Frequently Asked Questions

Does my business's corporate year end (T2) tax return need to be filled out and submitted by a Chartered Accountant?

No. Anyone can fill out your tax returns. BUT, not everyone can fill out tax returns properly, which is one of the reasons that we usually find an average of $3,000 per client when we go back and look at their 3 previous year's filings.

When should I apply for a GST / HST account?

If you will have sales of $30,000 in fiscal year, you must obtain a GST number.

If you exceed sales, but fail to obtain a GST number, CRA will create and backdate your GST owed to the date 60 days after your $30,000 was exceeded.

Is there any advantage to applying for a GST account early?

No. It's just more paperwork. The exception is if you will be purchasing many items in advance of your first sale - where this will allow you to recover the GST on items purchased (called ITC's) as Input Tax Credits.

When should I hire a book keeper?

It's highly recommended that you hire a bookkeeper as soon as you start your business. That way you'll avoid all the mistakes that novices make. Our bookkeepers can cost as little as 3 hours per year, dependent on your activity. It's not worth your time to learn it.

I have $100,000 worth of equipment. Do I have to depreciate it?

Yes. The amount of depreciation depends on the type of equipment, and their CRA assigned depreciation rate.

Canada Revenue Agency Deadlines & Penalties

CRA Tax Returns & Filing Deadlines For 2015 (Canada)

Partnership Tax Return Deadline

Any monies Owed to CRA are due and payable by April 30th.

Your Income Tax (for either of the above businesses) is completed on CRA form T2125 as part of your Personal (T1) Tax Return
Your fiscal year-end will always be December 31st and cannot be changed.

Although your payment is due April 30, as a business owner, you have an extension until June 15 to file your Personal (T1) Tax return.

GST / HST

Payment is due 90 days after your reporting period.

Hiring employees

Hiring an employee: You will have to register for a payroll account and get your employee to complete aTD1 form within seven days of any change or new employment.

Example of remittance due date: The pay period ends January 25, 2013. Your employee gets paid for this period on February 1, 2013. You are a regular remitter.

When will you have to make the remittance?

You will determine the due date based on the pay day, February 1st.

Since you are a regular remitter, you have to remit the employee's deductions plus "employer's share" by March 15, 2013.

Records

Retention period: There is a six year requirement for keeping your records.

Early destruction: In some cases, CRA may give you permission to destroy your records before the six years have passed.

Registration

Most employers, trustees, and administrators need a payroll program account.

Frequently Asked Questions to Accountants

Did you know that most small business owners overpay taxes?

Did you know that the accounting industry is unregulated? Anyone can file a tax return and most small business owners try to save money by using non-designated, non-certified accounting people who often fill out tax returns incorrectly, costing business owners thousands of dollars annually, and they don't even know it. Do you think that you might be overpaying taxes? Here are a few questions that are commonly asked of accountants...

If the accounting industry is unregulated, do I need an accountant?

Just because the industry is unregulated, doesn't mean that you don't need an accountant. There are many advantages to using an accountant to prepare your tax returns with the greatest being that if your taxes are properly prepared, you will avoid overpaying taxes. Accountants also can provide audit services that no one else can provide, as well as business valuation and restructuring advisory services from both an above-average experience and education background. So, whether you're struggling or successful, it is always advisable to consult the advice of an expert, in this case, an accountant, and the highest designation is Chartered Accountant.

Do I need a designated or certified accountant?

Most small business owners try to save money by using so-called accountant firms where none of the staff are designated or certified accountants. This should throw up a red flag. While most of these companies mean well and really do attempt to save you money, they have never been properly trained. In some cases, they aren't even aware of ongoing changes in the Tax Act. It takes years of study in this industry to be properly trained. If they are making an error or omission for certain operating expenses, in handling of GST or tax preparation, then they are making it for all of their clients, including you, only in your case, you are the one that will be penalized, either by overpaying taxes or underpaying and could eventually end up getting caught by the CRA and attract some of the highest interest rates and penalties in Canada.

