am not convinced that these services aren’t subject to PST. However I’m not being charged and haven’t done a deep dive into local PST legislation to determine whether I should self-assess. Since the PST for a year would only be about $10.50, I felt that it didn’t warrant the research time.

If the exposure is fairly small, it may be practical to simply wait for the Ministry to assess. In its wisdom the government’s new PST legislation doesn’t allow for the taxation of transactions that occur more than four years before they were eventually identified by the director (Section 200 of the Provincial Sales Tax Act).

Unless of course the omission was significant and intentional.


There is also some risk that legal fees in the US relating to investments by a venture capital firm may actually be subject to BC PST. Since we’re not in that position yet, we haven’t looked too closely at the legislation.


While I’m not a US or cross-border tax specialist, I have been told that companies selling into California for instance, may be exposed to income taxes in the State of California, at some level of penetration. While Canada has tax treaties with most countries that Canadians export to, it should be noted that these typically cover federal income tax only. States and provinces may have other filing and tax requirements.

Clearly companies that deal routinely across borders should seek advice from CPAs with relevant experience.

How Good is Business Advice?


A few years ago I watched as a young colleague with an MBA took it upon himself to advise the proprietor of a crepe stand about operations and business strategy – in exchange for a free crepe.  As a trained journeyman chef in an earlier life, I was amused by the exchange.

My MBA colleague had no idea how long it would take – and how expensive it would be – to train someone to make crepes, unsupervised. It was clear to me that my colleague’s advice was vastly overpriced.


A few years ago I served on an advisory panel for early stage companies at Innovation Island on Vancouver Island.

One of the participants seemed to be struggling with too much advice. The presenter had stopped working “in the business” in favour of working “on the business”. When I heard that I couldn’t help thinking that an advisor had lifted that line verbatim from an introductory management consulting textbook.

In the past year or so the company had successfully sold their services to at least 3 large government organizations – which isn’t trivial for a small startup on northern Vancouver Island.

Just a note here. Successful entrepreneurs don’t usually work for goverrnment incubators. It is most often failed entrepreneurs looking for a regular pay cheque – and maybe a pension – who work with incubators. Most successful entrepreneurs keep working in their own businesses, become investors – or simply retire.


Many years ago I read an opinion piece by an intellectual property lawyer. He recommended that a startup developing IP should keep it close to the chest until they secured investment. He didn’t like the idea of using the IP in services in order to prove out the technology. Maybe that works for an IP lawyer who gets paid when the IP is protected – but it sounds like bad advice to me. How does a startup know whether their IP is worth protecting until they established that it’s useful?

How do you know that a minimum viable product is viable unless a customer has tried it out?


If you’re getting advice, you really have to consider the source. Remember above all, that there is no one size fits all answer to your question. Your business, jurisdiction and personal circumstances are unique.

CPAs who have provided tax, accounting and structuring advice for years, understand this implicitly. Our challenge is to get our clients to ask us first….

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The Evolution of the Business Plan

Management science used to tell us that we needed to plan carefully and intelligently for any new business venture, document our assumptions clearly – and then execute.
As a professional accountant I’ve always been leery of projections – or as we like to refer to them “FOFI” (i.e. future-oriented financial information). The thing is, accountants built their reputation for honesty on the accurate reporting of historical information. What’s more we’re pretty good at that.

Steve Blank – the well-respected academic and entrepreneur out of California said it very eloquently:

No business plan survives first contact with customers


The thing about projections is that, especially in the case of a new business, they’re almost always wrong. For a startup trying to commercialize a new technology in a new market space, projections are almost always wildly over-optimistic.

In fact most investors in early stage companies discount projections heavily – or more likely just ignore them.

Some years ago I watched a video put out by Sequoia Capital. In it Jim Goetz (the founder) said essentially that you may be wasting your time writing a 120 page business plan – since the projections are almost always wrong…

If you like what you’ve heard here is a link to the complete Youtube video…

But in spite of the fact that they are inaccurate – and most experienced investors discount or ignore them – sometimes my clients still need to prepare them. So what is the answer?

From my perspective at least, the answer is STRATPAD™.

Originally developed for the iPad – StratPad is a web-based business planning tool that most entrepreneurs can learn to use in the course of a one day workshop. Which means it costs lest than having your CPA or your management consultant write it for you – and more important, keeps the entrepreneur at the centre of the process. Since is a business plan is really a living document, management needs to keep it up-to-date, or at least re-visit it on a regular basis. If you outsource your business plan that means you always have to outsource your plan….

