I just got contacted by a sole proprietor who needs a new preparer. He dropped his paperwork off.
He has a trades business that seems to be dying a slow death since covid. It was over $500k and now is down to about $200k gross income. He says he isn’t winding it down. It was incorporated “ages ago”. He was told by his old preparer that he didn’t need to be incorporated because there was no advantage to it based on income, but they would keep it alive by filing nil returns. His (now retired) preparer has been filing nil T2s (on paper without his information on it anywhere - just printed it out, had it signed, and mailed it in going by the copies) and running everything through the client’s personal return.
The client’s bookkeeper does the GST quarterly filing, so I don’t currently know whether GST is going through the corporate BN or a personal one. There are no copies of those filings in what I have. I can just see that she pulls the GST out of expenses and charges GST on invoices. I suspect the corporate number is the only one that exists. The bookkeeper puts together a spreadsheet summary with the final numbers that were data entered by the Liberty guy into the t2125. I’m fine with it if their idea of bookkeeping is an excel workbook. I don’t see anything wrong in the spreadsheets.
I have many self-employed clients, so I’m fine to get the T2 software, fill in a T2 return with a bunch of 0s, and efile it if there is nothing wrong with doing it this way. It seems oversimplified and probably an outdated or lazy approach.
Wouldn’t it make more sense to close the corporate account and just be a sole proprietorship? Why would anyone bother doing this?
Had an older client who got himself into a heck of a lot of trouble.. I took him on at first but after reviewing all the data.. realized it was a minefield. He was attempting to run a sole prop with his Corp BN. That doesn’t fly.
The Income and Expenses ( in my case) did belong to the corp as well as the assets, etc..
He got mad when I told him he could not file a NIL T2 and put everything on his T1 because he wanted to.
Unfortunately, I do know that CRA caught up with him and audited.
He ended up at a larger firm( I am a 1 person biz) to sort the mess with the audit.. which he shared with me .. did not turn out very well for him. I suspect that was not the only error he was making.
Best of luck as I believe you do not yet have all the facts to determine what has happened and what must happen going forward
Yikes. I’d be careful. Get a clear understanding of what he is hiring you to do - is it just the T1 filing or is it the T2 as well? Do up an appropriate engagement letter and get it signed by him. Get access to the CRA accounts of whatever is covered by that engagement, and review the history. Match the filings (GST, etc) with the actual accounts. Sounds like it’s gonna be a bit of work just unravelling what’s going on, before you can even decide what to do for the current year filing.
I think this is going to turn out exactly as Rachel is saying. I think he has been doing this T2 part wrong for a long time. Now I’m not sure if this set up was on the advice of his preparer or what he told the preparer to do and they just closed their eyes and did it for the fee.
I asked for the excel workbook and now have the full “general ledger” from his bookkeeper and not just her summaries.
Highlights:
–From the 2024 return, no MV schedule exists at all. In the ledger, I found a category for “vehicle expenses” that appears to have been lumped in with supplies on the summary. So, the business is paying his monthly leasing fees and repairs/maintenance (like a large collision repair bill) as a “supply”
–Travel expenses on the T2125 appear to be all of his & wife’s gas for the year and a large provincial offenses court fine.
–Utilities is a Bell home bundle (so I’m guessing their cell phones, internet, and TV).
Nope! I’m out.
I’m falling back on, I don’t do corporate returns and don’t want to start/pay for the software to efile one nil return. That’s not my focus. Here’s the number of a CPA I refer people to. She’s taking clients.