Tax compliance with Canadian taxes is critical for any startup. Knowing if you need to pay these taxes, when you need to pay them and what information needs to be included with the payment to the Canada Revenue Agency (CRA) can be confusing. The details below are not all-inclusive, but serve as a starting point for the most common Canadian taxes (and tax returns).
Note: Canadian tax information is updated yearly. Accounting firm Welch LLP issues an annual publication, Tax Facts & Figures, which covers these updates.
Registering for a business number with the CRA
When a company is first set up, whether it is incorporated or not, one of the first tasks is to register for a business number. This is the business equivalent of a social insurance number (SIN) and is how the CRA will identify your business. To register for a business number, contact the Canada Revenue Agency (CRA) by phone, mail or fax.
When you register, you will need to be prepared to answer questions about:
- The owners of the business
- Your major business activities
- Your payroll
- Your import and export activities
- Your incorporation information (if applicable)
You will then be issued a number in the form “00000 0000”. This number will stay the same for all of your dealings with the CRA and will be followed by RC0000 (for Corporate taxes), RT0000 (for GST/ HST) or RP0000 (for Payroll).
Filing your first corporate tax return
For personal taxes, the tax year ends on December 31. However, for a corporation, in most cases, you have the ability to choose your year-end. When choosing this date, it is important to consider factors such as tax planning, tax deferral and your alignment with other businesses that are related to the corporation or the cycle of your business. Once chosen, the year-end cannot be changed without good reason, so select it carefully.
Your first year-end can be on any date within the first 53 weeks after the date of incorporation. For most small businesses in Canada, a tax return is due six months after the year-end date and any taxes payable are due three months after the year-end. Therefore, filing your tax return within three months of the year-end makes sense so that you will know what to pay.
Beginning in your second year of business, you will need to make installment payments to the CRA (either quarterly or monthly, depending on several factors). The installments are usually calculated based on the amount of taxes payable in the previous year.
Failure to file the tax return, or pay the taxes or installments due, will result in penalties and interest being charged.
Filing GST/HST returns
Depending on the size of your business, you may need to file a GST/HST return monthly, quarterly or annually. This tax return will report to the CRA your gross revenues, the GST/HST you collected and the GST/HST you paid, or income tax credits (ITCs).
|Monthly||Sales over $6 million||Tax return and payment due one month after each month|
|Quarterly||Sales between $1,500,000–$6 million||Tax return and payment due one month after each quarter|
|Annually||Sales under $1,500,000||Tax return and payment due three months after the year-end|
If you file annually, you will need to pay quarterly installments if your net remittance is greater than $3,000.
Note: Individuals filing annually will need to remit their payment by April 30, even though the tax return is not due until June 15.
Filing payroll deductions
The frequency of remitting payroll or “source” deductions is generally based on the average monthly remittances made in the second preceding year (e.g., in 2014, the remitting frequency of a business is based on the average monthly remittances made by the business in 2012). The salaries and amounts deducted are then reported on a T4 form for the calendar year, distributed to employees and filed with the CRA by February 28 of the following year.
|Under $15,000||15th day of the month, following the month when the deductions were made|
|$15,000–$49,999||10th and 25th day of each month|
|$50,000 and over||3rd, 10th, 17th and 24th of each month|
Employers with average monthly deductions of $3,000 or less are permitted to remit quarterly.