Crush Tax Season: Your small business tax questions answered

It happens every year; Christmas, New Year’s Eve and then ‘bam!’–Tax season.  This year, we want to help you take the stress out of this busy time by giving you some helpful pointers for your small business that will give you some time back to find that next binge-worthy series, learn a new language or make the perfect risotto from scratch.

Whether you run a small business or are self-employed, you’ll find the methods, the deadlines and some helpful tips in the article below to make sure you have everything ready to file with the CRA.

What taxes do I have to pay for my small businesses?

If you sell goods or services in Canada you need to report your revenue to the Canada Revenue Agency. There are different taxes to pay depending on the size of your business or the way you have set up your company. If you fail to report revenue to the CRA you could be fined.

When do I have to pay taxes?

Partnerships must file taxes by March 31st 2021

Sole proprietorships must file taxes by April 30th 2021 (individuals also file taxes at this time)

Self-employed people must file their taxes by June 15th 2021

If you are incorporated, your business must file businesses no later than six months after the relevant tax year ends.

I’m a sole proprietor do I pay taxes?

Yes sole proprietors in Canada need to pay taxes. A sole proprietor pays taxes by reporting income (or loss) on a T1 income tax and benefit return. Sole proprietors pay taxes for the following reasons:

They are required to pay tax for each business year

They need to pay tax if they have disposed of a capital property or had a taxable capital gain in the year

They must pay tax in order to make Canada Pension Plan/Quebec Pension Plan (CPP/QPP) payments on self-employed earnings or pensionable earnings for the year

They must pay tax if you want to access employment insurance (EI) special benefits for self-employed persons

If a proprietor has received a demand from CRA, they must file a return

Do I need a business number?

If you have a partnership or you are a sole proprietor, you need to obtain a business number if you are going to access CRA business accounts. A program account refers to any one of the following:

RT – Goods and Services Tax/Harmonized Sales Tax.

RP – Payroll.

RC – Corporate Income Tax.

RM – Import/Export.

You can get a business number by

RR – Charity.

RZ – Information Return

You can register your business number here.

Do I have to collect PST and GST?

As a business offering goods and services in Canada you may be obliged to charge specific provincial and federal taxes depending on where you are conducting businesses. We’ve put together a helpful article on How to Calculate Canadian Sales Tax: GST, HST, PST, QST 2020.

What type of business is a small supplier? Do they pay taxes?

According to CRA a small supplier refers to a business/person whose revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies was equal to or less than $30,000 ($50,000 for public service bodies) in a calendar quarter and over the last four consecutive calendar quarters.

A small supplier is a business that is not required by the Canada Revenue Agency to collect and remit GST/HST. They will pay income tax on their earnings.

How do I know if something is a business expense?

Here is a list of operating expenses that can be deducted from a business’s tax bill. If you are unsure about whether or not any of your operating costs qualify as business expenses you can check the comprehensive list here.

Business expenses

-Advertising
-Allowance on eligible capital property
-Bad debts
-Business start-up costs
-Business tax, fees, licenses, and dues
-Business-use-of-home expenses
-Capital cost allowance
-Delivery, freight, and express
-Fuel costs (except for motor vehicles)
-Insurance
-Interest and bank charges
-Fees, penalties, or bonuses paid for a loan
-Fees deductible over five years
-Fees deductible in the year incurred
-Interest deductible on property no longer used for business purposes
-Interest on loans made against insurance policies
-Capitalizing interest
-Interest related to the workspace in your home
-Legal, accounting, and other professional fees
-Maintenance and repairs
-Management and administration fees
-Meals and entertainment (allowable part only)
-Long-haul truck drivers
-Extra food and beverages consumed by self-employed
-Motor vehicle expenses
-Office expenses
-Other business expenses
-Prepaid expenses
-Property taxes
-Rent
-Salaries, wages, and benefits (including employer’s contributions)
-SuppliesTelephone and utilities
-Travel

What do I have to do when I file my taxes for the first time?

Paperwork

If you are filing your small business taxes for the first time it starts with the paperwork. Depending on what business type you are registered as determines what T form you will need to fill out.

Sole proprietor/partnership form T2125: Statement of Business or Professional Activities.
Corporation, form T2.

Find all the forms that you need here

Accounting Software

Filing your tax return is a lot easier when you use accounting software to keep track of your books throughout the tax year. With Sage Accounting you can export your business information to work with a tax filing solution.

Online method

If you’re a business owner who files GST/HST, payroll, corporation income tax you can do everything via the CRA My Business Account.

By Mail

You can also file your small business taxes by mail. You can find the address of your relevant tax centre here.

Keep your receipts

It doesn’t matter if you file your taxes online or by mail, you must still keep your business records for six years, especially receipts. It’s best practice not to file an expense that you can’t provide evidence for. The CRA may request receipts or audit your tax filing at any time during the six years.

I am an employee of a company and I also have a side business, what do I need to do at tax season?

You will need to fill out a T4 (regular income) and a T1215 form (self-employed income). Depending on how much extra revenue your side business takes in, you may have to pay additional CPP and EI payments on top of what your employer (and you) already contribute.

I took the small business loan (CEBA)? What am I going to need to do at tax season?

CEBA

Since December 4, 2020, eligible businesses facing financial hardship as a result of the COVID-19 pandemic are able to access a second CEBA loan of up to $20,000 – on top of the initial $40,000 that was available to small businesses.

Half of this additional financing, up to $10,000, will be forgivable if the loan is repaid by December 31, 2022.

This means the additional loan effectively increases CEBA loans from the existing $40,000 to $60,000 for eligible businesses, of which a total of $20,000 will be forgiven if the balance of the loan is repaid on time.

Government assistance as a result of COVID-19 is taxable. The forgivable portion of any CEBA loan is also taxable when received.

The loan is taxable in the business year it is received. Learn more about how CEBA affects your business here.

CRB

Self-employed individuals were able to claim $1000 relief funds to help with manage during COVID-19, $100 dollars were withheld for tax. The 10% tax withheld at source may not be all the tax you need to pay. When you complete your personal income tax return, you may need to pay more (or less), depending on how much income you earned. You must report the CRB payments that you receive as income when you file your personal income tax return.

The CRA will provide self-employed individual with a T4A tax information slip at tax time for the amount you received in CRA administered COVID-19 benefits. Learn more about the impact of CRB payments on taxes here.