How to File Business Taxes in Canada?

When you start a business in Canada, you will go through big adventures and experience many exciting opportunities to learn new things. While you’re busy growing your business and helping your customers, one important task is sorting out your business taxes.

We understand that for many new business owners, it can feel scary. It can be challenging, with numerous rules to follow. But don’t worry, we have got you covered! This guide is here to make it much simpler for you. Keep scrolling to understand what taxes your business needs to pay and how to file your taxes with the Canada Revenue Agency (CRA) correctly. 

What To Do Before Filing Your Business Taxes?

Before you worry about filling out business tax forms, here are a few things every Canadian business owner should do. If you understand the basics and get these sorted early, your tax time will be much smoother.

1. Get Your Business Number (BN)

Every business in Canada needs a Business Number. This is a special number that the CRA gives you. It’s like an ID card for your business when you deal with the government for taxes.

You will need a business number to open most business tax accounts, including sales tax, staff paying, or company income tax. Getting a BN is quite simple, and you can get it online. You can learn how to get your business number from the CRA’s website or by calling them.

2. Understanding Your Business Setup

Your business type can change how you pay your taxes. Canada has a few main types of business setups, and each one has different tax filing rules:

1. Sole Proprietorship

If you run your business alone, you must report all your business money (income and expenses) on your personal income T1 tax form. You have to use a special form called T2125 as part of your T1. Any profit your business makes is taxed at your income tax rate.

1. Partnership

This is when two or more people or businesses work together. Get the Form T5013, Statement of Partnership Income. Each partner has to report their share of the partnership’s income or loss on their tax return.

1. Corporation

A corporation pays its taxes and sends its tax form, the Corporation Income Tax Return (T2). Companies can get lower tax rates on the money they make from their primary business, especially smaller Canadian-controlled private corporations that can get a special tax break. 

3. Keep a Clear Business Record

Keeping records is essential to make tax filing easy. You need to have clean and neat records of all the money your business makes, including profits and all the money it spends, including:

• Bills you send out for sales and receipts for the money you got.
• Receipts for everything your business buys.
• Bank and credit card statements for your business accounts.
• Records of what you pay your staff.

4. Know Your Business Year-End

Your tax year-end is the last day of your business’s financial year. This date is important because it sets all your deadlines for sending in your tax forms.

8 Steps to Send Your Taxes to the CRA

So far, you might have understood the essentials of filing a business tax. Now, here are some easy steps that you need to follow to file your business taxes in Canada. 

1. Get All Your Financial Records Ready

Ensure all your money earned and spent records are complete for the whole tax year. This includes all your bank statements, sales records, purchase receipts, and any other important financial documents. You can always keep digital records that are easier to update, and can simplify this step.

1. Know Your Income and Expenses

Calculate how much money your business earned during the year. This total amount is your gross income. Now, you must add all your eligible business expenses, including office supplies, rent, utility bills, employee wages, and vehicle expenses for business use. These expenses are deductible from your total income to reduce the amount of profit you pay tax on. This net amount is what you report on your income tax return and what your taxes are based on.

1. Find Out Your Deadlines

Missing deadlines can mean paying penalties and extra interest, so knowing when to send in your forms and pay is very important.

1. Fill Out the Right Tax Forms

Fill out the correct forms based on your business setup. Learn about every form type and which one you must submit. 

1. Sole Proprietorships

If you are a sole proprietor, complete Form T2125 and attach it to your T1 Personal Income Tax Return.

1. Partnerships

If your partnership meets specific criteria, such as including a corporation as a partner or having significant revenue or assets, you need to file Form T5013, Statement of Partnership Income.

1. Corporations

All corporations must file a T2 Corporation Income Tax Return and the necessary schedules relevant to their business.

1. GST/HST Registrants

Businesses registered for GST/HST must file a GST/HST return

1. T4 Slip: Employee Details

Each employee must obtain a T4 slip to report employment income and deductions and file a T4 Summary with the CRA.

1. Send Your Forms Online

You can easily file your taxes through NETFILE, an electronic tax filing service, with more accuracy and fewer chances of error. This online service helps you get your refund faster. You may get your refund in 2 weeks with direct deposit.

1. Pay Any Taxes You Owe

If you need to pay taxes, ensure to do it before the due date to avoid extra charges. You can pay it online or use a debit card to pay using CRA online services or with a CRA payment slip. If you owe a lot, the CRA might ask you to make regular, smaller payments throughout the year. 

1. Keep Your Documents Safe

Keep all your tax records and supporting documents safe for at least six years, even after you have sent in your forms and paid. The CRA can ask to see these records anytime to check your claim.

1. Get Professional Assistance

If you are having difficulty filing taxes or are not able to manage time due to busy schedules and back-to-back business meetings, you can simply contact Tax Headaches to support you throughout the business tax filing process. Their experts will offer various services, including CRA assistance, proactive tax advice, post-filing reviews, and much more. 

Conclusion

Filing your business taxes in Canada is essential to running a successful organisation. While it might seem extremely frustrating initially, once you understand how your business is set up, keep clear records, know your deadlines, and use the correct forms, the whole process becomes much easier to handle.

You need to be organised when it comes to taxes. Whether you do your taxes yourself or get help from professionals like Tax Headaches, staying on track will help you avoid extra charges and ensure your business stays in good standing with the CRA.