Interested in saving for your child’s future?


Interested in saving for your child’s future?

How does a RESP work?

Registered Education Savings Plans (RESPs) can help you build an education fund for your child or grandchild (or a relative’s or friend’s child) by allowing you to earn investment income in a tax-deferred environment. You can set up an individual plan with organizations such as life insurance companies, mutual fund companies, and financial institutions, or you can enroll in a group plan offered by a non-profit scholarship or education trust foundation. If the child goes to college or university, the RESP provides funds to help cover the child’s expenses.

Contributions to a RESP are not tax-deductible to the contributor. However, the income in the plan grows tax-free, so RESPs enjoy the effect of tax-free compounding of investment income. When the child withdraws the funds, the income portion will be taxable to the child. As a student, the beneficiary will probably not have much other income and will be eligible for the tuition tax credit, so he or she will likely pay little or no tax.

How much can you contribute to a RESP?

The overall lifetime limit for RESPs contributions is $50,000 per beneficiary. Overcontributions are taxed at a rate of 1% for each month that they remain in the plan.

If you wish, you can withdraw your own contributions to RESP without any tax consequences since you did not get a tax deduction when you contributed the funds. However, you cannot withdraw the income earned by the RESP tax-free. You may also be required to repay some or all any Canada Education Savings Grants upon RESP withdrawal for non-education purposes.

Canada Education Savings Grant

Under the Canada Education Savings Grant (CESG) program, the federal government will provide a direct grant to a RESP of 20% of the first $2,500 of annual contributions made to the RESP. The grant will be worth up to $500 per year for each year the beneficiary is under 18, to a maximum of $7,200 per beneficiary. The grant amount will not be included in the annual and lifetime contribution limits for the beneficiary.

If the maximum contribution is not made in a year, entitlement to the grant can be carried forward to a later year (within restrictions). The total CESG per beneficiary per year is capped at $1,000 or 20% of the unused CESG room, whichever is less.

Example: Michael contributes $1,000 in 2019 to a RESP for his newborn son. This contribution earns a CESG of $200 (20% of $1,000), leaving $1,500 in CESG contribution room available for carry forward in future years.

In 2020, Michael contributes $4,500 to the plan. In this year, contribution for the CESG is limited to the $2,500 of new contribution room arising in the year, plus the $1,500 carried forward. Therefore, the CESG is only 20% of $4,000 or $800. The extra $500 of contribution can not be carried forward and claimed in later years.

CESG contribution room accumulates at the rate of $2,500 per year ($2,000 per year for 1998 to 2006), whether the child is currently a RESP beneficiary. So even if you do not start making CESG-eligible RESP contributions in your child’s first year, you can make catch-up payments eligible for the grant in later years (subject to the lifetime limit of $7,200 per beneficiary and the annual limit per beneficiary of $1,000 or 20% of the unused CESG room).

To qualify for the CESG, the RESP beneficiary must be a resident of Canada under age 18 and must have a Social Insurance Number (SIN) (see 4.8). You can apply for a SIN for your child by contacting Service Canada. Bear in mind that SIN processing may take several weeks.

If your child chooses not to pursue post-secondary education, you will have to repay the CESG funds received but you will only have to pay back the principal amount of the grant. You do not have to pay back the income earned on the grant funds; however, the income will be taxed when it is withdrawn from the RESP.

Payments from a RESP

Your RESP can begin making educational assistance payments to the plan’s beneficiary once he or she enrolls as a full-time student in a qualifying educational program at a qualifying post-secondary institution. Part-time students aged 16 and over are eligible to receive up to $2,500 of educational assistance payments for each 13-week semester. Students with disabilities can also receive educational assistance payments for part-time study.

Payments from the plan can be used to cover the student’s living expenses and educational expenses such as tuition fees and books, although certain plans may restrict which expenses payments can cover.

For an educational program to qualify, generally it must be at least three weeks long, require at least 10 hours per week of instruction (or 12 hours per month for part-time students) and be at a designated educational institution. Correspondence courses and other distance education courses may also qualify, as well as universities outside Canada if the student is enrolled in a course of at least 13 weeks leading to a degree.

How Does a Tax-Free Savings Account (TFSA) Work?


How Does a Tax-Free Savings Account (TFSA) Work?

