Since tax time is here, no doubt your clients will have a lot to ask you about small business taxes, especially if they’re not familiar with managing this part of their finances. Use this Q&A for ready-made answers to their questions, or simply forward your client the link before your first meeting to handle the basics and get them on the same page as you. That way, you can spend your time answering questions more specific to their situation and strategizing on their taxes. 

Q: What are the Most Important Small Business Taxes?

Payroll Tax

Payroll taxes are a percentage of the employee’s wage deducted from the employee’s pay and a percentage paid by the employer based on the employee’s wage. Employers are responsible for deducting income tax, Canada Pension Plan (CPP) contributions, and employee insurance premiums from their checks, as well as making their own contributions to CPP and employment insurance. There's no corporate protection for a small business owner who doesn’t pay these taxes properly. This means executives or board members of companies that owe payroll taxes can be held personally liable, and the government can garnish company bank accounts to pay off outstanding payroll taxes. The government also has super priority on payroll taxes, meaning they will get paid before any lenders or any other outstanding debts. 

Sales Tax

Sales tax rates vary based on the province the business is located in. If the small business sells physical goods or services, they’ll likely need to collect sales taxes (although there are exceptions). For sales that happen across provinces, sales taxes aren’t generally collected.

A common mistake many small business owners make is collecting sales taxes and using it as a source of income to close cash flow gaps, make equipment purchases, or take on big projects. While they have good intentions of making up the difference later, they can fall short on sales tax when it’s time to make a payment, putting their business in a serious bind. (If your client is in this situation and they can’t come up with capital for paying sales tax, they can look into reliable sources of funding, like invoice funding).

Corporate Income Tax

This is a direct tax on a business’ profits. It'll be paid after filing the Annual Income Tax return.

Q: How Does My Business Structure Affect My Taxes?

Here’s how different business structures affect small business taxes:

• Sole proprietorship. The business is owned by one person who receives all profits and assumes all losses and risks. Since this is an unincorporated structure, the business owner pays taxes by reporting income or loss on a T1 income tax and benefit return. The business owner might also need to complete form T2125 and register for and collect GST/HST.
• Partnership. In a partnership, two entities have a relation or association; these can be individuals, trusts, or corporations. Profits or losses are split among the partners. Each partner includes part of the income or loss from the business on an income tax return (personal, corporate, or trust) along with specific financial statements or forms, including form T2125. The partnership also might need to register for and collect GST/HST.
• Corporations. If the business is a corporation (such as Canadian-controlled private corporation, other private corporation, public corporation, or other corporation), it'll need to file a T2 Corporation Income Tax Return. 

Q: Why Do Taxes Matter for Invoice Funding With FundThrough?

Invoice funding companies like FundThrough need to know that they’re funding an invoice free of any claims (Get more information on why FundThrough specifically needs tax documents before funding). They work with businesses who are on tax payment plans with the CRA all the time. If they discover taxes owed during the approval process, they can even help business owners with getting an arrangement set up. This enables the business to get current again on their taxes and opens up the possibility of getting their invoices funded. 

Tax Dos and Don'ts for Small Business

Below are a few key points about taxes; while this is basic information, it’s an easy “cheat sheet” to prepare clients who aren’t familiar with filing taxes. 

• Do get your documents organized ahead of time. Have all documents and information gathered before meeting with your accountant or CPA. This will make it faster and easier to file the return. 
• Don’t ignore the need to file a return. Skipping the tax filing process can lead to hefty penalties, fees, interest, and back taxes that will need to be paid eventually.
• Do reach out for help if you’re facing tax problems. A CPA or tax attorney can help small businesses get on a payment plan with the CRA. 
• Do keep records. Tax returns for previous years, receipts for expenses, and other reports can all provide information and help qualify the business for deductions.
• Don’t send records over email. Only send documents with sensitive information via a secure portal through a link provided by a CPA or accountant. 
• Do enlist the help of a professional and bring questions to the first meeting. Small business taxes can be complicated, and mistakes can be costly. A qualified accountant or CPA can help avoid them and answer all questions specific to the business and its situation.

Get Your Client a Working Capital Boost for Tax Payments

When your small business clients have more capital on hand, they can pay their tax payments with peace of mind and control their own growth. With a reliable source of funding, they can take on growth projects, make hires, buy equipment and materials, and more. 

By joining FundThrough’s FAB Partnership Program (for Financial Managers, Accountants, and Bookkeepers), you’ll get a flat bonus or a discount you can pass on to your clients every time you refer a client who funds an invoice. Learn more and get started.

About FundThrough

FundThrough is a leading fintech company accelerating cash flow and enabling growth for small and medium businesses. Based in Toronto, FundThrough’s AI-powered invoice funding platform gives B2B businesses fast, customized funding offers to get their invoices paid in a few days - rather than a few months - and get quick access to cash that’s already theirs. For more information, go to http://www.fundthrough.com. To learn about FundThrough’s partnership with Intuit QuickBooks and how you can fund an invoice, click here.