Taxation – Small Business and the CRA (Continued)

TAXATION Small Business and the CRA (Continued) Failure to file is a big mistake. Failing to File When cash resources are not available, whether to remit payroll deductions, income tax or HST, owner-managers may decide not to file the required return. BIG MISTAKE.  Better to file on time, even if the business does not have the cash flow to make the required payment. Late filing incurs penalties and interest. Filing on time without payment will probably not incur penalties but will incur interest. Additionally, the CRA is open to establishing a payment schedule as long as you contact them with a proposal before the payment deadline. Understand Payroll Payroll is a business’s biggest expense and involves more than just writing a cheque or depositing money in the employee’s bank account. Payroll requires calculation of source deductions, the employer’s share, vacation pay, WSIB calculations, a monthly remittance for withholding taxes for each employee, data for year-end T4s as well as records of employment in the event of layoffs or dismissals. Understanding payroll will assist in determining cash flow needs as well as job costing and ultimately the bottom line. Failure to remit payroll withholding taxes will definitely invite an audit along […]

Taxation – Small Business and the CRA

TAXATION Small Business and the CRA Ensure your books are always in order for the CRA. Owner-managers work hard in their businesses but are often overwhelmed by the reporting requirements for the Canada Revenue Agency. Few owner-managers enjoy the time spent and cost required to meet the CRA requirements, let alone the actual taxes that have to be paid; nevertheless, owner-managers must establish good business habits to ensure they stay on the right side of the tax authorities. Establish the Correct Legal Structure First of all, it is important to understand the tax and legal consequences of your form of business: sole proprietorship, partnership, or corporation. Each category brings with it different legal, tax and reporting issues. Ensure Proper Bookkeeping Recording transactions on a regular basis not only keeps your records up to date so you know where you stand at all times with respect to your receivables, payables and bank balances as well as any profit or loss, it also has your books in constant readiness for the tax authorities. Failure to routinely record all business transactions may mean missing out on taxable deductions or payment requirements.  Maintaining up-to-date records also ensures that all documents required for the CRA […]

Taxation – Consider the Taxes

by admin in Corporate Tax

TAXATION Consider the Taxes Develop a strategy for distributing earnings and reducing corporate income taxes. For most owner-managers, their goal is to create personal wealth through the operation of a successful business. Unfortunately, corporate and personal tax liabilities (among other things) stand in the way. Owner-managed businesses must struggle with tax on two fronts: making a profit while minimizing the corporate tax liability minimizing personal taxes while taking remuneration out of the company.   Have a Strategy The first step to minimizing personal and corporate taxes is to put a tax strategy in place. Such a strategy depends on each individual owner’s personal cash-flow needs. Because tax rates applicable to corporate income are often lower than to personal income and because this differential is only levied when the owner-manager withdraws the funds, taxes can be deferred to the extent such income is left in the corporation. Often, this is not a realistic option since the owner-managers may need all or most of this business income for personal use. Then the owner-managers must remunerate themselves in the form of: salary dividends a combination thereof. Deducting salary expenses reduces taxable income and lowers corporate income taxes. However, because dividend payments are not […]

Filing your income tax return late, can cost you.

One of the easiest ways to avoid giving the government more money than you have to , is to file on time. Otherwise, penalties and interest will be applied on any tax balance owing. Let’s have a look at some of the penalties. First is the arrears interest.  If you owe tax and don’t file your T1 Income Tax and Benefit Return on time or make insufficient payments, the Canada Revenue Agency (CRA ) will charge you interest.  The interest rate is determined every three months and compounded daily in accordance with the prescribed interest rate.  In addition to interest on taxes, the CRA will charge interest on the penalties starting the day penalties are assessed by the CRA. Second is the late-filing penalties.  CRA has the power to levy hefty failure-to-file penalties.  Generally, CRA can assess an automatic 5% penalty for late filers in addition to 1% penalty per complete month for up to 12 months.  Hence, procrastinators who wait 12 months to file their tax return after the due date can face a 17% penalty on the amount of tax owing. If you have repeatedly filed late, the penalties can increase.  It’s important to keep in mind that […]

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