Canadian Corporate Taxes

How to Maximize Your Return

It’s that time of year again –the dreaded tax season.  For business owners with incorporated corporations whose fiscal year has ended, this means having to file two separate returns – personal and corporate. It’s a daunting task to say the least, which is why many businesses chose to hand over their paperwork and receipts to a trusted accountant. But for those of you who are do-it-yourself types, here’s a guide to help you maximize your corporate tax return.

Type of Corporations

There are various types of corporations in Canada, all of which are subject to tax rates dependent upon corporate status. The corporations that have the lowest tax rate are Canadian-controlled private corporations (CCPCs).  These are entirely private corporations controlled and operated within Canada. CCPCs are eligible for the Small Business Deduction which, at this time, stands at 11%, the lowest tax rate available to corporations. All other corporations that do not fall under this category, whether private or public, are taxed at a higher rate. It is worth investigating at the outset the potential of having your business structure set up as a CCPC in order to benefit from the deduction.

Corporate Tax Credits

Research and Development Tax Credits: To qualify for an R&D tax credit (or the SR&ED Program) your company must be involved in experimental development, applied research, basic research and support work which would lead to advancement or address uncertainty in technological and scientific areas. This can encompass a wide range of R&D and is particularly useful for tech and environmental start-ups that are developing new products or improving upon existing products in the marketplace.

Tax Credits for Small Businesses: In addition to R&D tax credits, Canadian businesses can benefit from a range of tax credits for small business. Some credits are dependent on jurisdiction or depend upon industry, while others are Canada-wide and not industry-specific. Tax credits include areas such as apprenticeship job creation, designated activities on qualified property, child care spaces and pre-production mining.

Corporate Income Tax Deductions

If your corporation doesn’t qualify for any tax credits, take a look at potential corporate income tax deductions, you may be surprised what can be included! Below are some examples:

·         Gifts to employees
·         Automobile expenses
·         Insurance
·         Office expenses
·         Mortgage interest & security
·         Business meals/entertainment
·         Conventions
·         Canadian advertising expenses
·         Accounting/legal services
·         Home-based business expenses

Taking the time to research all the available tax credit and deductions for your small business can definitely help you save money in the long run. Take advantage of the incentives the Canadian government provides small business – that’s what they are there for! Good luck and happy filing.

Got Tax and Financial Stress? Here's How to Avoid It

There is one time of year we all dread. No, it's not going over to the in-laws for Thanksgiving. It's tax day. Whether you pay your business taxes on the due date or in advance this can be a stressful time of the year.

Depending on the circumstances, you could find yourself writing out a huge check to the government that wipes out your cash reserves. It's no wonder your blood pressure spikes and the headaches come on.

The good news is that it doesn't have to be that way.

Yes, you'll still have to pay taxes but there is no reason why you should stress out about this part of your business. First thing to understand - everyone is in the same boat. Beyond that there are some tactics you can adopt to help manage your small business finances and avoid getting on the government's bad side.

Make a Plan

A business's success is built on the back of meeting deadlines. That comes with shipping products to customers and paying the bills. It's important to have a well thought out plan for your entire business. This is not something that should be "kept in your head."

You should be using a written calendar that covers all your responsibilities both to customers and to the government. If you know a payment is approaching you won't feel burdened or surprised when it comes time to write the check.

It comes down to a matter of making priorities. And yes, there is an app for that!

Don't Do it Alone

Feelings of stress go hand in hand with feelings of being overwhelmed. When was the last time you asked for help? As a small business owner there are a lot of new aspects of your business you thought you wouldn't have to contend with. Sure, you knew you'd be paying the bills but keeping up with your company's Facebook page and generating original content for your website? Did you budget time for that? More importantly, do you know what you're doing when it comes to optimizing search engines and social media?

You don't have to become an expert because there are plenty of experts out there in cyber land willing to lend a hand. Even your kids could probably be a big help posting notices or even cleaning up around the office. Start asking for help and watch the stress melt away.

