Frequently Asked Questions About GST/HST By Business Owners

Frequently Asked Questions About GST/HST By Business Owners

For those of you who are starting a new business, it is essential to know your tax obligations.  Every business owner must report their net profits on a either their personal tax return if they are unincorporated or a corporation tax return if they are incorporated.

In addition to income tax, it is essential to consider whether or not you should register and collect GST/HST and provincial sales taxes.  There are a variety of questions around this topic:

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Frequently Asked Questions About Salary and Dividends by Owners of Corporations

Frequently Asked Questions About Salary and Dividends by Owners of Corporations

As an accountant and small business financial consultant,  one of the most common areas of confusion and questions by small business corporation owners revolves around how to pay themselves and if one way is preferable to another.  I have addressed some of them in my blog posts on the factors to consider when choosing salary or dividends and the types of ways to structure your remuneration .  There are however specific questions that common up frequently:

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How to Pay Dividends: Completing the T5 Slip and Summary
Self Employed, Small Business, Business Tax Ronika Khanna Self Employed, Small Business, Business Tax Ronika Khanna

How to Pay Dividends: Completing the T5 Slip and Summary

If you are the owner of a Canadian corporation, you can choose to pay yourself (and other shareholders) dividends instead of a salary. Alternatively, some shareholders also take dividends in addition to a salary depending on their tax planning strategy. If you do decide to pay yourself dividends, it is important to ensure that you prepare the proper documentation for Revenue Canada (CRA) and if you live in Quebec, Revenue Quebec (MRQ) since this must be reported as investment income on your personal tax return in the calendar year in which the dividends are paid. If you are paying dividends to a Canadian shareholder, you must issue a T5 slip while non resident shareholders receive an NR4 slip. The T5 dividend slips are generally due by February 28th of the calendar year following the year in which the dividend was paid Although no income taxes are due at the time of filing the T5 slips with the government, interest and penalties apply for late filing . The process of submitting preparing and submitting the dividend declarations and the documents that need to be filled out and returned to the CRA and MRQ are discussed below:

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What is the Difference Between Zero Rated, Out of Scope and Exempt and how do you choose in QBO?

What is the Difference Between Zero Rated, Out of Scope and Exempt and how do you choose in QBO?

In QuickBooks Online (QBO), the terms "Zero Rated," "Out of Scope," and "Exempt" refer to different classifications of transactions for GST/HST and QST (in Quebec). Each one of these transactions results in $0 tax being added to the transaction, and if you use them interchangeably it is probably not a huge problem. That being said, there are a couple of reasons you might want to ensure that you get this right:

  • ensure accuracy in their books

  • avoid the small possibility that an a government (Revenue Canada) auditor might nitpick at it or

  • make your sales reports more accurate

The differences between the three classifications, which despite their somewhat technical names, are actually not that complicated.

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What Unincorporated Small Business Owners Need to Know about Filing Their Taxes
Business Tax, Small Business, Self Employed Ronika Khanna Business Tax, Small Business, Self Employed Ronika Khanna

What Unincorporated Small Business Owners Need to Know about Filing Their Taxes

Being a small business owner comes with challenges, not the least of which is doing your taxes.  While most Canadian taxpayers have relatively simple tax returns that can easily be completed using software, small business owners have the additional burden of reporting details relating to their businesses.  This can seem onerous, but understanding what needs to be done, and when, can significantly help reduce the stress and ensure that the tax filing process is smooth and straightforward.

One of the types of income on which you pay income taxes is what Revenue Canada (CRA) refers to as “income from self-employment” that is essentially the same as income from a small business.  If you do have business income, then you are required to declare your business income on a tax return.  As an unincorporated small business owner, this business income is reflected on a separate schedule on your personal tax return.  The schedule is called a T2125, which is a “statement of business activities” (discussed below) and at minimum requires that you show any income you earned from a business venture.  If you have incurred expenses to earn the business income, you may also deduct these from your gross revenues or sales to arrive at net income from business.  Unlike a simple personal tax return with no business income, the information that must be reported on a T2125 is generally not simply provided to you on a tax slip, such as a T4 or T5, but must be compiled and calculated.

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Know Your Small Business Tax Deadlines For 2024

Know Your Small Business Tax Deadlines For 2024

As we approach the new year, it will be time soon to start working on everyone’s favourite activity i.e. getting your tax stuff in order :) . Below are the deadlines that all small businesses need to know for 2024.

Download our free Canada unincorporated business tax deadline calendar for 2024 (both Federal and Quebec).

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How to Enter Opening Balances in QBO Using a Journal Entry
Quickbooks, Small Business, Self Employed, Accounting Ronika Khanna Quickbooks, Small Business, Self Employed, Accounting Ronika Khanna

How to Enter Opening Balances in QBO Using a Journal Entry

There comes a time for many small businesses or self employed workers when they decide that their current accounting system is no longer working for them. This can be stressful as learning any new software is often tedious and more importantly you have to ensure proper continuity and a smooth transition.

