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 – Changes to Income Tax Rules for 2017 (continued)

by admin in Advisory, Taxation

TAXATION Changes to Income Tax Rules for 2017 (continued) Indexing RRSP contributions, tax brackets, and various tax credits will increase in 2017 to reflect the adjustment for inflation as measured by the Consumer Price Index (CPI). The percentage increase for 2017 has been pegged at 1.4% (i.e., the 2017 personal exemption will increase to $11,635 from $11,474 in 2016). To capture information on the new levels for all tax credits and other deductions that have been indexed, you should visit the CRA website page: “Indexation adjustment for personal income tax and benefit amounts” http://www.cra-arc.gc.ca/tx/ndvdls/fq/ndxtn-eng.html The notable exception to the inflationary increase is the Tax Free Savings Account that will continue to have a $5,500 per annum maximum contribution limit. Work in Progress Prior to March 22, 2017, unbilled work in progress was allowed to be deferred until billed to clients. This deferral allowed certain designated professionals (i.e., lawyers, dentists, doctors, and accountants) to delay the recognition of income until the year when the work was invoiced to clients. Effective March 22, 2017, this deferral of work in progress was eliminated, resulting in an immediate income inclusion of work in progress. A transitional relief will be available over a two-year period […]

Taxation – Changes to Income Tax Rules for 2017

by admin in Advisory, Taxation

TAXATION Changes to Income Tax Rules for 2017 Be aware of changes to the income tax rules that will affect your 2017 filing. For those already thinking about their 2017 income taxes, the following summarizes some of the changes from 2016. Tax Credits The child tax credit for arts and fitness is gone. Since this tax credit was capped at a maximum of $500 for fitness and $250 for arts per child in 2016, its removal will not likely have a major impact on most people’s 2017 return. Education The tax credit for education and textbooks for full- or part-time students was eliminated effective December 31, 2016. Taxpayers with unused tax credits from 2016 or prior years will be able to carry them forward and apply them against future taxes. The tuition tax credit is, however, still in effect. In recognition of the need to support education in technical skills, the number of courses eligible for the tuition tax credit will be increased. Occupational courses provided by post-secondary institutions within Canada will be granted the tax credit. If a bursary is provided, the amount will likely qualify for either the full or basic scholarship exemption. Examination fees paid to take […]

Taxation – The Tax Refund Myth

by admin in Advisory, Taxation

TAXATION The Tax Refund Myth A “tax refund” is really just the CRA giving you back your own money. “The government gave me money back” is a common phrase often heard after the April 30 or June 15 filing deadline. The truth is that the government is not being charitable; it is only refunding the tax that you or your employer had overpaid throughout the year. Because the rate of tax withheld at source throughout the year may be different than the tax rate applicable to your actual taxable income (after taking into consideration all other income and deductions), you might have remitted more money to Ottawa than was necessary. Your “tax refund” is the difference between your remittances and your actual tax liability. One of the biggest misconceptions is that, upon filing of their personal income tax returns, people with a lower income will likely receive a tax refund while people with a higher income will usually end up owing tax. This is not necessarily true because the tax refund/liability is not based on your income level but rather on the difference between the remittances paid compared to the actual tax liability. How It Works For example, assume Mrs. […]

Taxation – Salary or Dividends?

by admin in Advisory, Taxation

TAXATION Salary or Dividends? The way a bonus is paid has a significant effect on corporate and personal after-tax income. You are an owner-manager and you’ve just had a really good year. Profits are up significantly and you want to reward your employee shareholders with a bonus. But how? Salary or dividends? The answer to this age-old question is not as simple as it seems. It is even possible to receive remuneration that is a combination of salary and dividends. However, because every company and its shareholders have different needs, a “one size fits all” approach to remuneration is not prudent. Salary and dividends differ with respect to taxation. A dividend is a per-share payout of retained earnings and is therefore not an expense and thus does not reduce pre-tax income. A salary bonus differs from a dividend in that it is an expense and thus reduces pre-tax income. Corporations, trusts, charities and a wide variety of other entities can also receive dividends. Different Tax Effects Distributing a salary bonus effectively reduces pre-tax income by the amount paid. Thus, if a company pays out 100% of pre-tax earnings in the form of a salary bonus, the corporation may not be […]

Income Tax Filing Alert: Important Changes

by admin in Taxation

Basic Personal Amount The Federal Basic Personal Amount will increase to $11,474 for 2016, up from $11,327 in 2015. For 2017, the amount will be $11,635. Marginal rates remain the same in 2017. Marginal Rates There have been no changes in the overall federal marginal tax rates; however, the thresholds for taxable income have been changed as indicated in the comparison table below. Keep in mind that these rates do not include the provincial rate nor do they include the various credits and deductions that may reduce the overall income tax for which you may be liable.   2017 Taxable Income Percentage Rate 2016 Taxable Income On the first                $  45,916                      15.0 % On the first                $   45,282 $45,917 up to                91,831                      20.5 $45,283 up to                90,563 $91,832 up to              142,353                      26.0 90,564 up to                140,388 $142,354 up to            202,800                      29.0 140,389 up to              200,000 Other Changes The 15% children’s fitness and arts tax credit, as well as the education and textbook tax credit, will be eliminated effective January 1, 2017. For 2016, the maximum Children’s Fitness and Arts tax credit will be 50% of the previous allowable amounts. Unused textbook and education tax credits from […]

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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