Manufacturer accountant in Delta

Inventory is a tax number, not just a stock count

Cost of goods sold is opening inventory plus purchases, less closing inventory. Every dollar added to the closing count is a dollar more of taxable profit this year. Every dollar left off moves profit into next year. That makes the year-end count and the valuation method as important as the sales figures. Plants on the industrial islands often hold three kinds of stock at once: raw materials, part-finished work and goods waiting for a truck.

We set the valuation basis with you once, at the lower of cost and net realizable value, and apply it the same way every year. Slow-moving and obsolete stock is written down when it is actually worth less, with the reason recorded. The year-end inventory count sets out what the count has to capture, and inventory accounting in BC covers the methods.

Work in progress and what belongs in finished goods

A batch half-processed or a fabrication job half-welded at year-end is an asset, not an expense. Direct materials, direct labour and the plant overhead that supports production belong in its value. Selling, office and financing costs do not. Where you draw that line changes both your margin and your taxable income, because costs absorbed into inventory are deferred until the goods sell.

A shop that expenses everything as it goes understates its assets and distorts profit, especially when a large order crosses the year-end. Lenders read the same statements, so a consistent basis also helps when you ask to finance the next machine. Inventory, WIP and CCA for manufacturers works through an example.

PST, GST and the production exemption

BC PST is where manufacturers most often overpay. Qualifying production machinery and equipment used to manufacture goods can be bought without PST, and materials that become part of goods you sell are generally exempt as well. The exemption has conditions, and the supplier needs the right documentation from you at the time of sale. Equipment used for office work, sales or general maintenance is outside it.

GST is simpler but larger. GST paid on materials, equipment and services is claimed back as input tax credits. Goods shipped to customers outside Canada, including through the port, are generally zero-rated, so no GST is charged on those sales. Food processors also need to know which of their products are zero-rated basic groceries and which are taxable. The BC PST guide covers registration.

Export customers often pay in US dollars. Each sale is recorded at the rate on the invoice date and each payment at the rate when it lands, with the difference kept as a foreign exchange gain or loss. A plant that ships steadily south can see that line swing with the currency, and it belongs in the margin conversation. Foreign exchange gains and losses sets out the rules.

Machinery, CCA and the machine you replace

Manufacturing and processing machinery has its own CCA classes, with faster write-offs than general equipment. An asset has to be available for use before it can be claimed, so a line delivered in November but not commissioned until February may not give the deduction you planned for this year. Confirm the in-service date before you time a large purchase. A recent federal measure also allows immediate expensing of certain new manufacturing buildings; see the tax update.

Selling or trading in an old machine is a disposal. If the proceeds exceed the class’s undepreciated balance, the excess comes back into income as recapture. Leasing produces a different pattern of deductions from buying, so the choice should be modelled rather than assumed. The half-year rule explains why the first year’s claim is often smaller than expected.

SR&ED on process improvement

Many Delta plants solve technical problems on the floor: a new recipe that holds up in a longer shelf life, a fixture that cuts scrap, a control system that runs a line faster. Some of that work qualifies for scientific research and experimental development incentives, claimed on Form T661. A Canadian-controlled private corporation can earn an enhanced refundable credit, which can be paid out even in a year with no tax owing.

The bar is technological uncertainty, not novelty in the market. Records made while the work happens, showing what was tried and why the outcome was uncertain, matter more than the final result. We review eligibility before the year closes so the records exist when the claim is prepared. Government grants for the same project reduce the eligible spending, so they are tracked alongside it. The SR&ED expenditure limit update covers the latest change.

What EverStone handles for you

A single CPA, with the fee settled before anything starts:

• The T2, with year-end statements a lender can read
• A stock valuation method chosen once and used every year
• Part-finished batches and jobs valued at the year-end
• A machinery schedule covering additions, sales and recapture
• PST exemptions documented and GST credits claimed in full
• Shift payroll, WorkSafeBC and the employer health tax
• An annual look at how the owners take their pay

Fixed fees, fully online

The firm is in Abbotsford and the work comes to it online, through a secure upload link, email and the odd video meeting, so production never stops for the accountant. Because the price is agreed up front, a question before you sign for a new line costs nothing extra. Manufacturer bookkeeping starts from $300 a month with GST and PST filing included; the T2 is quoted after a free consultation. See what it costs.

Remote accounting for manufacturers from Abbotsford

EverStone is a fully virtual, one-CPA firm based in Abbotsford, working with Delta plants entirely online. There is no Delta office and no local staff. Meetings are held by video, documents are exchanged securely through an upload link and e-signature, and no visit is required at any point. Inventory and capital cost tracking are maintained through the year rather than counted once.