GST (Goods & Services Tax) is federally imposed tax on applicable sales/expenses. The standard rate for GST is 5% on the subtotal charged by the supplier. It is the responsibility of the supplier to ensure GST is charged on all taxable items (a list of GST applicable/exempt products & services are available online). There are 2 “types” of GST: GST on sales, and ITC’s (input tax credits – GST on expenses).
If a supplier does not allocate GST on applicable sales, it will likely result in an “out of pocket” payment. As GST is a federal tax, it is collected on behalf of the CRA, and cannot be viewed as a revenue stream. These amounts are to be held until the GST remittance has been filed.
When purchasing products/services, the CRA allows you to deduct the ITC’s (Input tax credits) paid on expenses, from the GST collected on sales (Again, this is only on taxable items & services). This is crucial, as the GST collected on sales, must be paid to the CRA. If there are more business expenses then there were sales, the CRA will then issue a refund for the difference of GST paid VS. GST collected
The CRA requires these amounts to be reported/remitted to them throughout the year. Remittance periods can be Monthly, Quarterly, or Annually (once a reporting period is chosen, you must continue with that reporting until it is formally changed with the CRA). The deadlines for the reporting periods are between 1 Month after the period end to 3 Months after the period end (depending on the reporting period chosen), payments/remittances completed after the deadline are subject to penalties and interest. The CRA will identify this account as RT0001.
Not all companies are required to be a GST registrant, newly incorporated companies are not required to register for GST until they have claimed $30,000.00 in gross revenue in a single fiscal year. If your industry is GST applicable and you fail to register a GST number, the CRA can backdate to your first $30,000.00 and you will be required to pay the 5% regardless if you have collected it or not. (some types of industries will be GST exempt regardless of revenue)
- Once paid for products/services, the 5% GST collected, should be transferred and kept in a separate account for GST remittance
- Purchasing products/services outside of Canada will remove the GST (unless it is collected when imported) on the expense, removing the deduction of ITC’s from the GST collected
- For annual filers installments may be required by the CRA, failure to remit these payments can result in interest on the missed amounts
A Minute Book is essentially a “birth certificate” for your corporation. It is a collection of all-important documents including: Articles of Incorporation, Annual Returns, minute of shareholder & director meetings, share certificates, by laws & corporate tax filings.
Minute books should always be done by a lawyer to ensure it is created properly and reflects the correct information, however it is not mandatory and can be done outside of a lawyer’s office.
All history and information should be kept in a minute book for referencing purposes for selling, or if any legal or internal disputes should arise (minute meetings will act as a guideline & history for supporting information).
As it is required by CRA, the CPA filing your corporate tax return will also request a copy. It will also be requested in the event of an audit.
- Obtain your minute book once incorporated to avoid gathering all information either before the year end, or after all supporting documents have been created so all information can be safely stored in 1 place
A Provincial annual return is notice of change of shareholders/directors, completed either by a lawyer or at any Corporate Registry.
The filing is required every year, regardless if there are any changes or not. Failure to complete these filings can result in the corporation being struck. When a company is struck it is no longer able to operate as a corporation until it is revived. Revival costs can be similar to that of Incorporating. Annual returns must be filed for every year in order (for example, if you are behind for 2017 & 2018, the annual return must be filed for 2017 before filing for 2018, and years cannot be skipped).
Annual returns are due by the last day of the month following your fiscal year end (For Example, if you have a fiscal year end of June 30, 2019, the annual return will be due on July 31, 2019). There is a grace period for filing your annual return, however as mentioned postponing the filing can result in a corporation being struck.
Information required for the shareholders are as follows:
- Full legal name
- % of Shares (including classes)
Information required for the corporation:
- Legal business name
- Provincial corporate access number
- Ensure your annual returns are provided to your accountant for each year end filing
- Keep the annual return in your minute book to ensure all documents are kept safe & together
Every incorporated company will have what’s called a Year End (or Fiscal Year end). Unlike with personal taxes, the “year end “is always December 31, a corporation year end can be the end of any month (which often, will result in a fiscal year crossing a year – Starting in 2017, but ending in 2018). The only real influence when choosing a year end is that it must be within 52 weeks of the date of incorporation, and once a year end is chosen, it must continue with that end until formally changed with the CRA.
As with personal tax, the CRA requires annual filings to report all income and expenses. These filings do not have to be completed by a designated Certified Professional Accountant, however with ever changing tax laws, it is highly advised to have a professional complete the return.
With Fiscal year ends, the CRA has 2 separate deadlines, one for payment, and one for filing. The corporate tax payment deadline is 3 months after your fiscal year end. The Corporate tax filing isn’t due until 6 months after your fiscal year end. Obviously as the payment is due before the actual filing, the tax filer should be able to prepare an estimate for amounts owing, to reduce any interest. Interest will be allocated on any underpayments If overpayment occurs, the CRA will refund any amounts to you either in the form of a cheque, or a credit on a different CRA account (GST or Payroll). The CRA will not refund money by cheque if there are other balances owing for other accounts.
- To ensure you give the tax preparer/filer enough time to meet the deadline, start gathering information and documents as soon as your year-end passes – you may want to request a list of required paperwork/information
Source Deductions are withheld amounts on employee pay checks (EI, CPP, Tax). Employers are required to deduct these amounts, and remit/pay them to the CRA. There are 4 different remitting frequencies: Quarterly, Threshold 1, Threshold 2, and the most common Monthly/Regular.
