Most companies must charge the Federal Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) to clients and consumers to ensure compliance with Canadian tax law. In some provinces, including Nova Scotia, Ontario, and New Brunswick, the government combines the Provincial Sales Tax (PST) and GST to streamline the tax filing system. If you live in a province that hasn’t merged systems, you need to file both the PST and GST to stay compliant.
Registering for these taxes requires you to contact the CRA by phone or mail, online, or in person at a local tax office and remit the GST/HST form. Residents of Quebec apply at the Quebec Revenue Department (QRD). The Canadian government requires you to register with the CRA if you make more than $30,000 per year and provide taxable supplies in Canada. Though this law has a few exceptions, it’s a good idea to contact the CRA as soon as possible to avoid penalties and fees.
If you have employees and pay wages and benefits, you need to register for a payroll program account and make the necessary deductions on each employee to stay compliant. Deductions include the Canada Pension Plan/Quebec Pension Plan Contributions (CPP/QPP), insurance premiums (EI), and the correct amount of income taxes. Sending these totals throughout the year to the CRA and providing your employees a copy of the amounts using Form T4 keep your small business in good standing. When reporting amounts, the CRA requires you to include cash advances, gifts, and bonuses. The slightest mistake can result in a discrepancy with company profits, possibly leading to fines.
The structure of your small business determines how you file taxes with the CRA. If you have a sole proprietorship or partnership, you report business income by using a T1 tax form. Small businesses, however, use Form T2125 Statement of Business or Professional Activities to report business income. Incorporated businesses use the T2 corporate income tax return. If you make a mistake and file the wrong form, you can file an adjustment request form online or through the mail along with details of your request and supporting documents. Corporations must wait until they receive a Notice of Assessment from the CRA before filing the adjustment.
To ensure compliance, CRA requires you to hold onto supporting tax documentation, including receipts, documents, and tax forms, for six years from the end of the last tax year to which they relate. You may want to scan the documents and keep them on a separate hard drive or in the cloud to ensure you have extra backup. Some businesses keep information for an extra year as a safeguard. In the event of an audit request, even the most detailed records don’t help unless you can support them with a paper trail.
New entrepreneurs often neglect important things, such as setting up expense accounts and itemizing deductions. If you have a home business or you’re a sole proprietor, you can ensure compliance by separating personal and business expenses, such as meals and mileage. Using a separate business credit card also helps you better track deductible expenses, and when you pay for items with cash, it’s good to write details about the transaction on the back of your receipts for easier filing. Also, if you have a home office, records of utility bills, maintenance costs, mortgage interest, and property taxes help you document your business-related deductions.
The CRA offers a variety of tax credits to help small business owners throughout the year. If you hire an apprentice during busy seasons, you can take the Apprentice Job Creation Tax Credit, which lets you claim up to 10% of the wages or up to $2,000 as a tax credit to offset salary costs. Other credits include the Investment Tax Credit, which helps businesses that invest in qualifying properties, and the Hiring Credit for Small Businesses, which helps businesses that pay out more in employee payroll in the current year than in the previous year.
The CRA’s Business Tax Reminders App allows small businesses to create customized calendar or pop-up reminders about important tax dates, such as instalment payments, returns, and remittances. Recommended for small and medium-size businesses with revenue of less than $20 million and fewer than 500 employees, this app works helps keep tax obligations at the forefront, so you don’t miss important filing dates. English and French language options plus compatibility with Apple and Android, make it a versatile, convenient tool. You can download the Business Tax Reminder app from the CRA website, but you don’t need a My Business Account (MyBA) to use it and it doesn’t share your information with the CRA.
The CRA has many tools both to help your small business succeed and make the process of tax compliance easier. Familiarising yourself with common violations can help you avoid them, and you can contact the CRA if you have any questions concerning regulation that apply to your small business. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.
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