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
For Quebec taxpayers who have been trying to locate their RL-4 slips, the slip that your landlord usually provides, or the part on the tax forms or software where you would enter your property taxes (Schedule B), be advised that as of 2011, that this is no longer a specific tax credit. Prior to 2011, both property owners and renters could claim a portion of property taxes paid. This reduced income taxes payable for taxpayers whose total family income was under approximately $50k
However, per Revenue Quebec:
The property tax refund was replaced by the housing component of thesolidarity tax credit. As a result, landlords no longer have to provide their tenants with RL-4 slips, and Part E of Schedule B (which tenants had to complete to claim the refund) has been removed. To claim the solidarity tax credit, complete Schedule D.
Essentially, Revenue Quebec no longer allows for a credit that is based on specific property taxes paid. Rather, with the Solidarity Tax Credit, it determines whether you live in an eligible dwelling i.e. do you rent or own your home and calculates a monthly credit that is based on your total income. (The higher the income, the lower the credit, until it reaches $0). The solidarity tax credit is combined with the QST credit and is paid out to Quebec taxpayers on a monthly basis as long as they don’t exceed the income threshold. Generally speaking, a single taxpayer who owns or rents their home will be eligible for the full amount of solidarity tax credit if their income does not exceed $31,695, which is approximately $900. Net incomes between $31,695 and approximately $46,000 reduce the amount of the tax credit until the amount reaches nil. Keep in mind that, to receive the credit, you must register for direct deposit.
More details on the solidarity tax credit and where to register
The deadline to file our tax returns is quickly approaching, resulting in slight feelings of panic for some individuals and small business owners. As someone who provides tax services for a living, I have found that (like with many things) the stress is far more manageable when you know exactly what you have to do (rather than a vague idea that documents need to be located and forms need to be filled in). One of the best ways to mitigate this stress is to prepare a checklist. If you are looking for a comprehensive tax checklist , David at The Tax Issue has prepared an excellent one and I recommend that you check it out.
The checklist below has some of the more common income, deductions and credits that the majority of taxpayers are likely to have:
As of January 1st, 2012 the Quebec Sales Tax (QST Rate) which had gone up from 7.5% to 8.5% on January 1, 2011 will now increase to 9.5%. The effective sales tax in Quebec will go up from 13.925% to 14.975%. Since QST is calculated on the net amount + GST, the rate is not 14.5% but 14.975% . In other words the effective QST rate is 9.75%. Business owners will need to update their invoicing and accounting systems accordingly to ensure that the rate is properly reflected.
If you are using Wave Accounting, the update to the rates is fairly straightforward, with one little quirk. Since Wave, unlike Quickbooks, does not allow for the QST to be calculated on the GST, the effective rate has to entered manually. This is done as follows:
To update Quickbooks for the tax rate increase, please see “Updating Quickbooks for the 2011 QST Increase”. The procedure is essentially identical except for rates.
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.
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:
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:
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:
Parental benefits in Canada are administered by Service Canada. They fall under the EI program, and to receive benefits it requires opt in to the EI plan for self employed individuals. However, in Quebec, unlike the rest of Canada (a common theme with Quebec), parental benefits are administered by the Quebec Parental Insurance Plan (QPIP), which does not specifically require opt in. Instead all workers in Quebec whether self employed or employees are required to pay premiums, based (similar to QPP) on their insurable earnings. For the self employed, premiums are payable at a rate of 0.86% upto maximum insurable earnings of $62,000.Read More
On January 1st, 2010, Revenue Quebec will be in increasing the QST rate to 8.5% (yay!), bring the effective rate of QST to 8.925% and total sales taxes (GST and QST) to 13.925%, since the QST is actually charged on the net price + GST. This will affect anyone who charges QST including small businesses and self employed individuals. More info on the rate increase can be found at Revenue Quebec QST Rate Increase page.
For those of you using Quickbooks you will need to update the QST being charged on both sales and purchases. The goal is to make a copy of the already existing QST on Sales and QST on purchases items, which will maintain the old rate. Once this is done the existing "items" should be updated with the new rate. This will automatically feed into and update the sales tax codes, so that you do not have to re-create them. Keep in mind that this should be done on January 1st, 2011 or first day back after the holidays, so that transactions prior to 2011 are not affected. The following are the steps required to make the change: