How to Stay on Top of Your Tax Obligations
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As an accountant I frequently receive panicked calls from business owners who have received ominous letters from the tax authorities requesting that overdue tax returns be immediately filed. Others receive notices of assessments for estimated taxes payable if they have an overdue tax return. Revenue Quebec, particularly will often send corporations or individuals assessment for several thousand dollars to scare people into filing their returns. In more extreme circumstances, the tax authorities have the power to freeze your bank accounts or initiate tax audits. This can be debilitating to a small business.
Ensuring that you stay on top of your tax obligations is fairly straightforward and the following measures can actually help to contribute to more effective business operations:
Know Your Business Tax Obligations and Deadlines.
In Canada a small business and/or self employed individual potentially has to file the following returns:
Monthly or Quarterly Deductions at Source if you pay salaries to yourself or employees
Annual T4 slips and summaries (+ RL-1 slips and summaries in Quebec) for salaries paid to employees.
Annual T5 Slips and summaries if you pay dividends to your shareholders
If you are incorporated, an annual corporate tax return is due 6 months after your year end
If you are an unincorporated business, an annual personal tax return along with schedule T2125 for business usually by June 15th.
Income, GST-QST and corporate tax instalment payments
It is a good idea to set up a calendar that reflects all of your tax deadlines, even if you have an accountant as sometimes you need to stay on top of them (especially during tax season when things occasionally get missed)
See also the different types of tax obligations for a small business.
Hire An Accountant
If you are unsure about how to comply with your tax obligations or aren’t that comfortable with numbers, then you would want to hire an accountant to help you keep on top of your tax obligations and advise you on ways to streamline and simplify the process.
Open Mail That You Receive from CRA or RQ
If you get mail from the government, OPEN IT! It is somewhat amazing to me how many business owners that I have come in contact with don’t actually open their mail at all or when they do, don’t really pay attention to its contents (hoping that the issue will simply disappear). Keep in mind that CRA and Revenue Quebec will usually send several reminders to file or pay a tax obligation before taking more drastic measures. It is however always best to respond to their requests as soon as possible.
Call CRA or RQ If You Don’t Understand the Communication
Don’t hesitate to call the government if you do not understand something. They are sympathetic that the majority owners of business owners are not accountants and tax specialist and are usually quite willing to help guide you through the process. Keep in mind, however, for more complex issues they don’t always have the information that you require. In that case, you should seek the assistance of any accountant.
Have An Accounting System
It is essential, as a small business or self employed owner, to have an effective accounting system in place. If your business is small and only has a few transactions, a spreadsheet is usually fine. Otherwise it is a good idea to set up accounting software. A good system will help you generate the necessary reports and calculate how much you owe in taxes. In the absence of an accounting system, ensure that you put ALL of your government/tax documents in your shoebox (ideally in a somewhat organized fashion) for your accountant to compile and review at your year end. (When in doubt, keep any paperwork particularly when it comes from the government and consult with your accountant either right away or at the end of the year if there does not appear to be a deadline associated with the document.)
Remember that the onus to be on top of your tax obligations is on you. Ignorance is not an excuse. And although the government is fairly tolerant, they do have enough authority to create significant problems for the business. A simple phone call to let them know that you are top of an overdue tax filing is often enough to stave off more extreme action.
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