Whether you are a self-employed individual or small business owner, the responsibility of filing taxes will fall to you. So, how do you file taxes in Canada? Here are the things you’ll need to know when filing your small business tax returns this season.
How to Prepare for Tax Season
On top of the organizational record keeping needed to prepare for tax time, businesses must also know what tax credits they can claim and expenses to deduct. All of this compiling and filing of taxes must then be completed before the government deadlines. That’s a lot to handle!
What Documents Do I Need to File Small Business Taxes?
There are many different accounting documents and business records you must collect come tax time. Download this small business tax checklist to ensure you have all the required documents needed to file your returns.
Once you’ve filled out the required tax forms and collected all applicable financial documents, what comes next?
Revenue Canada Forms Needed for Tax Returns
Once you’ve collected all applicable financial information and records, you’ll have to fill out the appropriate Canada Revenue Agency (CRA) forms for your business. Which forms you will need to file will depend upon your business structure.
T2 Corporation Income Form
If your business is incorporated, you will need to file specific forms with your returns. The T2 form serves as a federal, provincial, and territorial income tax return for corporations in Canada. However, for those located in Alberta or Quebec, you must file a separate provincial corporation return. All residential corporations must file a T2 return every tax year, even when there is no tax payable.
You can file your T2 form electronically using the internet, as in most cases, the CRA mandates electronic filing. To do so, you must use CRA certified software to fill in the forms accordingly. Once the forms are complete, you can submit your tax files online, or print them off and submit by mail.
ProTax is a cloud-based software built into QuickBooks Online Accountant, covering basic T2 tax forms, and is fully CRA certified.
Self-Employed Form T4A and T2125
Self-employed individuals are required to fill out forms T4A and T2125 when filing their taxes. Those who are independent contractors will need form T4A, or the Statement of Pension, Retirement, Annuity, and Other Income. This slip should be sent to them by each of their clients at the end of the year.
Form T2125, or the Statement of Business or Professional Activities, helps individuals calculate their gross income and business expenses to lower their taxable income. Find out more about these self-employment tax forms.
Can I File my Small Business Taxes with my Personal Taxes?
The ability to file your business taxes alongside your personal taxes will depend upon the structure of your business. A business owner who operates a corporation must file their corporate taxes separately from their personal taxes. Conversely, small businesses run as sole proprietorships and partnerships are required to report their business taxes on their personal income tax returns.
What is the Best Way to File Taxes?
Previously, individuals and businesses had to fill out all of their tax information by hand. However, these days, thanks to technology, many individuals opt to use software to fill out their taxes as it makes the whole process easier and accounts for human errors.
There are typically three main options to choose from when filing your taxes. These include using tax software and submitting your taxes online, using software and filing through the mail, or using a professional service to file them on your behalf.
Canada Revenue Agency must certify the tax software you use to file your taxes. Suppose you are using software that has not been approved. In that case, this means it does not meet the Canadian government’s specifications and should, therefore, not be used.
File Taxes Online
Once your taxes are complete, you will have the option to submit your files online through various CRA e-services.
Business owners who file GST/HST, payroll, and corporation income taxes can use the My Business Account portal. Those who report their business income on a personal income tax return can do so with the My Account portal.
NETFILE is another available electronic service that allows individuals to file their taxes online. It is a transmission service that allows eligible Canadians to file their personal income taxes online directly to the Canada Revenue Agency. To use NETFILE, you must first have NETFILE-certified tax software.
Submitting taxes this way will simplify the filing process, as it allows you to file directly through the software. Filing through NETFILE also means you will have immediate confirmation when the CRA receives your taxes. You won’t have to send in your receipts (unless they specifically ask for them later). Suppose you are eligible for a refund after your returns have been reviewed. In that case, you will also receive your tax refund faster by way of a direct deposit to your account.
File Taxes by Mail
If you opt to submit your taxes through the mail instead of online, you will need the tax centre mailing address to send in your income tax and benefit returns to the CRA.
First, you will need to print off all forms and fill in the necessary paperwork. It would be best to look over your full return before placing it in an envelope to be sent off. Insurance and tracking services should be applied to your package before sending through the mail, to be safe.
It typically takes four to six weeks for the CRA to process a tax return sent to them by mail.
How to File Sales Taxes
As the owner of a small business, you will be responsible for filing your income tax returns, as well as your sales tax returns. Whether you provide services or a product to the public, you will need to charge and collect sales tax on your customer transactions. The sales tax charged, either GST, PST, or HST, or a combination of the three, will differ based on the products sold and where in Canada you are located. Learn more about the provincial sales tax here.
Once you’ve collected your sales tax for an accounting period, you will need to send this money to the CRA. Depending on your filing periods, you will need to file sales taxes monthly, quarterly, or annually. To help you prepare your sales taxes and determine if you are required to file online or through the mail, the CRA recommends using the GST/HST Return Working Copy.
Online Filing Sales Tax Returns
Like income returns, there are various options for individuals and businesses to file their sale tax returns online. GST/HST NETFILE and GST/HST TELEFILE allow individuals to file their sales tax returns directly online, and are the quickest and easiest options to use. As previously stated above, the My Business Account is also available for filing sales taxes, alongside other business-related taxes.
Individuals can also pay their net tax owed electronically through their Canadian financial institution using the Electronic Data Interchange option (EDI). However, those in Quebec will be unable to use this electronic service. Other internet-based filing services include the GST/HST Internet File Transfer, offering business owners the ability to pay their sales taxes to the CRA directly through their third-party accounting software.
Paper Filing Sales Tax Returns
If you determine you do not need to file your sales tax online, you will be able to file a paper return to the CRA. Eligible individuals can either send the GST/HST return through the mail using forms GST34-2 or GST62, or file in person at your Canadian financial institution.
However, be aware that you cannot file your sales return in person at a financial institution if you are claiming a refund, filing a nil return, or opting to offset the owing amount on your return with a rebate or refund.
Using Professional Accounting Services
Those who might not have the best grasp on financial matters might choose to hire a professional accountant or bookkeeper to file their taxes for them. If you opt for accounting service, they will handle all of your returns and will file them online through the CRA portal, Represent a Client.
However you opt to file your returns, the CRA dictates you must hold onto all your tax documents for at least six years. Hence, keeping organized tax files is a significant part of any business or person’s tax management.
Understanding the tax return process can help small businesses organize all of the required information to file their returns successfully. Be prepared for this tax season with QuickBooks accounting software. Try it free today!