Ontario Apprenticeship Training Tax Credit

The Ontario and Federal Governments have offered the Ontario Apprenticeship Training Tax Credit incentive for a while now and although most dealership owners take advantage of it, there are still many out there that either don’t claim the credit or don’t feel it’s worthwhile.

There is an Ontario and Federal combined credit of approximately $12,000 for every year that a dealership employs an eligible apprentice. The credits are filed in connection with the annual corporate tax filings for the corporation.

There are certain nuisances to the credit that an accountant can work through, yet for the most part, as long as all conditions are met (which is generally the case for an apprentice hired to work in the service department of a new auto dealership), the credit can be quite significant as many dealers hire multiple apprentices over multiple years.

I am an accountant after all so humour me while I do a little math: let’s say a dealership hires 2 apprentices every year for 3 years – that’s approximately a $72,000 credit ($12,000 x 2 x 3), or ~$61,000 after taxes. That must be worthwhile to any dealership owner.

I think what prevents owners from taking action is the fear of time spent and wasted. However, even if you spend an hour or two with an account and it turns out you don’t qualify, you’ll know what you need to do next year to start qualifying moving forward. Or at least you won’t be left wondering if you’re missing out on significant money. Seems like a win-win situation to me.

Also note that if you have not filed credits for prior years, there is an opportunity to amend prior year tax returns and file the necessary paper work for the credit.

As a side note: it’s important that your dealership maintains the required records, including contracts, as it’s quite common for the CRA to request this information following the filing of the corporate tax returns. 

- David

HST-Exempt Financial Services No Longer Exempt

This week I want to address a topic that’s very important for auto dealerships. The CRA made a significant change to HST rules that directly affects dealerships, and in turn, their cash flow. The change was made a while ago yet not everyone seems to be aware of the modification or the new developments surrounding it so I think it’s worth mentioning.

The CRA has narrowed the definition of HST-exempt financial services. What does this mean for dealerships? Most auto dealerships have a finance department that helps customers arrange a lease or loan with a financial institution. In return, the dealership receives a commission from the financial institution. This commission, or fee the dealership receives, is no longer always an exempt financial service – under these new rules the fee may now be considered taxable and subject to HST.

This means you have to be careful how you structure the agreement with your financial institution of choice and be mindful of the added tax you may have to pay. Keeping these factors in mind will ensure you’re not surprised in a tax audit.

The CRA made this change a while ago, however, the Canadian Automobile Dealers Association (CADA) is working to overturn the legislation and make dealership’s arranging financial services tax exempt. There are possible circumstances which could enable a dealership to object to an audit assessment from the CRA; I highly suggest you speak with your accountant to check if your particular circumstances apply. Meanwhile, keep in mind that if your dealership has already received an audit assessment, you have 90 days from the date of assessment to file an objection.

Have you been hit by the new HST changes? If you have I’d be interested in hearing your story in the comment section below.

- Dave 

Are you paying attention to your financials?

With over 15 years of experience preparing, reviewing and analyzing financial statements for owner-managed clients, I can tell you unequivocally that 90% of the time, financial statements are not reviewed effectively.

Reviewing financial statements is like getting a physical at the doctor – it can point out ‘issues’ that you may not have been aware of so that you can address them before they get worse. To continue the analogy, just as a doctor assesses one system at a time looking for anything out of the ordinary, when reviewing your statements, it is important that you know what normal should be so you can identify and follow up on irregularities.

As part of the year-end audit for one of my auto dealership clients, I met the owner for a morning coffee meeting and we reviewed the dealership’s interim financial statements. After looking at the financial statements, I noticed that the margins on used vehicles were up significantly year-over-year. When I questioned the owner about this he said the used car manager must have been doing his job, however it appeared irregular to me, and after a little investigation I found that there were some accounting irregularities and the profits on used vehicles were not at all what the owner had thought.

As part of the month-end review of the financial statements, there should be a set checklist that you go through so that you know what you are looking for. Staring at the numbers and stating that everything is in line with expectations is just not enough. Comparing to prior month, prior month last year and budget are only some of the overall checklist items that should be investigated, but this is a good starting point because this review of fluctuations can raise some ‘red flags.’

The financial statement review is not just meant to find accounting irregularities. Much like an investor reviewing an initial public company offering or a banker reviewing annual compliance; financial statements can uncover so much more. It can help identify liquidity issues, operational issues and potentially fraud. 

Don’t rely on others to do your dirty work, pay attention to your financial statements because they tell the story of how your business is performing. If you find something that seems out of the ordinary, keeping digging until you are satisfied.

I will be focusing on specific financial statement line items and ratios in upcoming blogs.