Corporate Annual Returns – What You Need to Know

Just one of the many responsibilities that an incorporated company faces is making sure the annual return is done properly and submitted on time to keep your corporation in good standing. The annual return is separate from your tax return – it is provided by corporations to keep the government informed on any internal changes made during the previous fiscal year. 

The costs and timeline for filing your annual return is dependent upon the jurisdiction of incorporation.

The purpose of the return is to update your corporate records, which can include:

• name of corporation
• registered office address
• corporation number
• financial year end
• description of type of business
• registered office
• corporate directors
• date of last annual meeting

If a corporation does not file its annual return within the time frame allowed (or at all), penalty fees can be applied. If said corporation repeatedly fails to file its return (generally for two consecutive years) the government department or agency in the corporation’s jurisdiction can remove the corporation from government records.

For not-for-profit corporate returns, every registered charity must file an annual information return within 6 months after the end of the charity’s fiscal year.

Similar to the corporate annual return, the annual information return for charities provides the government up to date information on the charity’s records.  However, the annual information return also requires more in-depth reporting on financial information including financial position, compensation, non-cash gifts, assets, liabilities, revenues and expenditures.  

Please contact CorporationCentre.ca to file your corporate annual return. We're happy to help!

How to Understand Canadian Small Business Taxes

Starting a small business means you’ll have the opportunity to become your own boss and make some of your dreams come true. It also means you’ll have to pay business taxes. For some small business owners paying taxes turns that dream into a nightmare. There are numerous resources you can tap into that can guide you through the completion of the tax forms if you decide to make it a DIY project. Many business owners prefer to bring in outside help like an accountant or tax attorney. Whichever option to choose, it will be helpful to begin with a basic understanding of small business taxes.

What Type of Business Are You?

Entering into a business means you have to pick which type of business you’ll be operating as. Your choices are:

1)      Sole Proprietorship

2)      Partnership

3)      Corporation

A sole proprietorship means you are the only owner and you’re not incorporating your company. With a partnership, there will be at least two owners (could be more) who contribute to the business. Any profits you make in a partnership will be divided based on the rates established in your partnership agreement. A corporation is a standalone legal entity that is allowed to sign contracts and own property. Many business owners choose the corporation option because it provides a level of protection for personal assets. In other words, if your corporation is sued then only the corporation’s assets are in play.

What Are the Filings Dates and Forms?

As sole proprietorship business owner you will be filing a personal income tax just as you would if you were working for someone else. You’ll pay taxes on all your business earnings that will be included on the T2124 Statement of Business Activities form. The fiscal year for a sole proprietorship ends on December 31^st. If you want to select a different end of the year in fiscal terms you’ll need to use form T1139. With the December 31^st end you’ll need to file by June 15^th.

With a small business partnership, the partners will file their share of the business earnings on their individual tax returns. The same filing deadlines as the sole proprietorship business apply.

A small business that has incorporated will use form T2 for corporate income taxes. That form needs to be filed within six months of the end of the business’ fiscal year. All tax forms for any type of business need to be kept for six years.

What Are the Earnings and Expenses?

Here’s where it gets a bit complicated. When a business records any type of earning or expense they need to use the Accrual Method. Translation: You’ll record revenue when you have delivered the good or service not when you’re paid for it. Same for expenses; you record when you incur the expense, not when you pay for it. This is why thorough record keeping is so essential for a small business. To make a business expense deduction, you need to prove that whatever you purchased was used exclusively by your business. As for earnings, that is considered as any money you take in that is a result of your business services.

Why Should You Incorporate Your Company?

There are many reasons for incorporating but the most important to consider are the benefits of incorporating and the implications that it may have for your business. A quick examination of all the benefits to be derived from incorporating will reveal that the best time is when you are actually taking your startup business from inception to reality. Consider all of these corporate advantages:

1.      Limited Liability

Incorporating your business is really about protecting your personal assets. Anyone who starts up a business will find it taking up a major portion of their time but that doesn’t mean you have to assume a total risk with everything you own. By incorporating your business you are drawing a clear line between your personal asset and the assets of the company. That way if anything should go wrong with the company, you’ll still have your personal property. It’s important to keep those two aspects of your life separate.

2.      Attracting Investors

When you incorporate your business you’re also telling potential investors that you’re serious about your company’s future. That is going to make getting money from investors a lot easier. Any investor will be taking a risk by giving you capital. You can make them feel more confident with a professional approach to your business plan through incorporation.

3.      Tax Issues

Just as incorporating your business will protect your personal assets it can also help improve your tax filing status. With a corporation, you have the ability to defer paying taxes to a time during the fiscal year which will be more beneficial. This also applies when you accept an income. The goal should be to work with your accountant to find a proactive way to reduce your tax burden which can ultimately allow you to reinvest in the business. There are also a wide range of small business tax deductions which can help you make improvements but they would only apply to a business that has been incorporated.

4.      Better Client Prospects

If an investor feels better investing in a corporation then a potential client will also share those feelings of confidence in your business. Incorporating your business projects a level of stability to customers. They know they’re not dealing with some “fly-by-night” organization but someone who is in for the long haul of providing service.

5.      Corporate Legacy

For all practical purposes, a corporation is a legal entity that can far outlive the lives of its founders. When you can move your company into the realm of Fortune 500 type of businesses then the hope is that they’ll be around long after the original board has gone onto greener pastures. A corporation is about longevity which is exactly what you should be focused on for your new business.