Tax-Free Savings Accounts—TFSAs

You can contribute up to $6,000 annually to your Tax-Free Savings Account. You can invest in stocks, exchange traded funds or mutual funds at Canadian financial institutions. Tax Free Savings Accounts (TFSAs) were introduced in 2009. TFSA contributions are not tax-deductible; however, you can withdraw the income earned in the TFSA and your contributions to it at any time tax-free.

What is TFSA contribution room?

You can contribute up to $6,000 per year to a TFSA if you are 18 or older and resident in Canada. If you have made no contributions to date and you are 29 or older in 2020, you can contribute a total of $69,500. You can carry forward unused contribution room indefinitely. You can hold more than one TFSA, subject to your contribution limit.

YearsTFSA contribution limit
2019-2012$5,000 per year
2013-2014$5,500 per year
2015$10,000 per year
2016 – 2018$5,500 per year
2019 – 2020$6,000 per year

What happens if you overcontribute to TFSA?

If you have an excess TFSA amount at any time in a calendar month, you are liable for a penalty tax of 1% of that month’s highest excess amount. Because the test applies at any time in a calendar month, withdrawing the excess amount will only stop the penalty from applying in the month after the withdrawal.

Is the interest on funds borrowed tax deductible?

Interest on funds borrowed and fees incurred to invest in a TFSA are not tax-deductible.

Income splitting benefit for families

TFSAs may offer an opportunity for income splitting for families in which one spouse has more income than the other. You can give funds to your spouse to contribute to his or her own TFSA, if your spouse has available contribution room.

Can you withdraw from a TFSA?

You can make a tax-free withdrawal from a TFSA at any time. The amount withdrawn is added to your contribution room, but not until the next year. You can re-contribute the amount you withdrew in the next year or later.

Example: Andrew contributed $63,500 to his TFSA before the end of 2019. In January 2020 he contributes $6,000 so that he has contributed the maximum amount of $69,500. He decides to withdraw $5,000 in June 2020 so that $64,500 of his contributions remains in his TFSA. In this case, he cannot re-contribute the $5,000 he withdrew until 2021. At that time, he can recontribute the $5,000 withdrawal along with his new contribution limit for 2021.

Investment income earned in Andrew’s TFSA is treated the same way. If Andrew’s $6,000 investment in 2020 earns $300 and he withdraws the $6,300 in December 2020, he can re-contribute the entire $6,300 in 2021 along with his new $6,000 contribution limit for that year, or $12,300 in total.

Similarly, if you invest some of the funds in your TFSA in the stock market and your share investment appreciates rapidly, say from $20,000 to $30,000, you could sell the shares and realize the $10,000 tax-free capital gain in the TFSA, withdraw the $30,000 cash proceeds and still be able to re-contribute the full $30,000 amount to the TFSA along with any other unused TFSA contribution room in the following year or later.

As a result, you could potentially contribute much more than the contribution limit annually, and therefore earn more tax-free investment income.

Consider contributing to investments that are expected to increase significantly in value over a short time in a TFSA. You can withdraw the income and capital gains earned tax-free at any time, and any withdrawals you make will create additional contribution room.

When choosing your investments, keep in mind that capital losses realized in a TFSA cannot be claimed against capital gains realized outside the TFSA.

What types of investments can I hold in my TFSA?

TFSAs can hold cash, guaranteed investment certificates (GICs), term deposits, mutual funds, exchange traded funds (ETF), and publicly trade securities (stocks) at financial institutions.

Where should you invest your savings?

You should decide on your best tax strategy for dividing your investments among TFSA, RRSPs (Registered Retirement Savings Plans) and RESPs (Registered Education Savings Plans). You’ll need to weigh these advantages against the benefits of other tax-assisted savings plans such as RRSPs and RESPs and other financial priorities such as paying down your mortgage.

Generally, if you have enough resources, you should invest in all the relevant plans. Though TFSA savings are initially limited, as contribution room increases, a TFSA may become a much more significant supplement to your RRSP.

Helpful savings scenarios:

RRSPs versus TFSAs

A TFSA is like a mirror image of an RRSP: RRSP contributions are tax-deductible, but the contributions and investment earnings are taxed when you withdraw them. TFSA contributions are not tax-deductible, but withdrawals of contributions and investment income are tax-free.