Does my accountant work for me or the Canada Revenue Agency (CRA)?

With many accountants, it's difficult to tell. Rather than telling you the proper way to account for expenses they ask you what you've been doing and account for that way of doing it, which is not always in your best interest. Your accountant should be able to advise you on the most tax effective way of doing things so that you... NEVER PAY TAXES UNNECESSARILY!

Does my business's corporate year end (T2) tax return need to be filled out and submitted by a Chartered Accountant?

If my Accountant has a designation – he must know what he’s doing, right?

Would you allow a knee surgeon to work on your heart? Why not? They both have “doctor” in their title. Our colleges and universities produce varied designations. CA is Chartered Accountant, CGA is Certified General Account, CMA is Certified Management Account and the newest designation which will be amalgamating the previous designations in 2014 is CPA or Chartered Professional Accountant. Each accountant, after receiving their designation, will gain experience in a specific discipline – which may not be specific to business tax preparation and filing. So if your accountant may have specific experience in production accounting or inventory accounting (like manufacturing) it may be that the rules and allowances offered to complete your Personal Tax or Business Tax are not familiar to them, as they change year-to-year.

My accountant usually pays me management fees each year – should I be concerned?

Management fees are an acceptable way for business owners to take compensation when an accountant completes their tax year. It used to be common practice for this to happen on the tax form with no further paperwork. Recently, CRA has went back up to 2 years and fined business owners a “Failure to File” penalty for NOT creating a T4 Slip for this income received. Although the tax payable is no greater or less, the full compliance to submit a Slip for this management fee event draws the fine.

Beware of the “friends’ network”!

Many of our friends mean well and often offer their opinions of what they've heard can and can’t be included in taxes. Often times, this is shared in a story that usually gets re-interpreted multiple times and becomes distorted to the point where the original tax advantage has become distorted and ineligible. If processed incorrectly, this could result in a CRA review, disallowance of the deductions and could incur additional penalties and interest dating back to the submission date of the errors found. If you’re going to use a tax preparer or accountant – ensure that they’re knowledgeable concerning changes in the Tax Act.

When I have my corporate taxes prepared, what documents should I request from my tax preparer or accountant?

As a corporation, you should request a complete hard-copy (or complete .pdf in electronic form) which contains GIFI Schedule 100 (Balance sheet), Schedule 125 (Income statement) and Schedule 8 (Capital Cost Allowance). As well, there should be Financial Statements (at minimum, Notice to Reader statements) prepared which provide the necessary financial information required by lenders and banks. Ensure that this IS NOT merely the bookkeeping income/expense and balance sheets prepared within Quickbooks or Simply Accounting as they are not acceptable to banks and lenders.

When I have my Sole-Proprietor taxes prepared, what documents should I request from my tax preparer or accountant?

As a Sole-Proprietorship (or Partnership), you should request a complete copy of your tax return filed. This should include the pages titled T2125 Business Activity which show Income, expenses, vehicle depreciation and Business-use-of-Home expenses. It may also include CRA form T776 Statement of Real Estate Rentals. Any other schedules or worksheets with calculations are also an asset to have.

When should I apply for a GST / HST account?

If you will have sales of $30,000 in fiscal year, you must obtain a GST number. If you exceed sales, but fail to obtain a GST number, CRA will create and backdate your GST owed to the date 60 days after your $30,000 was exceeded.

Is there any advantage to applying for a GST account early?

I already have a GST account. Do I need another one?

Chances are that you received a GST number operating personally (as Sole-Proprietor or Partnership). If you start a separate business or start an Incorporated company, you’ll need to apply for a NEW GST number. Each business (exceeding $30,000 in sales/revenue) must each have a GST number. This is due to the income of your new company being distinct in its recording of ssIf you will have sales of $30,000 in fiscal year, you must obtain a GST number. As part of our services, we review your businesses for correctness and will contact CRA for you to correct so you stay in compliance.

