As a business owner it can be overwhelming sometimes to learn about all the tax obligations you have. This article aims to explain the main tax issues you need to know as a small business owner.
This article is of a summary of the issues you need to be aware of, there may be other things that could be discussed with your accountant or bookkeeper that are unique to your situation and business.
GST/HST registration
Businesses in Canada must register for a GST/HST account once the income level reach $30,000 in any 4 consecutive quarters. If you think you will reach this level, you should try and register ahead of time to avoid having to self assess on some income that will be subject to GST/HST.
You will be required to file and pay on either an annual, quarterly or monthly basis. When registering for the account, the CRA agent will determine if you have to file on a monthly or quarterly basis, otherwise you can ask to make the filing periods.
You may be required to pay installments as well if you owe more than $3,000 in the prior year, more is covered a little later in this article.
A good practice to follow is to keep the GST/HST you collect on sales in a separate account, many credit unions allow you to have a savings account attached to your chequing account for no extra fee. Keeping these funds separated from your operating funds will help when time to pay any taxes you owe.
Determining Your Year-End
When you incorporate your business, you can determine what your year end will be. It needs to fall within 53 weeks of the date of incorporation and best practices would be to have it fall on the last day of the month.
Many businesses have their year end on December 31, as it keeps it the same period for your personal taxes.
There are some potentially good reasons to have your year end at a different time of the year for tax purposes. You would be best to discuss this with your accounting team if this interests you.
Corporate Tax Filings
Corporate tax returns are due for filing 6 months after the year end. However, any taxes that may be owing is due 3 months after the year end. Any late payments will be subject to interest charges and late filing fees for filing after 6 months.
You should be keeping on top of your bookkeeping and have the year end completed a month or two after the year end so your accountant can help to determine if there is any taxes owing for the year.
Making Tax Instalments
If you owe more than $3,000 in corporate taxes after the first year of filing your corporate tax, you will be required to pay corporate tax instalments. The due dates and the amounts to pay are generally based on the year end and taxes paid in the previous year.
Your accountant, who filed your corporate tax return, can determine how much to pay and when to pay it. As well, CRA can provide the amount and the payment dates if you are owner of the business or authorized to speak to CRA on the businesses behalf.
Paying Employees
Paying employees a salary comes with some additional tax requirements, businesses that have employees are required to file and pay payroll taxes like Income Tax, CPP and EI. As well, you will need to pay an extra business portion of CPP and EI to CRA.
Most businesses will pay the payroll tax liability the month following the payroll on the 15th of the month. For example, all the salaries and wages paid in the month of May will have the taxes due by June 15th.
After the calendar year is done, you will be required to file T4 slips and a T4 summary with CRA. This is due by the end of February each year. The T4 slips must be given to your employees by the end of February as well.
Paying Yourself
Paying yourself as a shareholder has two options, you can pay yourself a salary as an employee or through dividends.
Paying yourself as an employee is basically the same as paying other employees and the payroll taxes are due at the same time. One exception is the shareholders may be exempt from paying into EI, consult with your accountant so you can determine if you need to pay into EI.
Paying dividends is a bit different, some shareholders will take out funds from the company throughout the year to pay personal bills and then at the end of the year total this up and declare a dividend to cover the balance. Others will wait to take a large sum at one time and declare a dividend then.
A T5 return will need to be filed with CRA, but the end of February each year. This T5 slip will go on the shareholder’s personal tax return as income.
Other Tax Requirements
There may be some Provincial or Local taxes to file and pay was well. In Ontario, you may have to pay EHT depending on the total amount of salaries you pay and WSIB depending on the industry you are in. If you are unsure what may apply to you, please consult your accountant or bookkeeper.
We hope this article has helped with the various tax requirements you have as a business owner.
If you have any further questions or would like to speak to us regarding any potential tax issues for your business, please feel free to contact us below.