As such, your best tax strategy for dividing your investments between TFSAs and RRSPs may depend on any differences between your current tax bracket and the one you expect to be in when you start withdrawing funds from your RRSP.

If you expect your future income to fall into the same tax bracket as your current income, the tax benefits of a TFSA and an RRSP will be similar. That is, the value of the tax deduction for an RRSP contribution will generally equal the value of withdrawing funds tax-free from a TFSA.

If you expect your future income to fall into a lower tax bracket than your current income, an RRSP investment can provide a tax advantage because the tax deduction you get today will be more than the tax you will pay when you withdraw the money from your RRSP.

If your income falls into a lower tax bracket now but you expect it to be higher in the future, a TFSA offers a greater tax benefit because you would pay a higher tax rate on RRSP withdrawals than you will pay today on the income you contribute to the TFSA.

TFSAs for seniors

Unlike an RRSP, which must be wound up when you reach age 71, you can maintain your TFSA for your entire lifetime and so your TFSA should be integrated with your retirement income plan.


If you’re saving for your child’s education, keep in mind that, unlike a TFSA, a RESP offers an annual guaranteed rate of return of $500 (20% on $2,500 annual contributions) via the federal government’s Canada Education Savings

Once your children turn 18, you may want to consider giving them funds to invest in their own TFSAs to help finance their post-secondary education or other expenses.

TFSA versus mortgage paydown

If you’re considering whether to invest in a TFSA or pay down your mortgage, once you’ve taken all the relevant factors into account, it probably makes sense in most cases to reduce your non-deductible mortgage interest as soon as possible.

Additional TFSA resources

Government of Canada – The Tax – Free Savings Account

TD TFSA Calculator

ROYAL Bank TFSA Calculator

What is a Balance Sheet?

what is a balance sheet

What is a Balance Sheet?

Balance sheets are one of the primary financial statements used to measure a company’s financial position. It summarizes the company’s assets, liabilities, and owners’ equity at a specific date, and it is used to calculate the net worth of the business. Creating and keeping your balance sheet up to date will allow you to have a better handle on your company’s finances. 

Understanding your company’s balance sheet is vital to ensuring it has a strong financial position.

Typically, when assets are greater than liabilities, this represents a strong financial position. But when liabilities are greater than assets, this can represent a weak financial position and a company with lower value.

Having an accurate balance sheet can help you assess the company’s strengths and weaknesses and develop appropriate strategies moving forward. Balance sheets can help you identify trends and are commonly used for bank loans and selling your small business.

There are two other financial statements that are connected to the balance sheet:

  • An income statement reports revenue, expenses, and net income for a specific period. The net income balance in the income statement increases an owner’s equity in the balance sheet.
  • A cash flow statement lists the cash inflows and outflows for a month or year, and the ending cash balance is the same dollar amount reported in the balance sheet. If you create a July cash flow statement, for example, the July 31st cash balance in the cash flow statement equals the cash balance in the July 31st balance sheet.


Assets include all items of cash and property held by your company. Usually, assets on the balance sheet are divided into two categories: current assets and non-current assets.

Examples of assets include:

  • Cash, such as money in petty cash, deposits in checking and savings accounts, and any short-term investments that can readily be converted into cash.
  • Marketable securities, including stocks, bonds, and other securities held for investment that are readily tradable.
  • Accounts receivable (A/R) owed to your company by a customer or client that is expected to be paid within a year.
  • Inventory, including raw materials, works in progress, and finished goods produced or acquired for sale to customers in the normal course of business. Businesses may have an obsolescence reserve that reduces the inventory asset on the balance sheet.
  • Pre-paid expenses, such as amounts for insurance coverage, property taxes or other expenses that you expect to use or apply within one year.

Non-current assets include:

  • Property, such as equipment and machinery, buildings and land, and furniture and fixtures. Accumulated Depreciation
  • Intangible property, including copyrights, patents, and trademarks, as well as goodwill.
  • Other Non-current assets


Liabilities are debts or other obligations of the company that could have a negative effect on its net worth. There are two basic categories of liabilities: current liabilities and long-term (fixed) liabilities.

