How can I reduce my chances of an audit?
The best defense against an audit is to file your tax return every year and on time. Why give the CRA a reason to examine your tax situation? Get it done!
If you file a GST return, make sure the revenue on your business statement T2125 matches the revenue that is on the GST return.
Should I incorporate?
Incorporating has some benefits and disadvantages. The first benefit is limited liability. Your risk is what you paid for your shares. The liabilities of the corporation are not the responsibility of the shareholders. The corporation is a separate legal entity and the obligations of the corporation belong to the corporation. Therefore, if you paid $100 for your shares in the corporation, your total possible loss would be $100.
The second benefit is tax deferral. The corporation will pay tax, in certain situations, at a rate of approximately 16%. The tax rate, at the highest tax bracket, for a person is approximately 46%. When income is earned in the corporation and left in the corporation, it will pay tax at 16% on active business income. If the income was earned personally, the person will pay tax at the highest rate of approximately 46%. Therefore, there is a deferral of approximately 30% (46 – 16). Once the income is paid out as a salary, the deferral is over.
A disadvantage of incorporating is the cost. It could cost $1,000 to $2,000 to have a lawyer incorporate the business. You would also have to pay an accountant to prepare the financial statements and the corporate tax return.
Another disadvantage to the corporation is that losses remain in the corporation. When you start up the business, you may incur losses for the first few years. The losses are carried forward for twenty years or carried back three years. If the corporation generates income in the future, the losses can be utilized. If no income is generated, the losses expire. However, if you were operating a sole proprietor, you could deduct these losses against other personal income, such as, employment income.
When is my corporate tax return due?
All corporations have to file their tax return by six months after the fiscal year end. For example, if the fiscal year end was September 23 then the return needs to be filed by March 23.
Do I have to file a corporate tax return?
All corporations have to file a corporate tax return every year, even if the corporation is inactive, a non-profit organization, or has no tax payable. The only exception to this is a corporation that is a registered charity through out the year.
Non resident corporations:
Non resident corporations will have to file a tax return in Canada if any of the following occurred:
– it carried on business in Canada
– it had a taxable capital gain
– it disposed of taxable Canadian property
Taxable capital gains that result from the sale of shares on a listed stock exchange are excluded from this requirement.
After 2008, there are exceptions to the taxable Canadian property requirement to file rule. Seek help to determine if you qualify.
What can happen if I don't pay my tax bill?
After a tax assessment has been mailed to the taxpayer, payment in full is due immediately. If you don’t make a payment, or don’t contact CRA to make payment arrangements, or don’t file an objection the CRA can begin to take collection action. The CRA can employ many methods: garnish your wage, hold back income tax refunds, seize your bank accounts and other assets (home, cottage etc), register liens on your property etc.
Do I have to file a tax return?
There are a number of situations when you need to file a tax return:
- If you have to pay tax;
- If you receive a request to file from the revenue agency;
- If you want to split your pension with your spouse or common law partner;
- If you disposed of capital property;
- If you have to repay Old Age Security or Employment Insurance benefits;
- If you need to contribute to the Canada Pension Plan;
- If you have not repaid your withdrawal from your RRSP under the Home Buyers’ Plan or Life Long Learning Plan;
There are benefits for filing a tax return. So, even if the above does not apply to you, you may receive a benefit from filing your tax return. For example:
- If you want to claim a refund;
- If you want to claim the GST credit;
- If you and your spouse or common law partner want to claim the Child Tax Benefit;
- If you want to claim Ontario tax credits;
- If you incurred a non-capital loss and you want to carry it back to a prior year;
- If you want to carry forward tuition;
- If you want to record earned income that will increase your RRSP deduction limit;
What do I do if I get a request from the government to file my return?
Section 150 of the Income Tax Act allows CRA to demand that a return be filed for a designated tax year. You will be required to file a tax return whether you owe tax or are getting a refund. CRA usually gives you 30 days to file. Failure to file your return after this demand is a criminal offence. And, don’t try the defence, “It was my accountant’s responsibility to file my return.” This defence usually does not carry much weight.
Recommendation: File your return! It is always a good idea to file your return every year, so you don’t give the government any reason to bother you with an audit or criminal investigation.
What are the penalties and interest if I do not file on time?
If you owe tax, the penalty is 5% of the outstanding balance plus 1% a month until the tax return is filed, to a maximum of 12 months. This works out to a maximum of 17%. If have been late in filing your return in any of the last three previous years, the penalty can be more. This information is subject to change.
Will I receive interest on my refund?
Interest will begin to accumulate on the latest of the following three dates:
The 31st day after you file your return;
31 days after the balance due date for the year. This could be May Or July 15th if you are self-employed.
What information do I need to have ready to have someone prepare my tax return?
You will need all your T slips. For example, you will need your T4, T3, T5, T5008, and RSP deduction slips etc. Additional slips that you should have ready are: tuition slips, child care receipts, receipts for your childrens’ fitness, charitable donation, monthly GO passes, etc.
If you use your vehicle for work and have a T2200 you compile your fuel recipts, insurance costs, maintenance costs, monthly lease costs, purchase invoice if you purchased a new vehicle in the year.
Remember to bring the last tax return that you have completed and your notice of assessment, if you can find it.
How long will it take to get my refund?
If the tax return is electronically filed, the return usually takes between seven to fifteen days. If the return is mailed, it usually takes four to six weeks.
When do I have to file my tax return?
For someone that is an employee, you will have to file and pay your taxes by April 30th. If you owe taxes, make sure your return is efiled before April 30th or postmarked before midnight on the due date.
If you or your spouse/common law partner ran a business in 2009, your return is not due until June 15th. However, the taxes payable are still due by April 30th. You can make an estimate for the taxes you owe if you have not completed the return by April 30th and make a payment based on the estimate. If you owe taxes, make sure the tax return is efiled before midnight on June 15th or postmarked before midnight.