The information in this article is for educational and information purposes only and should not be relied upon for decision-making or tax preparation. Always seek the expertise of a tax professional or accountant prior to making any decisions or filing any tax returns.
Whether your business makes money or loses money, you have to file your business taxes every year with the Canada Revenue Agency (CRA). Small businesses can file their taxes either through paper forms mailed to the CRA or submit them online through the CRA web site. For incorporated businesses, your taxes must be filed no later than six months after your fiscal year end while for unincorporated businesses you have until June 15 to file. While putting together a complete and accurate tax return may need the help of a qualified professional or software, the filing itself is a breeze!
There are some important considerations to determine what you need to file and when to file it that you need to be aware of. First, you need to understand the legal form that your business takes. The legal form of your business will dictate which type of tax return you must file and when you must file it.
Your business legal form can vary
You might have a sole proprietorship, a partnership, or a corporation. Depending on which you have, the tax deadlines and requirements are different. The CRA has helpful definitions for each type of business but in short:
- If you have not incorporated your business and are the only business owner then you are likely a sole proprietor.
- If you have not incorporated your business and you are a partner in the business with somebody then you are likely in a partnership situation.
- If you have incorporated your business, you are a corporation.
What kind of tax return must each type of business file?
T1 General Return
Sole Proprietors must file and pay their taxes on a return called the T1, which is the same type of return as their personal income taxes. The difference is that you must fill out an additional form such as a T2125 – Statement of Business or Professional Activities in addition to your regular T1 forms. The good news is that you have until June 15 to file your personal and business tax return, which is a bit more time than if you didn’t have a business. The bad news is that if you owe money, you still have to have it completely paid by April 30, which is a little counter intuitive. The practical result of this is that unless you are certain you don’t owe money for the year, you are best to get your tax return done before April 30.
Partnerships are similar to a sole proprietorship in that there is no separate partnership tax return filed. Each partner includes their percentage of income and expense as part of their personal tax return using forms such as the T2125 – Statement of Business or Professional Activities. You may also need to file a T5013 partnership information return. The due dates are the same as for sole proprietorship except for the T5013, which is usually due by the end of March.
T2 Corporate Income Tax Return
Corporations are the most unique because they are considered a separate legal entity from you and therefore require a separate tax return called a T2. You’d know if you are incorporated because there are forms to fill out and fees to pay and often you’ll need to get legal advice so it’s not something you can just fall into unknowingly. Corporations are taxed based on their fiscal year, which can be different from the calendar year, and they must file their taxes no later than six months after the end of their fiscal year.
Putting together your tax return
Putting together a tax return for your business is something that technically anybody can do, but is often better left to a professional. Consider hiring an expert tax preparer or accountant to help you out or at least review your work. Numbering into thousands of pages, the Income Tax Act is long and complicated law. A good professional can help your business save on taxes and avoid costly errors that result in fines or interest.
If you do want to try it on your own, you can use software such as TurboTax for sole proprietorships or TurboTax for Business for corporations. Another option is the old-fashioned pen and paper. The Canada Revenue Agency makes available all T1 tax returns for sole proprietorships as well as the T2 returns on its web site. For Corporations, there is something called a T2 Short Return which is a shorter, simpler version of the return but be sure to check the guide to see if your business qualifies.
Whether using an accountant, software, or pen and paper you’ll need to enter all the information and complete the forms resulting in printed forms or a data file that can be submitted to the CRA. Now you’re ready to file.
Filing your tax return
The most difficult part of a business tax return is putting it together as described above, but you’re not done yet. Once you’ve put it together, you must file it with the CRA via EFILE, postal mail or electronically on the Internet with NETFILE. For certain corporations with revenues exceeding $1M, there is no choice but to file the return online.
The EFILE service is provided by tax preparers or accountants and allows your practitioner to directly transmit your tax return to the CRA, which means you have nothing to do. Mailing your return? The CRA lists its mailing centres for income tax returns on its web site to make sure it gets to the right place. Finally, NETFILE allows you to send your individual income tax return directly to the CRA using the Internet and certified software such as TurboTax.
Once filed, don’t forget to pay any balance owing by the due date, which is April 30 for unincorporated sole proprietorships and partnerships, and six months after your fiscal year end for incorporated businesses. Payments can be made both online and at your local bank branch.
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