Small businesses might decide to transition to a new accounting software for a variety of reasons:

  • You are currently using spreadsheets which have become difficult to manage

  • Your spreadsheets do not provide the data that you require to properly analyze your business

  • Your current accounting system is too technical and/or not user friendly

  • Your current accounting system does not have the features that you require

  • You want to be able to access your data online rather than through your desktop

See our detailed review on whether QBO is the right online accounting software for your small business

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10 Tips for Setting up Your QBO File for the first time
Accounting, Small Business, Self Employed, Quickbooks Ronika Khanna Accounting, Small Business, Self Employed, Quickbooks Ronika Khanna

10 Tips for Setting up Your QBO File for the first time

The idea of using an accounting software can be a bit intimidating for some new business owners. Others are put off by the cost when a simple spreadsheet is both free and easy. In some cases a spreadsheet makes sense when you have a simple business with very few transactions per year. However, if your business requires you to invoice your clients and customers , you want to be able to analyze the performance of the business and your time is at a premium, the monthly cost of an accounting software can be well worth it.

Quickbooks Online (QBO) is the most popular software used by small businesses. And while QBO has its pros and cons that should be evaluated before signing up, once you have decided to go ahead with it there are certain best practices that should be followed when setting up your file.

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Guidelines For Deducting Conference and Training Expenses
Small Business, Self Employed, Business Tax Ronika Khanna Small Business, Self Employed, Business Tax Ronika Khanna

Guidelines For Deducting Conference and Training Expenses

Attending conferences and investing in ongoing training can be a great way for small business owners and the self employed to keep current on industry developments, ensure ongoing professional development and improve their skills.  It also allows for networking opportunities and occasionally includes trips to exotic locations, which can be a welcome change in environment from working at your office.  As an added bonus ,the cost of conferences, conventions and seminars as well as corresponding travel expenses are deductible against your business income, subject to specific guidelines.

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A Guide to Navigating Taxes in the Gig Economy

A Guide to Navigating Taxes in the Gig Economy

In a recent study by H&R Block, nearly 28% of Canadians reported taking on a side hustle in the “gig economy” to boost their income. This is a significant increase from 2022 in which the analogous percentage was 13%. This is likely a result of inflationary pressures and the expansion of opportunities available for flexible work.

The gig economy, popularized by Uber, refers to work that is flexible and usually incorporates digital apps or platforms. 

Gig workers tend to be independent contractors who usually decide when they are going to work, often bring their own “tools” (such as a car or a computer) and are required to report their earnings to tax authorities.

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Guidance on Registering for Payroll and Remitting Source Deductions

Guidance on Registering for Payroll and Remitting Source Deductions

 There comes a time for many small business owners when they decide that they need to hire employees.  This is usually an excellent sign as it means a) the business is growing and b) the small business owner has learned to delegate.  It also means that additional paperwork needs to be filled out and additional taxes need to be paid.  The simplest option when deciding to augment your workforce is to have the new worker invoice the business, based on hours worked or some other formula.  Unfortunately, there are very specific rules as to who qualifies as a self employed contractor.  Essentially, if your have someone that works full time, has little flexibility with respect to the hours that they work and you provide the tools such as a desk/office, computer etc, then there is a good chance that the tax authorities will classify them as an employee.  In this case, where your worker is clearly an employee, you must register for payroll, pay them a salary and submit regular, periodic payroll reports and payments to the Canada Revenue Agency (CRA).  As usual, if you live in Quebec, you must submit to Revenue Quebec (MRQ) as well. 

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Are Gifts to customers and business associates deductible expenses?

Are Gifts to customers and business associates deductible expenses?

Giving gifts to clients or customers can be a great way to build goodwill, foster customer loyalty and differentiate yourself from your competition. Gifts can be anything from a simple bouquet of flowers to something a bit more personalized based on your knowledge of the customer (it can be useful to listen carefully or probe gently to find out what your customers might want as a thoughtful gift can be tremendously impactful). A gift can be given around the holidays, on birthdays, after closing a sale or any other time as a simple thank you. Of course, if you are buying gifts on behalf of your business, it is important to understand if they qualify as tax deductible expenses and it what circumstances.

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How to Calculate CPP/QPP Contributions If You Are Self Employed
Self Employed, Business Tax Ronika Khanna Self Employed, Business Tax Ronika Khanna

How to Calculate CPP/QPP Contributions If You Are Self Employed

When you are self-employed, you are essentially taking on the role of employer and employee. As such self-employed individuals are required to remit both portions of the CPP or QPP to Revenue Canada or Revenue Quebec respectively, which is calculated on your earnings for the year. This only applies to unincorporated business who declare business income as part of their personal tax return (T1)

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12 Tax Tips for the Self Employed
Accounting, Self Employed, Business Tax Ronika Khanna Accounting, Self Employed, Business Tax Ronika Khanna

12 Tax Tips for the Self Employed

The self-employed lifestyle holds great promise when you first start being self employed, however you quickly find yourself doing things that you would never have dreamed of.  You are expected to take on role of salesperson, market researcher, accountant, lawyer and social media expert, while not getting paid for any of it.  Your available funds do not allow for outsourcing and at times you are not even aware of what you don’t know.  Luckily the internet provides a wealth of tips and tricks to make these tasks easier, and you might actually find that you enjoy taking on some of these challenges. Ensuring that you keep on top of your finances and tax obligations is among the most important of these tasks for which it is essential to have a system in place so that you can maximize tax deductions, minimize taxes payable and reduce amounts that you have to pay to CRA and RQ.

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