Beware of the “tax preparer”!

Many people post signs up claiming that they can prepare and file your taxes – for a fee. What is their experience in this field? Do they feel that because they've done their own taxes for the past 10 years that they are now experts? Our office routinely sees past tax returns which were filed having errors and missed opportunities. This usually accounts for a few thousand dollars of tax paid unnecessarily; and in one case we were able to recover a $24,000 error for a client. I cannot stress the importance of getting the right accounting support for your business.

I have a corporation – should I declare dividends (T5) or take a salary (T4)?

My view centred around this topic is what is important to you. Are you in favor of topping up your RRSP, maximizing your CPP, or do you have child daycare expenses? – If yes, then take a monthly salary or end-of-year management fee. You’ll need a T4 to show the business expense and there will be a source deduction remittance required by CRA payable to your Payroll Account (RP Account) within 15 days of payment to yourself. I usually prefer Dividends as this is a “sharing” of business profits, after tax, which in a corporate setting (in Alberta) is currently taxed at 14% (3% Provincial and 11% Federal) below $500,000. This also allows dividend “sprinkling” amongst shareholders, such as a husband and wife (as long as the correct corporate structuring has occurred).

I pay a lot of tax every year – what can I do?

Our view is that it is imperative that we review both the business operations as well as your personal tax situation simultaneously to properly balance the amount of tax you pay in both areas with the focus on… Never Pay Tax Unnecessarily. Some of the options we may explore are paying your spouse and paying your kids. Often times they provide infrequent support to your business with no compensation. They should be paid for their “part-time” assistance, and if their tax base is low – they may get all their tax back and if under age 16, they won’t pay CPP.

Now that I’ve started a business, I don’t have any medical/dental benefit coverage.

This doesn't have to be expensive – in fact, as a corporation – it’s an advantage. This opens the door for you to set up a PHSP (Personal Health Spending Account) which will allow you to deduct 100% of the medical/dental/vision expenses allowed by the Tax Act as a business expense. This means that you are not out-of-pocket (after tax dollars) and can recoup these costs. Although you cannot pay the expense directly to your provider with company funds, through a provider it will only cost (your business) 5 or 10% in admin fees to process…and that’s a good thing.

Should I remain a Sole-Proprietor? Or should I incorporate?

There are two reasons to incorporate. One is liability – the other is tax advantage. Regarding liability, if your business puts you at risk that your actions may cause damage to property or injury to a person – then there may be a chance that you could be sued for damages; and as a sole-proprietor your personal assets, cash, home and vehicle would be at risk. With respect to tax advantage, if your business is achieving sales/revenues above $50,000 yearly then, our view is that you’re no longer operating a “casual” or “hobby” business and need to elevate your business posture. For example, in Alberta, you would only be taxed on the corporate business’ gross profits at the 14% tax rate (which is far better than being taxed at the personal tax rate of 15% or 22%)..

I buy the “Tax-in-a Box” package and do my taxes every year. Is this okay?

We can appreciate the convenience factor that these packages present – but your business deserves a higher respect. Although many of these wizards prompt you – there is no connection between what you do in your business and what you have happening in your personal life. These two areas NEED to be connected and assessed so that you NEVER PAY TAX UNNECESSARILY. In our approach to our clients taxes, we leverage our tax experts’ knowledge to ensure that our approach assesses the many variables that can play a factor in reducing your taxes.

I have Incorporated my business. Do I need a business bank account?

This is a must. Any income NOT deposited to your business bank account could be perceived as your personal income and would then be taxed at your personal tax rate. A business bank account and its fees are an expense to your business and can be deducted within your business taxes.

I just received more tax slips and my taxes have already been filed. What should I do?

