Should you register for GST/HST and QST and What it Means to Be Zero Rated

One of the first tax questions you will be faced with as a small business owner or self employed worker is whether you need to register for GST/HST & QST.  The answer in most cases is that if you anticipate that your annual gross revenues (total sales) are going to exceed $30,000, then you should register for GST/HST and QST UNLESS you are considered to be providing a zero rated or tax exempt product or service, in which case you are not required to register.

A more detailed analysis of whether you are required to register for GST-QST

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Should You Pay Yourself a Salary or Dividend? 7 Considerations For Small Business Owners

While incorporation has many benefits for small business owners, it does introduce additional complexities that are not faced by registered  businesses.  Unincorporated business owners are essentially taxed on their net business income, which allows for more time to devote to tax planning and how to spend all of your richly deserved profits.   Incorporated business owners, on the other hand,  cannot just withdraw cash from their businesses as the need or whim arises.  There needs to be a formalized structure in place which usually takes the form of either salary or dividends.  Either type of remuneration has tax and other implications that need to be considered before making a decision. 

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Tax Tips: Car Expenses and Benefits

Access to a car can be crucial to running a small business effectively.  Costs of ownership, however, can be onerous, especially in the early stages when your business is not hugely profitable.  Luckily, Revenue Canada allows individuals and corporations who use their cars to generate income to deduct the expenses and actually provides fairly comprehensive (i.e. complex) guidance to this end.  Below are some of the main provisions that impact small business owners:
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What to Do When your Tax Obligations are Overdue

Small business owners have the added responsibility of ensuring that they are aware of, and comply with, a variety of tax obligations.  For some, this can be somewhat overwhelming, resulting in an accumulation of government notices, assessments, requests for information etc. that just add to stress levels.  While ignoring the problem, hoping that it will go away, may seem like an attractive option, it is important to note that the revenue agencies never forget.  They are also both able and willing to take extreme measures to collect upon what they perceive to be unpaid debts eg. Freeze your bank accounts.
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Guidance on Deducting Home Office Expenses

One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to work.  This can result in a significant reduction in your tax bill for costs that you would incur regardless, giving you one more reason to love being your own boss.  

Criteria for Deductibility:

For home office expenses to be deductible, they have to meet the following criteria: 

  • It has to be your principal place of business i.e. you cannot deduct home office expenses if you have another office that relates to your business, elsewhere, even if you work 22 hours a day or you check your blackberry in bed.
  • The space designated as your home office is used to earn business income and/or you meet clients or customers on a regular basis.  You can deduct expenses relating to the workspace in your garage which is used for home improvement projects.
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Invest in RRSPs or Repay your Mortgage?

One of the most common questions asked by Canadian taxpayers is whether they should use their excess disposable income to invest in RRSPs or pay down their mortgage.  Since contributions to an RRSP are made on a tax free basis,  reduction in taxes payable can be substantial.  Conversely,  higher mortgage payments can result in significantly lower interest expense.  As such, there several factors to consider when deciding which option is better:
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GST and QST Considerations For New Business Owners

The Goods and Services Tax or GST is a consumption tax that is charged on most goods and services sold within Canada, regardless of where your business is located.  Subject to certain exceptions, all businesses are required to charge GST , currently at 5%, plus applicable provincial sales taxes.  A business effectively acts as an agent for Revenue Canada by collecting the taxes and remitting them on a periodic basis.  Businesses are also permitted to claim the taxes paid on expenses incurred that relate to their business activities.  These are referred to as Input Tax Credits.

Does Your Business Need to Register?

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine how the GST and relevant provincial taxes apply to them. Essentially, all businesses that sell goods and services in Canada, for profit, are required to charge GST, except in the following circumstances:

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Last Minute Guidance and Information for Tax Filers

Accountants and tax preparers all over Canada are waiting with bated breath for the end of April and dreaded busy season, when sleep will no longer be a luxury and dreams cease to be tax reconciliation exercises.  At this point in the month, most tax filers have submitted their info and efiled (or mailed in) their tax returns.  Of course, there are always a few stragglers (accountants among them) who have either have not had the time to prepare their tax files or simply tend towards the easy yet stressful path of procrastination. For those that are in the straggler category, below is some guidance to help facilitate the process:
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Highlights of Changes to Federal and Quebec Personal Tax Rates, Credits and Amounts for 2013.

