Tax season comes around every year, yet there are so many variables to keep track of annually that it could feel like tax time, all of the time. Not only do businesses and individuals have to ensure their financial recordkeeping is correct and current for their own management, but that they also accurately depict the financial position of the company come tax time.

Tax season brings with it stress, headaches, and panic, but it doesn’t have to! So, how can your small business prepare for tax time this year, without the hassle?

These topics will help you understand more about small business taxes and their role in small business management: 

• When are Small Business Taxes Due?
• What is a Tax Write-Off?
• Common Small Business Tax Credits
• Canadian Tax Brackets
• A Guide to Sales Tax (GST/HST/PST)
• How to Calculate Tax Owing
• How to File Small Business Taxes

A Guide to Small Business Taxes

There are various types of taxes a small business must pay to the Canadian government. The taxation will hinge on the types of services and activities conducted by the company. For example, selling taxable products or services, owning property, and hiring employees, are all variables that must be considered come tax season.

Types of taxes applied to a small business include:

• Personal income tax
• Corporate tax
• Payroll tax
• Sales tax (GST/HST/PST)
• Excise tax
• Property tax

Be aware; taxation of businesses happens at a federal level and a provincial and territorial level.

Tax Deductions and Credits

Tax deductions and credits are an essential aspect of filing small business tax returns, as they can help you save money in various ways. Operations expenses incurred by a business to function are considered tax-deductible. These deductions, also known as tax write-offs, allow companies to deduct these business expenses from their revenue to decrease the total taxable income.

Tax credits are available as federal and provincial incentives that allow eligible businesses to subtract specified sums from their owed taxes. Credits can directly reduce the amount of money you owe the government in a tax year. Therefore, understanding deductions and applicable credits is a vital part of small business taxes.

Canadian Income Tax Returns for Small Businesses

The federal government of Canada dictates that all businesses must pay taxes on their income. The amount of tax you must pay to the Canada Revenue Agency (CRA) is based on a company’s net income for the tax year in question. The net income, or profit, of a business, can be found by subtracting all expenses from a company’s income for the year.

The government requires individuals and businesses to pay their income taxes throughout the year. Even though you might not know the full sum of your net income for a year, you must pay estimated taxes quarterly. Then, at the end of the tax year, your returns will reconcile with what you owe or are owed, depending on your business’ final numbers.

How much can a small business make before paying taxes in Canada?

How a business’ revenue is taxed will also depend on the tax bracket in which they fall, as well as the tax year in question. Federal taxes differ from year to year, so it’s important to understand the Canadian tax structure when estimating tax returns.

Here is a snapshot of the federal tax rates for 2021, illustrating the taxable percentage on a sole proprietor, partner, and personal income.

• 15% on the first $49,020 of taxable income
• 20.5% on taxable income from $49,021 up to $98,040
• 26% on taxable income from $98,041 up to $151,978
• 29% on taxable income from $151,979 up to $216,511
• 33% on taxable income over $216,512

As you can see, the more income you make in a year, the higher the taxes you will pay. Learn more about Canadian tax brackets for small businesses.

The corporate tax rate structure in Canada is a little different. The basic federal tax rate is 38% of your corporation’s taxable income. After federal tax abatement, that rate drops to 28%. Canadian-controlled private corporations that are eligible for and claim the small business deduction will see a further drop in their net tax rate.

How Does Filing Taxes Differ for Business Types?

How your business is structured will directly impact the way you must file your taxes. Those structured as sole proprietorships or partnerships must record their business income on their T1 personal income tax return.

If a business is run as a corporation, or is incorporated, then a person’s business income must be reported using a T2 corporate income tax form. However, an incorporated business owner or employee must still file a T1 personal income tax return, as they are considered a separate legal entity.

On the other hand, self-employed individuals will need to file forms T4A and T2125. Learn more about self-employment tax forms.

What Do You Need to File Taxes?

To illustrate to the government an accurate depiction of your business’ taxes, you must provide the CRA with supporting documentation. The financial records required for your business’ tax return in Canada include:

1. Financial Statements: These include your business’ income statement, profit-loss statements, balance sheets, and cash flow statements.
2. Expenses Summary: Gather all bank statements, receipts, and other information on expenses paid for by your business, including transportation and travel expenses, advertising, rent and utilities, office supplies, meals and entertainment, computer and internet costs, raw materials and so forth.
3. Assets Summary: All transaction information pertaining to the acquisition, sale, or disposal of assets, including property, equipment, tools, and vehicles.
4. Vehicle Information: A vehicle used for business purposes should be accounted for in your taxes, covering all information on the operating expenses, gas and fuel, maintenance and repairs, and mileage log.
5. Payroll Documentation: If you hire and pay employees, all payroll information must be provided.
6. Last year’s business tax return/ Notice of Assessment: The previous year’s tax returns will help you with your deductions and credits.
7. Applicable Tax Forms: T1 personal income tax return for sole proprietorship or partnership, or T2 corporate return for corporations, with all relevant personal information slips and documents attached.

Can You File Small Business Taxes Online?

In this day and age, filing taxes online is the go-to form of processing. Over 90% of all Canadian corporations file their returns online, and in certain instances, the CRA mandates online filing.

The Canada Revenue Agency makes it easy to file your income tax returns online thanks to their available CRA online services. All you have to do is register for an online business account where you are able to upload all your tax documents and securely file your return through the internet. Learn more about how to file taxes for your business.

File your Business’ Taxes with QuickBooks

QuickBooks accounting software can help small business owners with their taxes, without the headache and hassle. Manage your accounts, organize financial statements, and maximize tax deductions for your company this tax year!