Canada Revenue Agency Business Number: Ultimate Business ID

The Business Number (BN) is a crucial identifier for Canadian businesses, playing a vital role in tax compliance, government interactions, and financial transactions.

What is a Business Number?

A Business Number is a unique 9-digit identifier assigned by the Canada Revenue Agency (CRA) to businesses and organizations operating in Canada. It's used to streamline tax and administrative processes.

Importance of a Business Number

Having a BN is essential for:

• Taxation: Filing tax returns, making tax payments, and tracking business activities for tax purposes.
• Government Interactions: Interacting with federal, provincial, and municipal governments, reducing the need for redundant information.
• Financial Transactions: Opening business bank accounts, submitting loan applications, or conducting other financial operations.
• Regulatory Compliance: Meeting regulatory requirements, such as filing annual returns and maintaining corporate records.

Types of Accounts Associated with a Business Number

A BN can have multiple program accounts associated with it, including:

• GST/HST Account: Managing the collection and remittance of Goods and Services Tax/Harmonized Sales Tax.
• Payroll Deductions Account: Remitting payroll taxes, including income tax, Canada Pension Plan, and Employment Insurance.
• Import/Export Account: Complying with customs regulations and managing duties and taxes.
• Corporate Income Tax Account: Filing and paying corporate taxes.

Obtaining a Business Number

You can obtain a BN through:

• Online Registration: Using the CRA's Business Registration Online (BRO) service.
• Phone Registration: Calling the CRA's business inquiries line.
• Mail or Fax Registration: Completing Form RC1 and sending it to your tax services office.

Conclusion

In conclusion, a Business Number is a vital identifier for Canadian businesses, simplifying tax compliance, government interactions, and financial transactions. By understanding its role and importance, businesses can ensure they meet regulatory requirements and operate efficiently. If you're starting or managing a business in Canada, obtaining a Business Number is a crucial step to take.

GST Registration for Canadian Businesses

Most Canadian businesses are required to register for GST.  The exception being some small suppliers – sole proprietorships, partnerships or corporations that have total taxable revenues that are less than $30,000 annually after expenses or if your business only provides GST exempt goods or services (i.e. child care or music lessons).  To determine if you are exempt from GST registration, click here  for the CRA requirements.

Even if you qualify as a small supplier, you may want to consider registering for the GST anyway.  Because you’ll be paying GST on purchased goods for the business, your GST registration will allow you to recoup some of the GST paid out on business purchases through Input Tax Credits. 

Registering for GST is actually quite easy.  The main thing to remember is that it needs to be done within 29 days from the day in which your business exceeds the small supplier amount in revenues ($30,000).   GST registration can be done either online or over the phone with the CRA.  You’ll be given a GST/HST number (also called a Business Number) to be used on invoices, for accounting and on all tax-related paperwork. 

Once you’ve registered for GST, you’ll be assigned a reporting period based on your total annual sales, which can be either monthly, quarterly or annually.   For your reports you’ll need to prepare a GST return showing the amount of GST/HST you’ve charged customers as well as the amount of GST/HST paid to suppliers.  This can get complicated when factoring in your Input Tax Credits as well as the various classes of GST/HST goods and services.  For more information on this, please visit follow the link. 

It’s important not only to keep your records and bookkeeping up to date and accurate, but also to understand the GST registration and reporting process from the outset so that you’re not scrambling to prepare your reports for each period and you’re maximizing your Input Tax Credits as much as possible.  

Top Items That May Trigger an Audit of Your Business

If there is one thing that is worse than paying taxes it is getting audited for not paying taxes. A notice from the CRA can send a chill down your spine and have your stomach doing flip-flops. Hopefully, you'll never have to be exposed to that anxiety inducing type of situation. While there is no hundred percent guarantee that your business will forever be spared an audit, there are some proactive steps you can take to avoid that process.

Here are the top triggers for a possible CRA tax audit:

Trigger #1: Mixing Business and Personal Expenses

When it comes to your business accounts and personal expenses, it is best to keep them separate. You should already be filing individual tax returns along with your business returns. Therefore it's not a stretch to keep those items separate. In the real world, the lines between what you spend for your business and your personal life can get blurred. Try to keep them in focus for the purpose of your tax returns.

Trigger #2: Paying Your Living Expenses Out of Business Profits

This is related to "trigger #1." As far as the CRA is concerned you're an employee of your company on par with all the other employees. As a result of that employment you should be getting a salary. Out of that salary you pay for your living expenses. You can't pay your mortgage out of your business profits.

Trigger #3: Failing to Make Payroll Deductions

Sometimes we employ our family members and friends to help with our start up business. There is nothing wrong with that but that doesn't mean those employees can skate on the payroll deductions. You need to treat every employee the same and that means keeping accurate records of payments and deductions.