Current liabilities, which are liabilities reasonably expected to come due within a year, include:

  • Accounts payable (AP) owed to suppliers and vendors for goods or services bought by the company.
  • Notes Payable
  • Accrued expenses incurred by your business without any invoice, such as wages, employee benefits (e.g., medical insurance, retirement plan contributions), and profession fees
  • Short-term borrowing, which includes company credit card bills and lines of credit.
  • Payroll Payable
  • Sales Tax Payable
  • Income Tax Payable
  • Short-term loans payable
  • Unearned revenue from a product or service that has yet to be delivered or performed.

Long-term (fixed) liabilities include:

  • Mortgages taken out to buy or build the company’s facilities (e.g., buildings, factories, etc.)
  • Bank loan for company vehicles
  • Bank loan for equipment purchases
  • Loans from the shareholders

Owners’ Equity

This portion of the balance sheet represents the value of your owner’s interest in the company.  Subtracting the liabilities from the assets gives you the value of your equity.

Owners’ equity breaks down into four basic categories:

  • Common shares
  • Profit or Loss for the current year
  • Dividends distributed to the owners
  • Retained revenue, or the earnings of the business that are kept in the company rather than being distributed to the individual owners

If you have positive equity, your assets exceed your liabilities. If your equity is negative, there are more liabilities than assets, and the company could be in trouble.

Balance Sheet Formula

Those three components are connected by the balance sheet formula:

Assets = Liabilities + Owners’ Equity
Owners’ Equity = Assets – Liabilities

The formula is used to create the financial statements, including the balance sheet and will give you an accurate snapshot of your company’s financial health.

How to Create a Balance Sheet

To create a balance sheet manually, use two columns for entries of the items discussed earlier. The left column is for listing your assets, with a total of assets at the end of the column. The right column is for listing liabilities, which you total and add to the owners’ equity. When the sum of liabilities and owners’ equity is totaled, the amount should be equal to the total amount of assets in the left column.

For example, say you run a small business. Your current assets might include $2,000 cash in the bank plus $500 in accounts receivable for an unpaid invoice and $3,000 worth of inventory (raw materials, packaging material and finished product). Your fixed assets might include furniture and fixation worth $500, and $7,000 in equipment, and $1,000 for your computers and point-of-sale equipment. The numbers on the asset side of your balance sheet look like this:

($2,000 + 500 + 3,000) + ($500 + 7,000 + 1,000) = $14,000

The right side of your balance sheet shows your liabilities. Your current liabilities might include $1,000 in accounts payable for raw material, packaging material and finished goods, $500 for sales tax, and $1,500 owed in salary and wages to your employees. Your long-term liabilities might include $4,000 outstanding for a business loan you took to start the company. The numbers on the liabilities side of your balance sheet look like this:
($1,000 + 500 + 1,500) + 4,000 = $7,000

When you subtract your liabilities from your assets ($14,000 – 7,000), the remainder ($7,000) is your owners’ equity.

How to Create a Complete Cash Flow Projection

cash flow projections

How to Create a Complete Cash Flow Projection

It’s essential to have sufficient cash in your account, since you must pay your employees, handle business expenses, keep money in cash registers, and pay unexpected bills. Working capital is critical for small businesses, and cash flow projections can be an important tool for ensuring you always have enough cash on hand.

Time Period for Cash Flow Projections

It’s best to start by identifying the period you want to cover. You can make cash flow projections for a month, a quarter, a year, or longer. If you want to create projections for a long-time span, such as a year, consider creating projections for smaller chunks of time within that large period. This allows you to refine your projections as time passes, helping to make your overall projection more accurate.

Outgoing Expenses

Before making cash flow projections, thoroughly review the cash that’s flowing out of your business. You can start by making a note of regular expenses, such as rent, utilities, loan repayments, and similar costs. Then, estimate fluctuating expenses, such as payroll and the cost of goods sold.

You can adjust these projections later when you know the exact expenses you’ve incurred. Remember to note one-time expenses you anticipate making over the period, such as equity payments or buying an asset.

Cash Inflows

After outlining all the outgoing expenses, it’s time to list all the cash that flows into your business. Consider starting with guaranteed inflows, such as grants, royalties, GST rebates, and tax refunds. If you receive rent or subscription fees, you should also include those payments. Estimate how much sales revenue you expect to receive.

Setting Up the Cash Flow Projection

Ideally, you should create a cash flow statement that is like a cheque register. For example, if you’re making a cash flow statement for a month-long period, you should start with the projected opening account balance on the first of the month, note each outgoing or incoming expense on the day it is likely to occur, and track how this affects your balance over time.

