As tax season approaches, my colleagues and I are always shocked by how quickly the Summer and Fall passed us by, bringing us closer to “that time of the year” again.
This year is no different. We’re in mid-February and the rush has slowly started. Lots on the go – Payroll slips, December year-ends, GST/HST Filings and Tax Returns.
As accountants, we get a lot thrown at us this time of year – mostly deadlines and questions – lots and lots of questions! If our clients still have questions year after year, I can only imagine how the rest of the general public feels – especially those without accountants. To assist as many as we can during this upcoming tax season, below is a list of Frequently Asked Questions From Businesses During Tax Season. Enjoy!
Q: I have a December 31 year-end – when is my stuff due?
A: There are many components and filings within a business’s fiscal cycle, but the main 3 are: Payroll, Taxes, and Tax Filings
Payroll: If you run payroll in your company, either for yourself or employees, all T4 and T5 slips are due at the end of February. These slips have to be filed with the CRA on time, otherwise your company will be subject to penalties. One copy is filed with the CRA and the other copy gets distributed to the employee(s).
Taxes: Next on the list is your taxes owing (if you had profit). After the first year of operations, your taxes are due no later than March 31. If this is your second year or later of operations and in the previous year(s) you had taxes owing of $3,000 or more, you should have been making instalments throughout the year, with a top-up due March 31 as well. The same holds true for GST/HST.
Tax Filings: Although your year-end is December 31 and taxes due March 31, the actual Corporate Tax Return that needs to be filed with the CRA is due June 30 (6 months after year-end). After preparing your Corporate Tax Return, if your accountant realizes that you overpaid on your taxes (during the March 31 deadline), he/she can request a refund. If you underpaid, you should pay immediately, and you will be subject to interest.The same holds true for GST/HST filings.
Q: How much should I pay myself this upcoming year?
A: This is a very subjective question and requires analysis every time. It really depends on the objectives of the individual. If someone wants to contribute to their RRSP’s, then they will need salary in order to increase their “earned income”. If a taxpayer is looking to get a mortgage, they may want to show salary as well, as opposed to dividends or no income at all (if they are able to control it). If someone wants income without opening a payroll account for themselves, an individual may choose to declare dividends from their company only. The answer depends on a case-by-case basis and discussing this with an accountant will shed light on the situation.
Q: When should I start my tax process?
A: As soon as the bookkeeping is complete for your fiscal year-end and you close out the year, you should contact your accountant to get the ball rolling, or better yet, if your accountant is progressive or is part of an online accounting firm that has access to your accounting system, your accountant will know when things are complete, and will be able to start with the tax process.
The sooner your accountant starts on the work, the quicker you’ll have an answer in terms of your tax position and can prepare for payment and filing.
Your accountant will be busy during tax season, so in the earlier part of the season, you will probably get an accountant that is more responsive.
Q: What can I write off or deduct against my income?
A: The overriding rule is that any expense you incurred to generate business income (even if you didn’t end up earning that income) is deductible. It does have to be reasonable though.
Q: Do you know a great accounting firm, that’s tech-savvy and knowledgeable?
Q: Do I need to register for GST/HST?
A: If you will earn more than $30,000 in sales as a business, yes you do. Once you register for GST/HST, you will need to file a GST/HST return either quarterly or annually and will need to charge GST or HST on your sales/invoices.
Q: When I just started my company, I contributed a sum of money initially to fund the business and start operations. How do I take that money back now that I’m profitable?
A: Your initial contribution to the company was made with after-tax dollars and will be recorded as a Shareholder Loan. A Shareholder Loan signifies that the company owes the shareholder (you) a certain amount of money. It could be the sum of the initial contribution plus subsequent contributions or the sum of some contributions less some withdrawals.
When you are ready to pay yourself back, you can just pay yourself the amount that the company still owes you. This pay-back will have no tax implications.