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Payroll Tax Compliance: What Every Small Business Needs To Know

Small business owners know long-term success requires good financial management. But a 10-question survey on financial literacy , revealed that only 18% of Canadian small business owners scored more than 60 percent. These insights into the financial literacy challenges of Canadian small business owners means you might need a refresher course to keep your company on track and avoid penalties for making mistakes.

Payroll Tax Compliance for Employers

The Canada Revenue Agency (CRA) establishes rules for Canadian business owners to ensure that you properly collect, report, and file your employees’ payroll taxes. The first step is knowing whether you qualify as an employer, since you may have workers who aren’t considered employees. Understanding the difference between employees and independent contractors is foundational to understanding when you must pay payroll taxes.

In addition, if you qualify as an employer, you need a payroll program account with the CRA. Among the actions you need to take to maintain payroll tax compliance are:

  • If your company already has a Business Number (BN), you just need to add a payroll account to its existing BN.
  • If your company doesn’t have a BN, you need to register your small business for both a BN and payroll account.
  • You have to file the required forms when you hire employees and when employees leave your employ.
  • When you hire employees, you need to get their Social Insurance Numbers and have them complete Form TD1, Personal Tax Credits Return so the CRA can determine how much tax you must deduct from your employees’ income.
  • When workers leave your employ or have interruptions in earnings, you must fill out a Record of Employment for them.

The CRA also requires you to deduct and submit the appropriate amount of Canada Pension Plan contributions, Employment Insurance premiums, and income tax deductions from employee paycheques. You must take out these deductions each payroll period and then calculate and pay your share of their CPP contributions and EI premiums. The CRA’s  Payroll Deductions Online Calculator  makes it simple to calculate these figures. Be aware that due dates vary depending on your remitter type. It’s a good idea to check with the CRA to be sure you have the correct date for your small business.

Finally, you must complete and file annual CRA information returns. Each year, you need to complete a  T4 slip  for each employee and a T4 summary. You must send these forms to the CRA by the end of February and send a copy of the appropriate T4 slip to each employee.

Record-Keeping Compliance Requirements

Whether you have employees or not, the CRA requires you to keep adequate records for six years after your filing your returns. “Adequate” means that your records provide enough details to determine your tax obligations and support your deductions. Keep all your original documents well organized and at the ready to ensure you can defend your figures, should the CRA decide to audit your small business.

Compliance When Closing Your Small Business

When you close your small business, you must also close all your program accounts with the CRA. Account closure requires you to follow certain prescribed steps, including:

  • Remitting all CPP/QPP contributions, EI premiums, and income tax deductions to your tax centre
  • Filing T4 and T4A slips and summaries
  • Requesting that your BN account be closed
  • Requesting that your GST/HST accounts be closed
  • Dissolving your corporation
  • Sending notice of the dissolution to CRA
  • Filing your final tax return

Many of these steps must be accomplished by certain dates after the close of your company.

Staying in compliance with CRA rules and regulations not only keeps your business running smoothly in the short term, but also helps you avoid headaches down the road. QuickBooks Online makes it simple to keep your payroll well organized and in compliance with Canadian law as it automatically updates each time the CRA makes changes to its requirements. Did you know you can also pay your employees in QuickBooks? Add QuickBooks Payroll today.

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