Trigger #4: Cross Border Taxes

If you do business in the U.S. then their IRS agency will be looking over your shoulder along with the CRA to make sure everyone is getting their fair share of taxes.

Trigger #5: Invoicing Amounts Greater Than $30,000 Annually

$30,000 is the threshold that will trigger the need to register and file HST/GST/PST. If you overlook those filings you can anticipate an audit.

Trigger #6: Multiple Businesses

Your goal should be to expand your business into different regions but that can be complicated with the variant tax codes. The way around that is to set up separate companies that are region specific. That makes smart business sense but it can also draw attention from the CRA who want to make sure all those regions are being paid.

Trigger #7: Being a Success

It might seem odd that success would trigger an audit but the more personal income you accumulate the more it is thought that you'll be trying to shelter that income from taxes. The CRA is always watching!

The most important thing you can do is keep accurate records and follow the rules. That way if you are called in for a routine audit you'll have your defenses ready.

Tips to reduce your income tax for small businesses

With the tax deadline fast approaching, it’s time to start planning now. To help you get prepared, we’ve provided a few quick tips to reduce your business tax bill. Some of them can be applied immediately and will definitely help reduce the amount of income tax you would have to pay.

1.       Take advantage of your business deductions

All expenses that you incur during business operations can be tax deductible. They can range from parking, postage, or even coffee. As long as you collect your business receipts, you can maximize your deductions when filing your return. 

If you either have a home office or lease a place, there are a few deductions that you can make that can help you reduce your income tax.  For home-based businesses, expenses such as insurance, electricity, phone, Internet are all expenses that can be claimed by you. According to the Canadian Revenue Agency (CRA), any expenses that are incurred while operating your business – be it home or elsewhere, are tax deductible.

   

2.       Use your RRSPs to your full advantage

Using your RRSP is one of the best ways you can reduce your small business income tax. It’s unique in that it’s designed to be used as a long term savings vehicle while reducing your tax rate at the same time. So, if in one year you have a high income, you can determine how much you want to contribute into your RRSP as the more you contribute, the more your income tax is reduced. In a low income year, making an RRSP contribution won’t help so you might as well let the unused contribution carry forward when you need it, so that you can make a larger contribution.

3.       Donate to charitable causes                                                       

When you donate to charities, you receive tax credits from the government. By giving more to any registered charity, you’ll be able to maximize the tax credits resulting in a lower tax income rate. 

4.       Pay your family by splitting your income

By splitting your income, you get to take advantage of the different tax rates especially if your income is high. When your income is high, you’re placed on a higher tax bracket, however, if a portion of your income is transferred to your spouse or your child (if they are in a lower tax bracket), you’d be able to reduce your tax rate on your income. 

So if your child is going to university, by transferring a portion of your income, you would be able helping them with their school expenses while reducing your tax rate at the same time. Likewise, you can also gift your children any appreciable assets such as stocks, bonds or property. Any capital gains that they receive are taxed in the lower tax bracket.

5.       Write off your car expenses

If you use your vehicle for your business, you are allowed to claim any automobile costs such as:

-          Car insurance

-          Gas

-          Parking

-         Car maintenance

You have to be aware of some requirements before you can claim any automobile expenses: 

• You must have an employee agreement between your business and employee that the car is used for work purposes; 

• The government requires you to fill out form T2200, stating this agreement.

These tips will help you lower your tax burden – however, we highly recommend speaking with your accountant about other ways to save on taxes.

What Happens if I Get Audited?!

It's certainly not a campfire horror story but many Canadians fear that they may be subjected to a tax audit. Is there basis to that fear?

The truth is that, for most personal tax returns, the chances of an audit are slim. The vast majority of Canadians, more than 90%, completes their tax returns accurately and files them on time. Of more than 26 million personal and corporate returns filed annually, the Canadian Revenue Agency (CRA) audits less than 2%. Most personal returns are accurate as the bulk of personal income is recorded on T4 slips. However, returns from small and medium sized businesses may be prone to error or may be fraudulent. As such, most CRA audits are directed at the business community.

This is not to say that you should assume that whatever you include in your personal return will slide through unnoticed. For example, if you live in a neighbourhood of stately, expensive homes, yet your income is barely above minimum wage, you may expect to be queried by the CRA as to other sources of income to support your lifestyle.

Should you be chosen for a tax audit, it is wrong to assume that the CRA is searching for criminal activity. A tax audit is conducted to ensure compliance with the Income Tax Act. An auditor may actually discover that you overpaid taxes and a refund is due. In any event, don't be confrontational. Cooperate with the tax auditor and make all your records available. It is possible that you made an honest error and you have the opportunity to discuss this with the auditor. The auditor is also well versed in tax issues and may be able to offer helpful advice in your tax matters.

Overall, be prepared. Keep careful records and don't discard them immediately after filing your return. If the tax auditor knocks at your door, be ready and be helpful.

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