The onus is on you, the taxpayer, to submit a T1-Adjustment to CRA and notify them of the missed Slip and they will re-assess your tax year. The danger here is that if you don’t report the late slip and CRA catches the Slip not reported on your taxes – they readily assume that you, the taxpayer, have tried to mislead them by NOT reporting this income and may impose a penalty of 50% of the tax due by this omission. This could be huge and a major slam to your bank account. One client this happened to was fined $4500 as the T4 issued from BC did not arrive at their home in Alberta. CRA view is that they knew of the income they received in BC and therefore had an obligation to report it (or at least an estimate of what was earned).

Should I pay my children?

Most business owners involve their children to help with different tasks that promote their business and don’t think to compensate them. It may be stuffing envelopes for marketing, routine shredding of documents, cleaning and dusting of office space, filing, running errands for business. The payment should equate to the activities performed. A 7-year old may not be able to contribute much – so a payment of under $100 per month could be acceptable. A teenager who can now effectively contribute much more in computer skills and other tasks could receive a more substantive hourly/monthly compensation. The importance here is that it is an expense to your business and is much better means to compensate your children for their efforts. The alternative would be to continue to give them your hard-earned after tax dollars as an allowance – and there’s no deduction for that.

I have sub-contractors. What Slips do I need to prepare?

If you operate in the Construction Industry, the CRA form T5018 Statement of Contract Payments, is required to be completed showing the monies disbursed to each contractor. If they are a business, the slip will need to reflect the business name, mailing address and business number. If you've paid an individual, then the slip will need to reflect their full name, mailing address and Social Insurance Number. If you operate outside of the construction industry, then the same information applies and needs to be reported on a T4A Slip.

I have casual employees who wish to be paid cash under-the-table. How should I deal with this?

All income you receive, less expenses are taxable profits. In order to show the cash paid as expenses, the amounts paid to others must be supported by a T4, T4A or T5018 Slip. If none of these is used –then you are responsible for paying the tax. If someone wishes to receive $15/hour and insists on Cash – then I may be inclined to pay them $12/hour as I would then be responsible for the tax; but will never agree to the full rate they demand – unless I can claim the deduction and move the payment into their hands. NOTE: If you pay the same person under $500 in that year – no slip is required.

I have $100,000 worth of equipment. Do I have to depreciate it?

Yes. The amount of depreciation depends on the type of equipment, and their CRA assigned depreciation rate.

Frequently Asked Questions to Bookkeepers:

When should I hire a bookkeeper?

Do I need a bookkeeper? I know EXCEL and prefer to use it.

It's highly recommended that that a professional bookkeeper be used if you have a Corporation. The reason for this is that your bookkeeping needs to use double-entry accounting to ensure that the Trial Balance always balances to your corporate bank account. As a privately-held corporation, whether you have one shareholder or 50 shareholders, the accountability and compliance (according to the Tax Act) needs to be the same.

What’s the difference between what a Bookkeeper does and what an Accountant does?

A bookkeeper puts together a complete database of your business’ income and expense for your fiscal year (or calendar year). An accountant takes the bookkeeping data and forms the reporting necessary for the tax reporting. The danger here is that if the database data is crap – the reports (that the Accountant prepares) will also show crap. The importance of using a first-rate bookkeeper is very key to your business’ success.

I keep my receipts and bring them to my Accountant at year end….is this bad?

The importance of bookkeeping is crucial to your business success…and it doesn’t need to cost much, either. If you don’t look at your profit and loss until the end of the year, then you may have been losing money for the past 12 months and the “bleeding” may now have turned into “hemorrhaging”. Trades especially are vulnerable in this area as they perceive great compensation for the project but underestimate the true value of labor and materials required. Find a bookkeeper that will accept your receipts every two months and keep you profitable.

I had a Sole-proprietorship and Incorporated part way through the year. How does this affect my bookkeeping?

The bookkeeping needs to be two distinct bookkeeping records as they are two separate businesses. It is very important that each business has its own Business # and GST # as well. The business numbers cannot be shared, and each business requires its own unique bank account.