And you’ll never own it!


Asset Sale vs Share Sale

Technology companies – in fact most small businesses – often have difficulty taking advantage of the recently enriched lifetime capital gains deduction. When first introduced the capital gains deduction was targeted the first $500,000 of capital gains on family farms and qualified small business corporation shares (“QSBCs”). Since then the lifetime capital gains limit has been increased to $806,800 for QSBCs and $1 million for family farms.

However it is always difficult for sellers to sell shares. Buyers prefer to buy assets for 2 reasons:

  1. The cost of shares is not deductible by the buyer against income – while most assets are at least partially deductible
  2. Shares of small business corporations are much more complex beasts to acquire and may include undisclosed  liabilities or other “surprises” that buyers are understandably nervous about acquiring

Buyers and their legal representatives will typically discount the purchase price if the vendor insists on selling shares. In some cases buyers simply won’t consider acquiring shares.

Many small, private corporations have at least a few skeletons in their closets. Closely-held companies often operate a little too close to the line and sophisticated buyers will often engage professionals to uncover at least some of these.

As a former senior manager with PwC LLP in Vancouver I was seconded to a due diligence team looking at the potential acquisition of a technology company. As it happened, the target company was one of a number of companies owned by the same entrepreneur. The entrepreneur had separate accounting firms handling each of his companies.

The problem was that he never informed his accountants of the existence of the other companies. Each year he filed for refundable SR&ED tax credits with one of his companies. Presumably his accountants were unaware of the existence of these other companies, since they were not disclosed on the tax returns as “associated” corporations.

Because of the amount of taxable income of the associated group, the corporation would not have been entitled to high-rate refundable tax credits. Thus any purchaser could be on the hook for undisclosed tax liabilities – and penalties – in the millions of dollars.

Of course it isn’t only undisclosed tax liabilities that could surface after an acquisition. There could be problems with employees, former employees, customers or suppliers. With small corporations eligible for the lifetime capital gains exemption, financial statements are often merely compiled with little or no assurance from the public accountants drafting the statements.

For that reason most accounting and legal professionals will advise buyers of QSBCs to purchase assets – or to discount the purchase price and conduct significant due diligence before determining that price.


Technology entrepreneurs looking to sell their companies should understand that the value of their companies is most often determined by the value of their IP.

Selling intellectual property developed by a technology company now results in a capital gain. With capital gains, only 1/2 of the gain is taxable. The remaining un-taxed half  can be distributed tax-free to shareholders via an amount paid out of the capital dividend account (“CDA”).

So rather than selling shares – typically at a discount – the entrepreneur keeps the company and sells the IP within the company. So the sale price is higher, the sale is only partially taxable and may even be shielded by non-capital losses, SR&ED ITCs or SR&ED expenditure pools within the company. When the proceeds are distributed, the company can elect to pay dividends from the CDA account.

While this works well for technology companies that have IP, it can also work for any corporation selling goodwill as well. Usually buyers will attempt to structure their purchase so that proceeds are allocated more to tangible assets which can be depreciated more quickly. This may result in fully taxable “recaptured” depreciation.

For entrepreneurs that have done this before, be aware that the rules around gains on the sale of what used to be “eligible capital property” have changed in the last few years. Clearly each company’s particular circumstances will be unique. So it pays to get advice from a tax professional that you trust.



The Cost of Going (and Being) Public

Recently I spoke to one of the founders of a medical device company who was looking to go public in order to fund the development and regulatory approvals for their new products. Assuming that the company accurately projects their capital needs at $4 million I thought it would be a useful exercise to look at the impact of the decision to go public on the company’s burn rate.

To begin with I looked at a study published by PwC in 2014 –


According to PwC estimates:

How much can the costs of going public add up to?

Underwriter costs for an IPO – up to 10% of the proceeds.

Legal, audit and accounting costs – from $200K to $500K for a smaller offering

Marketing and road show costs ?

Miscellaneous costs (eg. printing costs, filing and transfer agent fees)?

What’s more many of these additional costs are ongoing.



Based on this analysis at least half of the cost is directly attributable to going public too early in the life of the company.  Given that this is a medical device company, the cost of foregone SR&ED refunds could easily exceed the IPO and maintenance costs.

Ideally going public should be seen as a possible exit for Series A or Series B investors instead of a strategy for raising money for a development stage company.