Take Time for Yourself

All work and no play? We've heard it before and it has meaning for the small business owner. The first few weeks or months of your start up will be grueling. No doubt about that. However, that doesn't mean running yourself into the ground. You certainly can't pay your tax bills that way. Leave some relaxation time for yourself and/or with your family every week. Schedule it like a business meeting and hold it with the same level of importance. You'll find that approaching your business after taking a "time out" won't be a struggle. 

Deducting Accounting and Tax Preparation Fees

Let's be perfectly clear - no matter what your political affiliations might be we can all agree that we hate paying taxes.

Whether it is your personal income or your businesses income, writing out that tax check can be extremely painful. That's why we look for ways to reduce them, especially deductions. Anything to lessen the tax burden is a good thing but what about getting those tax returns ready in the first place?

With tax codes being what they are, it's not easy to make sense of all the rules and regulations.

That's why we need a little accounting help every now and then. Can you deduct those tax preparation fees? The short answer is "Yes." But as with anything to do with the government, there is always a "catch."

Tax Preparation Deduction for the Business Owner

As the owner of a business you are eligible to deduct your accounting fees and tax preparation fees as a typical cost of doing business. Look for T2125 Statement of Business Activities and Line 8860.

This would be the fascinating "Legal, Accounting and other Professional Fees" category on your tax return. From the CRA tax code itself comes this official eligibility requirement:

"1. Except where there is a specific provision in the Act dealing with legal or accounting fees…, legal and accounting fees are deductible only to the extent that they:

(a) are incurred for the purpose of gaining or producing income from a business or property, and

(b) are not outlays of a capital nature."

Make sense?

Here's the translation: If you paid those fees in order to make more money for your business then they are deductable. How can there be any other reason for accounting but to make money? That would be with personal income situations. As far as the government is concerned, the T2125 form is just one piece of the total tax return puzzle. The rest of your personal income tax return has nothing to do with making money for your business therefore any money spent preparing those returns aren't deductable.

The Work Around

Yes, you would have to separate the accounting fees even if you're using the same accountant but your accountant should know this. One way around this deduction is for your accountant to assess 100% of their fees for your business returns. Then they would do your personal returns for "free." Who can blame them for spending all the time and effort on the business returns?

DIY Tax Returns

If you prepare your own taxes then you might be able to deduct the cost of software as part of the office expenses on the T2125 form. Again, this is only for business owners. As a regular employee who does their own taxes, you won't be able to make the deduction.


Another great reason for starting a business: More tax breaks!

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.

How to Choose an Accountant for Your Small Business

As you begin the journey of operating a small business you’ll find yourself entering into many new partnerships. Not only will you be building a qualified staff to help accomplish your company’s goals but you’ll also require the help of attorneys, landlords, real estate agents, insurance agents and accountants. It’s the accountant that might just become the most valuable asset to your company. That’s why picking the right account is crucial to the success of your business.

Just as with a company lawyer, it will be very hard to hide something from your accountant. That’s why you need to find a person and/or firm that you can trust. In order to pick the right small business accountant you have to understand the nature of their job. In this way you’ll be able assess possible candidates.

Beyond Bookkeeping: The Role of the Accountant

A small business that is just starting up could get by with a qualified bookkeeper to handle the accounts. This could be an employee specifically hired for the task. A bookkeeper needs to keep track of all the financial records pertaining to revenue and expenditures. Thanks to some very decent software programs, simple bookkeeping tasks aren’t complicated to maintain. However, when you bring an accountant into the equation then you are basically “super-sizing” your bookkeeping abilities.

A small business accountant will not only handle the bookkeeping duties but they will also be able to process all that financial information into advice for appropriate courses of action for the business.  One of the biggest issues that an accountant deals with is tax planning. This is not something that just happens every April 15. Business taxes need to be worked on throughout the year. Deductions, payroll, expenditures and investments all have impacts on a company’s tax return and an accountant will be in the best position to analyze the various options.

