Tax Filings for a Typical Canadian Small Business
When starting a business, it can be confusing and a little overwhelming to keep on top of the different types of tax filings that need to be submitted and ensuring that these tax deadlines are met. It isn’t always clear, particularly to a new business owner, as to what the various documents from Revenue Canada or Revenue Quebec relate to., which often contains jargon that requires decoding. (for example payroll remittances are referred to as deductions at source). It can be easy to ignore these notices in favour of more pressing business related issues, which is probably the worst thing to do since the government is extremely persistent and will usually follow up with arbitrary assessments and interest and penalties. It is therefore prudent for both sole proprietorship and incorporated businesses to keep on top of their tax filings
The following represent the primary tax filings and obligations for most small businesses:
Payroll Remittances/Deductions at Source for Employees:
If you have employees or if you are incorporated and the owners are drawing a salary, you are required to
File payroll reports which include deductions at source returns on a periodic basis. Businesses are required to calculate and remit the amount of deductions at source owing to government either monthly or quarterly (Both CRA and RQ will send letters advising you of the frequency). Note that onthly remittances can still be made even if you have received a letter indicating that you are allowed to file quarterly.
T4 slips and summaries for which the due date is February 28th for the previous calendar year. If you file the T4 slips online, no summary is required.
Additionally, if you are registered in Quebec you have to file a second set of reports including deductions at source, RL-1 slips and summaries and annual CSST returns.
There are various ways for a small business owner to calculate and remit their deductions at source and T4/RL1s
4 Alternatives to Preparing your Payroll, Deductions at Source and Annual Returns
An explanation of Salary Deductions including CPP, EI and Federal Income Taxes
GST-HST-QST Returns
If you are Canadian small business that has more that $30,000 per year in revenues and you are not considered to be exempt or zero rated, you are required to register for and file periodic GST-HST and (if you are registered in Quebec) QST Returns. Sales tax returns reflect the amounts charged on products and services, which are collected on behalf of the government. The amount charged is usually based on the province of your customer/client, however, there may be additional complexities. GST/HST and QST that are paid on business expenses can then be offset against the amount collected from customers.
Corporate or Personal Tax Returns
All incorporated businesses are required to file Corporate Tax Returns (T-2 and CO-17 in Quebec) while unincorporated business owners are required to complete the T2125- Statement of Business Activities along with their Personal Tax Returns. For incorporated business owners filing a T2 , which is federal corporate tax schedule and CO-17 which is the corporate tax form required by Revenue Quebec, it is important that you select the year end, which is usually up to a year after their incorporation date (note corporations do not have to have a year end at December 31st). Since T2s and CO-17s are somewhat complex, it is usually a good idea to have an accountant prepare them for you to ensure that all the filing requirements are met and that the small business tax deduction is properly calculated.
Annual Returns
This is a business filing, separate from the corporate tax returns, where business information is updated every year along with payment of an annual fee. If your business is registered federally you are required to update annually with Industry Canada Various provincial bodies also have their own filing requirements and forms. In Quebec this is done through the enterprise register, however, the annual return can also be filed through the T2125 for unincorporated business owners and directly through the CO-17 for corporations. If this is not done on a timely basis, it can result in delisting of your business.
Although the CRA and provincial revenue agencies are generally good at keeping business apprised of their filing obligations, notices are sometimes unclear or get lost in the mail. Ultimately, the onus is on the business owner to ensure that tax reports are filed on time and related amounts are paid. One of the best ways to keep on top of this is to register your business online with CRA and Revenue Quebec.
Ronika Khanna is a Montreal Accountant who helps small businesses meet their tax obligations on a timely basis.