If you own a small business, at some point you need to deal with the Canada Revenue Agency (CRA) to pay taxes, remain compliant with current tax laws, and apply for and receive any benefits from a tax incentive program. On top of overseeing the payment and administration of taxes, the CRA offers a wealth of tools that explain common regulations, shed light on useful tax credits, and help small businesses avoid the most common tax violations.
Register for the GST/HST
Most companies must charge the Federal Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) to clients and consumers. In some provinces, including Nova Scotia, Ontario, and New Brunswick, the government has combined 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.
To register for these taxes, contact the CRA by phone, online, by mail, or in person at a local tax office, and remit the GST/HST form. For residents of Quebec, you need to apply at the Quebec Revenue Department. According to the Government of Canada, you must register if you make more than $30,000 per year and provide taxable supplies in Canada. There are a few exceptions to this law, but 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 tax. Be sure to send these totals throughout the year to the CRA, and provide your employees a copy of the amounts using Form T4. When reporting amounts, make sure you include cash advances, gifts, and bonuses. The slightest mistake can result in a discrepancy with company profits and lead to fines.
Know How to File
According to the Government of Canada, how you file taxes for your small business depends on how it’s structured. If you have a sole proprietorship or partnership, report your business on your personal income tax using a T1 tax form. For small businesses, the form includes a Form T2126 or Statement of Business or Professional Activities, which is where you report your business income. Incorporated businesses use the T2 corporate income tax return. If you make a mistake and file the wrong form, just 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.
Keep Excellent Records
It’s generally a good idea to hold onto receipts, documents, and tax forms for six years. Scan the documents, and keep them on a separate hard drive or in the cloud. Some businesses keep information for an extra year as a safeguard. In the event of an audit request, even the most detailed records are useless unless you have the paper trail to back them up.
Consider Common Deductions
Setting up expense accounts and itemizing deductions is a common roadblock for entrepreneurs. If you have a home business or you’re a sole proprietor, you should keep personal and business expenses, such as meals and mileage, separate. Always use a separate business credit card. For items paid with cash, write details about the transaction on the back of the receipt to make filing them easier. Also, if you have a home office, keep records of utility bills, maintenance costs, mortgage interest, and property taxes. A portion of each of these items is a deductible expense.
Available Tax Credits
The CRA offers a variety of tax credits to help small business owners throughout the year. If you hire an apprentice during busy times of the year, you can take the Apprentice Job Creation Tax Credit and 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 paid out more in employee payroll in the current year than the previous one.
The CRA helps small businesses succeed in many other ways; it has a useful reference library online, and its website offers streamlined direct deposits for quarterly and yearly taxes through My Business Account for people who use online accounting software such as QuickBooks. You can even avoid missing deadlines on tax payments by downloading a tax reminder app from the CRA website.
Staying compliant with taxes can be tricky for small businesses, but the CRA has many tools to make the process easier. Make sure you get familiar with the most common violations so you can avoid them, and contact the agency as soon as possible if you have any questions about regulations.