Employers are responsible for matching the deduction for CPP, and match+4% for EI. There is no employer contribution for the tax deductions on an employee’s cheque, any under remittance on the tax portion will result in an amount owing when the employee files their taxes.
When remitting source deduction, the employer must provide additional information using online banking, or a remittance voucher at the bank or when mailing a cheque. The information required is:
- Gross Payroll for the period (in dollars only)
- Number of employees paid in the period
- Total Deductions to remit
- Period (generally this will be the month you are remitting for unless you are on a different remitting frequency)
- The filing deadlines by frequency are as shown below
A Record of Employment (ROE) is a form submitted to Service Canada whenever there is a:
- interruption of insurable earnings for an employee, including by not limited to: Quit, fired, lay off, maternity leave, or returning to school.
- Request from Service Canada for subsidizing a portion of an individual’s income if they were working 2 jobs as an EI benefit
- Change in pay periods
The ROE will provide detailed information about the employee, as well as gross earnings by period for up to 52 weeks of employment, when the employee started up until the employment was terminated. Even if a past employee is not seeking EI benefits, a ROE must be submitted. If filed online, you are not required to provide a copy of the ROE to the employee.
The deadline for filing a ROE is within 5 calendar days of:
- The first day of interruption (first day following the last day of work)
- The day an employer becomes aware of an interruption of earnings
ROE’s cannot be deleted, if there are errors on the ROE, or it was filed in error, the record must be amended using the serial number on the original form.
- As the paper filing method is becoming obsolete, ensure your ROE online is setup when you commence payroll
A T4 is an annual slip filed with the CRA, that reflects the income claimed by an employee. If there were deductions from a paycheck for CPP, EI, or Tax, the employee must be issued a slip for every calendar year. T4 slips must be filed by February 28 of every year to avoid failure to file penalties and interest.
A T4 must show the amounts deducted for CPP, EI, and tax, and if there are deficiencies, the CRA will issue a PIER review to reflect the correct deductions. The deficiencies will not be reported on the employee’s T4 and is the responsibility of the business to cover the underpayments. Other taxable allowances & benefits such as health benefits, and vehicle allowance are also reflected on this slip.
Information that must be included on the T4 is:
- Legal Name
- SIN (Social Insurance Number)
- Gross Income (before deductions)
- CPP Deductions
- EI Deductions
- Tax Deductions
- Ensure when employees begin work, they have TD1 and provincial TD forms filled out along with employee contracts to ensure you have all required information, and deductions are being calculated
T5’s are an annual slip filed with the CRA for a Statement of Investment income. The most common use for this slip is what most people know as Dividends. T5’s issued from a corporation are reported at a fiscal year end, which then require a T5 to be filed with CRA in the calendar year the dividends/investment income were claimed on the T2 (Corporate Year End). Like a T4, the deadline for filing these slips is February 28 of the following year.
As a business owner, dividends (or any T5) can only be issued if the numbers were reported on the corporate year end filing of a company. Dividends usually sound appealing to business owners as they are told they are “taxed lower”, this is not necessarily the case. Dividends appear to be taxed lower due to a tax credit that is calculated on the T5. Unlike a T4/wages a T5 does not classify as an expense and cannot be claimed as such.
T5’s can only be filed if the retained earnings (carry forward profit from prior years) is a positive balance (not carrying forward a loss), and if there aren’t any balances owing to the CRA, failure to comply with these rules can result in the dividend tax credit being removed and the investment income is taxed at regular rate.
It is important to notify the tax preparer & filer to any personal tax related benefits, as T5’s (other income) aren’t eligible for some benefits that T4 (earned income) are. The most obvious example would be CPP, as Dividends do not contribute to CPP, therefore lowering the amount you are entitled to when you want to start drawing those payments.
A T5018 is slip filed with CRA to reflect income for contractors in the construction industry only. T5018 reporting periods can be either calendar year or fiscal year, depending on the reporting period of the first filing. The reporting period originally filed must be used until it is formally changed with the CRA. The deadline for filing is within 6 months after the period ending date, filings after this deadline are subject to daily penalties for every day late.
Information required on T5018’s include:
- Business Name (or contractor name if they aren’t incorporated)
- Business Number (or SIN if they aren’t incorporated)
- Amount paid to contractor (including GST) – Only amounts paid out are included and outstanding payable amounts are excluded
Failure to collect required information or excluding contractors from the T5018 filing can result in penalties
- Ensure to obtain all required information prior to contractors commencing work
A WCB (Workers Compensation Board) Annual Return, is an annual filing due February 28th to the WCB Alberta.
This filing will report the amount paid to all employees & subcontractors without their own WCB in a calendar year. With every annual return (or upon activation of a WCB account) an estimate of funds paid out in the following year is provided to calculate the premiums payable. The premiums are calculated based on the amount estimated to pay out, as well as the industry (higher risk industries pay a higher amount, then those of lower risk)
WCB estimates can be changed anytime throughout the year, as often as desired, up to December 31. Estimates should be as accurate as possible while anticipating business activities to ensure consistent premium payments. Underestimating premiums can also result in penalties once the return is filed.
If a business or individual has Personal Coverage Only they are not required to file an annual return.
- 6 Month reviews on the amounts paid out can give you a good idea of where you are at with regards to your estimate for the year, this can be useful in order to avoid overpaying on premiums, and to avoid penalties for under estimating
- Prior to the annual return deadline, you will receive a WCB Annual Return password; make sure this is kept or provided to the individual or firm that will be filing the annual return
- When a contractor with their own WCB is hired, request the WCB number to ensure they aren’t included in the estimate