Intuit Canada’s recent research on financial literacy found that small business owners know that managing their finances is vital to long-term success. However, when 500 small business owners from across Canada were asked to complete a ten question quiz on financial literacy, only 18 percent scored more than 60 percent.
These insights into the financial literacy challenges of Canadian small business owners is especially daunting when you consider the penalties for making mistakes.
If you are an employer, for instance, you have to know and follow the Canada Revenue Agency (CRA) rules about payroll so you can collect, report and file payroll taxes properly.
Here’s what every small business needs to know:
1) Are you an employer?
You are an employer if you have employees. But it’s entirely possible to have workers who are not employees, so you need to know the difference between them. The Canada Revenue Agency’s RC4110 – Employee or Self-Employed? explains the difference.
2) If you are an employer, you need a payroll program account with the Canada Revenue Agency.
If your business already has a business number (BN), all you need to do is add a payroll account to your existing BN. If your business doesn’t have a BN, you will need to register for a BN and a payroll account. This page on the CRA website explains how to register for a business number.
3) When you hire employees and when employees leave your employ, there are forms that must be filled out.
Whenever you hire an employee, you need to get his Social Insurance Number (SIN) and have him complete Form TD1, Personal Tax Credits Return, which is used to determine how much tax will be deducted from his employment income.
When an employee leaves your employ (or has any other interruption of earnings), you will need to fill out a Record of Employment for him.
4) Each payroll period, you need to deduct the appropriate amounts of CPP (Canada Pension Plan) contributions, EI (Employment Insurance) premiums, and income tax deductions from employees’ pay cheques, as well as calculating your share of CPP and EI.
Calculating Deductions provides all the details.
5) And of course, the amounts you have deducted from employee pay cheques along with your share of CPP contributions and EI premiums need to be remitted to the Canada Revenue Agency, accompanied by the appropriate form
As due dates vary depending on what type of remitter you are, you’ll want to visit this CRA page for more information.
6) You will need to complete and file CRA information returns annually.
Each year you will need to complete a T4 slip for each employee, and a T4 Summary which you will send in to the Canada Revenue Agency by the end of February, and send a copy of the appropriate T4 slip to each employee. See the CRA’s T4 – Information for Employers.
7) You must keep adequate records and these must be kept for six years.
“Adequate” means that your records have to “provide enough details to determine your tax obligations and entitlements”. You also need to keep the original documents to support your records.
8) When you close your business, you must also close your account.
Closing your payroll account means following certain prescribed steps by certain dates, as you see on this page outlining the steps you need to follow when your business stops operating.