Imagine you start with $2,000 cash on hand at the beginning of the month. You anticipate $3,000 in guaranteed income to arrive on the 3rd day of the month. This increases your projected cash balance to $5,000. On the 6th, you must pay $2,000 in bills, lowering your cash on hand to $3,000.

You can do this in Excel with four columns:

  • Incoming cash
  • Outgoing cash
  • Balance
  • Description of transaction

Alternatively, you may use a spreadsheet, or you can make the process easier with QuickBooks Online Cash Flow Planner. Click the following link for a demo.

Adjusting Projected Numbers

At the end of the period, it’s a good idea to look over your cash flow projection and adjust based on actual sales and expenses. Then, use the adjusted cash flow statement when making future cash flow statements. These accounting statements help you identify times when cash is likely to be short so you can make plans to avoid or remedy those situations.

Forecast Your Small Business’s Cash Flow

It’s important to forecast your expected sales. If your business is young, you may need to look at industry averages and competitors’ figures. The Canada Census Program can also help you get information about customers that fit your target market to help you make educated estimates.

Once you establish your business, you can generally rely on past figures to project future sales, but keep in mind industry trends and competitor activities that can impact sales year over year.

Payment Terms and Cash Flow Delays

While you can record a sale when you make it, it’s not always appropriate to count that as incoming cash in the same period. Consider any customers who use installment plans or have other payment terms that can cause delays. You should also account for other parts of the billing process that can slow things down.

Some are predictable, such as the time it takes your billing department to invoice the customer, but others are less so, such as customers who are late on their payments. Calculating your historic average days sales outstanding, or the average time it takes you to get paid, can help you make more realistic estimates about when to expect incoming cash from sales.

Fixed Expenses

Fixed expenses are easier to estimate, as they are relatively unchanging. These expenses can include rents and mortgages, fixed salaries, and internet and phone bills. Make sure you don’t overlook any variable components to these expenses. Your internet provider may charge a flat monthly rate, but data usage plans may cost you more.

Similarly, under Canadian laws, even salaried employees may qualify for overtime, and this counts as a variable expense. Don’t include any fixed expenses that do not involve any outlays of cash, such as depreciation or amortization.

Variable Expense

Variable expenses are a little trickier to predict, as they can change based on the volume of sales and the amount of labour and inventory you need to meet that volume. Labour costs, such as commissions and wages, and costs of goods sold, including parts, shipping, and utilities, can vary based on your sales. Remember to account for income taxes, too.

Make sure you stay on top of the Canadian Revenue Agency’s latest filing rules for businesses and include your estimated taxes in your variable costs.

Calculating Cash Flow

Once you account for all your various revenues and expenses, calculating the net projected cash flow is a simple matter of subtracting cash outflows from inflows. Getting a handle on all the various components that feed into this formula can be tricky.

There are many apps and templates you can use to streamline the process, including QuickBooks’s Online Cash Flow Planner – so you don’t have to be an accounting expert to get a fix on your incoming and outgoing cash. Just input or upload your entries for each account, and let the software do the heavy lifting.

Whatever resources you use, forecasting cash flow gives you the tools you need for better business planning, so you can make smart investments while still having cash on hand when you need it. Improve your cash flow with invoices, payments, and expense tracking.

10 Financial Tips You Need to Know to Run a Successful E-commerce Business


To run a Successful E-commerce Business you need:

1. Setup your e-commerce business on cloud accounting software system

Cloud accounting software enables your e-commerce business to always have your data and software accessible online and from any device. 

Here’s a short checklist of things to consider when getting started with cloud accounting software. 

  • Is the software easy to use? 
  • Does it handle sales tax?
  • Will it give you the necessary reports to assist you in managing your business?
  • Does it sync with your business bank account, credit cards, etc.? 
  • Does it integrate with third party apps? 
  • Is it fully secure and encrypted?
  • Does it handle inventory management?

2. Stay on top your cash flows

Your e-commerce business will live or die based on how you manage your cash flow.

You need to know that your business is making money. And the easiest way to see this is to watch your cash flow. You need to watch the money coming in and going out every week. You also need to forecast your cash flows for next month, 3 months and 6 months.

