Not the most exciting topic I know, but one which can save you money. Failure to file a tax return, or pay the taxes or instalments due, will result in penalties and interest being charged.
The term compliance describes the ability to act in accordance with a set of rules or a request. In this case it’s a set of rules established by the Canada Revenue Agency.
Knowing if you need to pay taxes, when you need to pay them and how you calculate them can be confusing. Because Canadian tax information is updated yearly, you are responsible for ensuring you keep abreast of these changes or consult with a professional who does, such as an accountant or bookkeeper.
Let’s take a look at 5 of the most common tax laws.
- Registering for a business number with the CRA – When a company is first set up, whether it is incorporated or not, one of the first tasks is to register for a business number. This is the business equivalent of a social insurance number (SIN) and is how the CRA will identify your business. This number will stay the same for all of your dealings with the CRA and will be followed by RC0000 (for Corporate taxes), RT0000 (for GST/ HST) or RP0000 (for Payroll).
- Filing your tax returns – if you are a Sole Proprietor your business income is filed along with your personal tax return called a T1. Your year end is December 31st, and your tax filing deadline is June 15th. Payments are due by April 30th, so it makes sense to file by April 30th. If your tax exceeds $3,000 in any given year you will need to start making instalment payments to the CRA. These are usually quarterly. For a corporation, in most cases, you have the ability to choose your year-end. Your first year-end can be on any date within the first 53 weeks after the date of incorporation. For most small businesses in Canada, a tax return is due six months after the year-end date and any taxes payable are due three months after the year-end. Therefore, filing your tax return (T2) within three months of the year-end makes sense so that you will know what to pay. Beginning in your second year of business, you will need to make instalment payments to the CRA (either quarterly or monthly, depending on several factors). The instalments are usually calculated based on the amount of taxes payable in the previous year.
- Filing GST returns – whether you are a Sole Proprietor or a Corporation, once your turnover exceeds $30,000 in any 12-month period you need to register for and remit GST. Depending on the size of your business, you may need to file a GST return monthly, quarterly or annually. If you file annually, you will need to pay quarterly instalments if your net remittance is greater than $3,000.
If you are a Sole Proprietor filing annually, payments are due by April 30th. If you are a Corporation filing annually, your GST payments are due 3 months after your year end. If you file monthly or quarterly, both filing and payments are due one month after the end of the reporting period.
- Filing payroll deductions – the frequency of remitting payroll or source deductions is generally based on the average monthly remittances made in the second preceding year. If remitting monthly, remittances are due by the 15th of the following month. The salaries and amounts deducted are then reported on a T4 form for the calendar year, distributed to employees and filed with the CRA by February 28 of the following year.
- Maintaining Records – records of accounting and financial documents, along with their supporting documents must be organized and maintained by anyone who files a tax return or conducts a business. According to the law, you are responsible for protecting these documents, making these documents available if requested by the CRA, and ensuring they are complete and accurate. If there is no supporting document, the CRA can disallow a deduction. Records should be kept for 6 years after the year they were filed.