Every year Revenue Canada and Quebec increase the thresholds for tax and benefit amounts to reflect annual inflation rates which is based on the consumer price index data compiled by Statistics Canada. The information is communicated via a neatly organized table on their website, to which links are provided below, for those of you who can’t get enough financial data.  For everyone else I have highlighted some of the more interesting changes
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How to Change Your Personal Tax Return After It Has Been Filed

Despite your best efforts (and/or your accountants’), occasional errors or omissions relating to your personal tax return are unavoidable.  It is possible that you forgot to include a tax slip, overstated your expenses or was unaware of a specific tax credit.  Luckily there is fairly simple mechanism that allows you to change your tax return, which can be done online or by filling out a form and mailing it in.
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What Small Business Owners Need to Know About Income Tax Instalments

One of the more difficult aspects of the transition from employment to small business ownership is having to cultivate a whole new level of discipline.  You can no longer rely on your employer to take care of business obligations that do not relate to your job ,and must take a much more active role in ensuring that you remain on top of your business obligations whether it is collecting payments from customers, paying bills or ensuring that you do not run afoul of Revenue Canada.  One of these obligations is that you are now responsible for remitting your own, which is done via the mechanism of instalment payments.
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How to Handle a Tax Assessment

Tax assessments are often difficult to understand (surprisingly the explanations can be insufficient and/or confusing). If you had an accountant file your tax return, it is a good idea to consult them upon receipt of an assessment. If you filed it yourself, and do not understand the assessment, you should call the government agency. They are usually eager to help, if not always illuminating. If you still do not understand it, it is probably best to then contact an accountant.

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The Importance of Staying on Top of Your Tax Obligations

Revenue Canada recently put a press release about a Sarnia businesswoman who pleaded guilty for failing to file 23 individual, corporate and sales tax returns from 2003 to 2009.  She ended up being fined $1,000 per count for a total of 15 counts (Penalties were not applied to the 8 outstanding GST returns).  She has 12 months to pay the total $15,000 fines and was ordered to file the outstanding tax returns before November 6th, 2011.  In addition to this fine, she is also responsible for any taxes payable and related interest and penalties that would be imposed by the CRA for late filing and payment.

As an accountant I frequently receive panicked calls from business owners who have received ominous letters from the tax authorities requesting that overdue tax returns be immediately filed.  Others receive notices of assessments for significant amounts (Revenue Quebec will often slap an $8,000 assessment on a corporation that has yet to file its corporate tax returns).  In more extreme circumstances, the tax authorities have the power to freeze your bank accounts or initiate tax audits.  This can be debilitating to a small business.  

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How to Pay Dividends: Completing the T5 Slip and Summary

 

If you are the owner of a corporation, you can choose to pay yourself (and other shareholders) dividends instead of a salary, or they can be paid in addition to a salary.  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.  The documents are due by February 28th of the calendar year following the year in which the dividend was paid.  And although no taxes are due at the time of filing with the government, interest and penalties apply for late payment.  The documents that need to be filled out and returned to the CRA and MRQ are discussed below:

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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 worker  is working full time, has little flexibility and you provide the tools, then the tax authorities will classify them as an employee.  In this case, you must take your new worker on as an employee, 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.  The registration procedure is discussed below:

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Is the Quick Method of Reporting GST/HST & QST the Right Choice for your Small Business

If you are self employed or a small business with annual sales between $30,000 and $200,000, it might make sense to select the Quick Method of reporting your GST/HST and QST (note that if your sales are less than $30,000 you are not required to collect sales taxes).  While regular reporting of sales taxes requires that you calculate all amounts collected and paid on eligible expenses, the quick method requires the application of a single rate to your sales.  The key details of the Quick Method and its suitability for your business are discussed below:

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How to File T4s using Quickbooks

For all Canadian businesses that have employees on their payroll, the deadline to file your T4s is February 28th, 2010.  The good news is that it has become much easier to do particulary if you are efiling.  The Canada Revenue Agency (CRA) is encouraging businesses to file electronically (efile) the T4s and it should be noted that e-filing is mandatory for employers with more than 50 employees.  
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Tax Planning for Business Professionals: Dividends or RRSPs?

This article in the globe and mail discusses a novel tax strategy.  If you are an incorporated business professional - a lawyer, accountant or consultant -  it might be more benefical from a tax perspective to retain excess funds that would normally be transferred to an RRSP, in the corporation. The business owner would withdraw funds in the form dividends instead of a salary.  (It is necessary to have earned income eg. a salary to build RRSP contribution room.  Dividends are not considered to be earned income.) This strategy results in the following tax savings:
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Tax Tip: Write Off 100% of Computer Hardware

Small Business owners should note that for electronic data processing equipment i.e. computer hardware and related software acquired between January 27, 2009 and January 31, 2011, the entire amount of the purchase can be deducted against income.  This is a significant incentive for business owners to purchase computer equipment before February, 2011.  The accelerated depreciation rate is 100%.  and there is no half year rule.  The usual CCA rate for computer hardware, which is subject to the half year rule (i..e 15% in the first year) is 30%.   To qualify the hardware must be:

  • situated in Canada
  • new equipment
  • used by a business that is conducted in Canada

The applicable CCA Class to select when preparing your tax return is 52.

More information can be found at the CRA website Classes of depreciable property:

Related: Accounting and tax implications of fixed assets 

About the author: Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals.  Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest.  You can also follow her on Facebook or Twitter.

Noteworthy - Sept 19.2010: All About Tax

CRA Targets Tax Shelters:

The CRA is auditing "gifting tax shelters" ,which mainly target middle income earners.  It seems that the tax shelters have been falsifying charitable donation amounts eg. a donation of $30 will turn into a donation receipt of $100 resulting in a tax credit up to $45.   It is estimated that 170,000 taxpayers will be assessed for about $2.5 Billion.

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