The Cash Flow Statement summarizes the amount of cash (and cash equivalents) coming into and going out of the business. It also measures how well cash is being generated to pay debts and cover operating expenses. There are three types of cash activities that are considered, which include: operating, investing, and financing activities. 

Operating Activities: This looks at where the money that is being generated from the company’s products and/or services is being spent and used. This can include income tax payments, rent payments, salaries, or any other operating expenses. 

Investment Activities: This looks at how much money has been made or spent based on investments. This includes purchasing physical assets and investing or selling securities. 

Financing Activities: This is the net amount of funding a company generates within a given time. Issuing and repaying equity and debt and paying dividends are all considered financing activities. 

3. Managing inventory

E-commerce business inventory is the product purchased to sell. Inventory is valued at cost.

Decide what minimum volume of inventory you want to have on hand, and make sure you are tracking inventory so you can reorder before you pass this point. The last thing you want is to run out of inventory and lose sales. That said, shrinkage can happen to anyone. Therefore, it’s important to physically count inventory regularly.

4. Understand your cost of goods sold

Your e-commerce business cost of goods sold is the expenses directly tied to the products you sold. These costs are directly tied to sales volume.

The retail price of an item minus the cost of that item is your gross margin.

5. Know your fixed expenses

Any expenses that don’t increase when you sell more or decrease when you sell less are called ‘fixed expenses’ or ‘overhead expenses’. For example, if you pay for insurance, property tax and rent, these fixed costs. These costs won’t change based your sales volume. These costs aren’t part of the cost of goods sold and aren’t factored into your gross margin. These fixed expenses do affect your profit and your cash flow.

6. Plan by knowing your break-even point for an e-commerce business

A business’s break-even point is the stage at which revenues equal costs. Once you determine that number, you should take a hard look at all your costs — from rent to labour to materials — as well as your pricing structure.

Then ask yourself these questions: Are your prices too low or your costs too high to reach your break-even point in a reasonable amount of time? Is your e-commerce business sustainable?

Calculating your break-even point

There are a few basic formulas for determining a business’s break-even point. One is based on the number of units of product sold and the other is based on points on sales in Canadian dollars.

  • To calculate a break-even point based on units: Divide fixed costs by the revenue per unit minus the variable cost per unit. The fixed costs are those that do not change no matter how many units are sold. The revenue is the price for which you’re selling the product minus the variable costs, like labour and materials.

Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)

  • When determining a break-even point based on sales in Canadian dollars: Divide the fixed costs by the gross margin. The gross margin is determined by subtracting the variable costs from the price of a product. This amount is then used to cover the fixed costs.

Break-Even Point (sales CAD) = Fixed Costs ÷ Gross Margin

Gross Margin = Price of Product – Variable Costs

7. Review your e-commerce business profit and loss statement at least monthly

A profit and loss statement are extremely important for a business for making decisions. It gives a clear picture of whether the company’s operations are resulting in a profit or a loss after considering all the related expenditures. Therefore, the company can take corrective actions on a timely basis if there is a need.

The Profit and Loss Statement is a report that shows how much revenue was earned over a period and shows the expenses that were incurred while earning that revenue. Income statements break these numbers down on a granular level and show the final net profit. This can be used to demonstrate how profitable your business is, which is what a bank will want to see from you to help prove that your business is viable and profitable. 

8. Why it is important to set up the correct sales tax rates for your e-commerce business customers

Your customers are charged different sales tax depending on where the product is delivered.

9. Plan for your tax payments

By planning for your e-commerce business income tax, sales taxes, and payroll taxes you avoid late payment Canada Revenue Agency penalties and interest.

10. Understanding your balance sheet

The Balance Sheet provides a statement of the company’s assets, liabilities, and shareholders’ equity. They give you a snapshot of what your company owns (assets), what your company owes (liabilities), and what your company’s net worth is, which is what would be left over if your company sold all its assets and paid off all its liabilities. 

A balance sheet is calculated based on this equation:

Assets = Liabilities + Shareholder Equity 

For your balance sheet to balance, the combined value of your liabilities and equity must be equal to your assets. This will give you a full picture of your company’s financial health, otherwise known as the total value of the business. It’s important for these to balance because the total value of the business’s assets will have all been funded through the Liabilities and Equity.