Being a small business owner sometimes feels like CRA is working against you. But if you understand your responsibilities it clears the fog and lessens the stress of completing your filings on time.
There are 5 main areas of compliance that you should be aware of
This is charged on your sales on behalf of the government and is not part of your money. For every $100 you charge you collect $113, $13 is not your money and should ideally go into a savings account.
You get to deduct the eligible HST you paid in the quarter from what you collected on behalf of the government and pay them the difference. So if you collect $1000 in HST but have expenses that you have paid HST on equaling $300 then you only need to pay $700 to the Government.
These returns are reported annually, quarterly or event monthly depending on your level of sales. If you end up in being passed to their collections department for not paying, they can become quite nasty as it is their money you are collecting and you are not allowed to spend this. CRA can shut your business down for non compliance of your HST obligations.
Payroll Deductions ~
When you have someone on payroll, you are to deduct income taxes, EI and CPP from their pay cheques on behalf of the government. This needs to be submitted on time and if not reported, there can be severe consequences as this money is not yours, and is deducted from the persons pay on behalf of the government.
Sometimes these are reported quarterly, but most often it is monthly. If your deductions are not reported and paid on time, you then are penalized with changing to monthly on top of late remittance reporting fees that can be quite steep that will be added when you do finally report and pay.
We must also file an annual T4Summary return it is called, along with the T4’s prior to Feb 28 of each year and this reconciles the payments made and reported with what actually should have been made and reported.
As an employer, you are responsible for paying out matching CPP, and the EI must be matching with a multiple of 1.4. All of these amounts are deductible as payroll expenses. As this money is deducted from employees cheques on behalf of the government and is not your money to spend, CRA does become quite nasty if these are not paid in time and they have a collections officer intervene. CRA can shut your business down for not complying with your payroll obligations.
Income Tax ~
If you are a corporation, this is separate from your personal return as your business is legally a separate entity.
If you are a non-incorporated partnership or a sole proprietor, this is an extension / part of your annual personal income tax return. This is where you claim your pre HST income and your pre HST eligible expenses, following under different rules than the HST returns, and this filing needs to be detailed and broken down into specific categories, with specific rules for items over 200 in the case of a non-incorporated business and over 500 in the case of an incorporated business. Your net business income is split between the 2 partners in your case and is part of your personal taxable income at the personal income tax brackets.
If you are incorporated, then a corporate business return must be filed under corporate business income tax rates, as well as you must file and pay personal income taxes on your personal income and what you withdrew from the company for personal usage.
As an Example someone who had a profit on their business of $30,000 may fall within the 20% tax bracket and owe $6000 at the end of the year!
Corporate Tax ~
When a business is Incorporated they also need to file corporation tax based on the profit of the business. There are processes for an owner to take money out of the business and they should have an accountant to advise on this.
This is truly out of pocket and is reported and to be paid quarterly based on gross payroll. There is a varied calculation based on the business industry. Someone with a construction company will pay more then someone who owns an office.
These filings should not be something you fear. Reach out to a trusted adviser if you need guidance and make sure you fully understand what each one means for your business. Once you have the understanding you will eliminate the fear.