An experienced accountant is also someone who can provide consultations with regard to expanding your business. There is where they really can earn their paycheck! Although the final decision would be yours as the head of the company, an accountant should offer many options regarding an expansion plan whether that includes opening additional stores/offices and increasing the staff size. Your accountant should be as invested in your success as you are.

A small business achieves many levels of asset protection when it becomes incorporated. As the head of the company, you’ll also benefit from that protection but you might need assistance with regard to your personal finances. Your company accountant is probably in the best position to also advise you on your individual tax returns and suggest possible investment areas.

Accountant Interview Questions

As you meet with different candidates for your accountant you might want to consider asking them these pertinent questions:

·         What are your CPA qualifications?

·         How long have you been a CPA?

·         What other types of business do you represent?

·         How up to date are you with computer bookkeeping programs?

·         How do you keep on top of market trends?

·         How are your fees calculated?

·         What role do you play in the community?

Finally, ask for references and follow up with them. A good accountant should have no problems sharing their past and current success stories!

A Province Divided

It would appear that all is not well in Canada's westernmost province. The implementation of the Harmonized Sales Tax (HST) looms on the horizon for July 2010 and the ground underfoot is shaky with protests and counter-protests.
 

Critics of the new tax claim that the Liberal government of Gordon Campbell organized strong support from within the business community to endorse the HST. The business community refutes any such instigation by the government. Business leaders in B.C. claim that, following Ontario's lead in adopting this new tax, they realized that the inherent benefits far outweigh the disadvantages and, thus, have supported the government's tax proposals. They see the new tax as a way to stimulate the province's productivity which, according to experts, has been "dismal" for the last two decades. While big business agrees that there will be short term problems with the HST, they feel that the tax will lead to long term economic improvement in investments, competitiveness, and consumer prices.
 

Consumers are slow to give their endorsement. That which is good for business means taking more from the consumer's pocket. The bottom line is that consumers will now pay more for many goods and services that will carry the HST tag but are currently exempt from PST or GST. This disgruntlement has given way to public protest about other government policies that have not found favour with the public.
 

As a result of the recession, the B.C. government has been forced to curtail some budgets and trim expenses on existing programs. Indeed, with the new budget looming, the public is awaiting the latest round of budget cuts. A prevailing opinion is that the HST was adopted in order to funnel more money into an ailing provincial budget at the public's expense. During the election campaign, Premier Campbell pledged a deficit ceiling of $495 million. As this summer approached, that pledge grew to a whopping $1 billion and the end of summer saw a projection of that estimate being tripled. With numbers like these being bantered about, neither side is quite sure about the true economic state of the province.
 

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E-commerce Provincial Sales Taxes

E-commerce has greatly increased many retail sales. Businesses, large and small, can now reach customers from coast to coast with relative ease, if they have a presence on the internet. However, a very interesting – and tricky - question arises from all these sales. Does a website vendor in one province selling taxable goods and/or services to customers in other provinces have to charge and remit other provinces' sales taxes?

Would that the answer were simple and straightforward. Just as taxes differ from province to province, so do the requirements for inter-provincial commerce.

Keep in mind that when dealing with tax related issues, it is better to err on the side of caution. Therefore, you should consult with your accountant and/or tax advisor to verify your own personal situation. Similarly, you can obtain detailed information from the finance/revenue ministries of the specific provinces in which you are conducting online business.

There are a number of factors that will determine your tax collection situation. As many small business owners are aware, you are exempt from charging and remitting the GST if you are a small supplier. However, even a business with small supplier status may have to register for GST if they conduct business in provinces that currently have HST (Harmonized Sales Taxes). The GST is part of the HST. Therefore, de facto, you will have to charge and remit provincial taxes in those provinces.

Some provinces have passed legislation requiring out-of-province vendors to register for their provincial taxes. Other provinces "suggest" registering.

Were you aware of the fact that if you, as a vendor, do not collect RST (retail sales tax) in a specific province, the responsibility falls onto the purchaser?

The tax issues are complicated and the requirements, and loopholes, are plenty. Before pursuing your sales in other provinces, check the tax requirements carefully with a qualified tax professional.
 
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