The Income Tax Act provides for many credits and deductions to help reduce your tax payable. There is one tool in particular that is very powerful in doing that, but often forgotten: the carry forward. What is it, and how is it used? Let’s find out.
What are carry-forwards?
Carry-forwards are deductions and credits that you can set aside for future use if you don’t need them to reduce your tax payable in the current year. For example, if you managed to bring your tax payable down to zero with only a portion of your deductions and credits available, the remainder can be “banked” (carried forward) for use in a future year. These deductions and credits will then be at your disposal to apply against your tax payable.
It’s like having a “tax bank” where you can deposit deductions and credits for an upcoming tax bill.
What deductions and credits can I carry forward?
Here are some of the deductions and credits you can bank for future years:
Note that some can be carried forward to future years even if it would be advantageous to use them right away (RRSP, donations), while others must be used when available and only the excess amount can be banked if any (tuition fees, capital losses).
How can I find out if I have any carry forwards available?
The best way to find out what carry-forward amounts you have in your tax bank is by visiting your My Account portal on the CRA’s website. You can also refer to your annual Notice of Assessment which is sent to you by the CRA after you file your tax return.
Keep in mind that the CRA does not track all your carry-forwards. For example, excess donations and student loan interest amounts are not tracked by them. The good news, however, is that Filing Taxes will keep track of these carry-forwards for you and apply them automatically when needed.
Yes, some of them can. For example, if your capital losses exceed your capital gains for the year, you can carry the excess loss forward to a future year. However, if you had capital gains in at least one of the three previous years, you could apply your current year's excess capital losses against your past capital gains. This is called a carryback, and you can request it using a T1A form.
You can also request a carryback for business (non-capital) losses.
If you are looking for a professional Tax Accountant who can lead you through the process of claiming business expenses on your tax return, then feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Introduction:
In the dynamic landscape of Mississauga's business scene, where entrepreneurship flourishes and companies strive for success, the management of accounting tasks holds undeniable importance. While it may seem economical for businesses, particularly those in their early stages, to handle accounting internally, the allure of cost-saving through DIY approaches often leads to unforeseen challenges and expenses. This article aims to shed light on the hidden complexities and costs associated with DIY accounting while emphasizing the invaluable benefits of seeking professional assistance from reputable accounting firms. By delving deeper into this topic, we hope to provide insights that will help businesses make informed decisions to safeguard their financial health and future growth.
The Perils of DIY Accounting:
The Benefits of Professional Accounting Services:
In Conclusion:
While the allure of DIY accounting may initially seem appealing for businesses seeking to save costs and maintain control over their financial affairs, the long-term consequences of this approach can be detrimental to business success and sustainability. The complexities of modern accounting, tax laws, and regulatory requirements necessitate the expertise and guidance of professional accounting firms to navigate effectively. By investing in expert accounting services, businesses in Mississauga can unlock a myriad of benefits, including time efficiency, compliance assurance, tax optimization, strategic financial planning, and stress reduction. In the competitive landscape of Mississauga's business environment, partnering with a reputable accounting firm is not merely a prudent choice but a strategic imperative for businesses aspiring to achieve sustainable growth, profitability, and market leadership. As trusted advisors and partners, accounting professionals are committed to empowering businesses with the knowledge, insights, and resources needed to thrive in an ever-evolving economic landscape. For businesses seeking streamlined financial procedures, compliance excellence, and strategic financial guidance, the decision to engage professional accounting services represents a pivotal step towards realizing their full potential and achieving enduring success in the dynamic marketplace.
If you need help completing and filing your return, meet with a tax professional at Filing Taxes. We take the time to listen and strategically analyze your complete financial picture to deliver tax planning that fits your life today and tomorrow. Our team will work with you to help you understand the solutions available to you and chart the best path forward. Don't let the practice of DIY Accounting become the culprit behind draining your business.
To learn more feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
In the ever-evolving world of social media, individuals have found new avenues to express their creativity, share their passions, and build thriving businesses. This paradigm shift has introduced new lucrative income streams available to a breed of professionals known as “influencers”. These may include Twitch or YouTube streamers earning advertisement revenue, performers receiving subscriptions, gifts, and donations, as well as Instagram or TikTok content creators receiving funding through commissions, sponsorships, brand partnerships, and perks. However, with this newfound success comes the responsibility of understanding the tax consequences associated with earning income through social media platforms. Influencers are obligated to diligently report their earnings to the Canada Revenue Agency (CRA) and fulfill their tax obligations.
With this new form of income comes a complex web of tax implications in this guide we aim to shed light on these tax considerations, helping influencers navigate the often confusing landscape of Canadian taxation in the digital economy.
Stay tuned as we delve into the world of likes, shares, and tax brackets. Whether you’re a seasoned influencer or just starting, this guide is designed to help you understand your tax obligations and plan accordingly.
How Do Social Media Influencers Generate Income?
By leveraging their insider knowledge or expertise social media influencers can earn income from their online activities in several ways. Influencers earn income through a variety of means namely:
What Are the Income Tax Implications for Social Media Influencers In Canada?
If you are a Canadian resident engaging in influencer activities, you must report all such income (monetary and non-monetary) earned inside and outside of Canada.
Unless you earn income from your social media activities through a corporation, you are considered self-employed for tax purposes and need to file a Form T2125, Statement of Business or Professional Activities, to report your self-employment income on your annual personal income tax return Line 26000. As a self-employed individual, you also need to remit both the employer and employee portions of Canada Pension Plan (CPP) contributions.
Influencers who are not resident in Canada are subject to Canadian income tax on most Canadian-sourced income paid or credited to them during the year unless all or part of that income is exempt under a tax treaty.
If a gift is non-monetary, such as a first-class airline ticket to Aruba, the social influencers are required to declare the fair market value (FMV) of the ticket as other income on their Form T2125. Non-monetary gifts, also known as gifts-in-kind or in-kind contributions, are exchanges or donations of goods or services rather than cash. They can include a wide range of items such as real estate, stocks and bonds, personal items like furniture, clothing, electronic goods, intellectual property, and more.
In some cases, the social influencer may not be an individual, but a corporation. A corporation is a legal entity that is separate from its shareholders and directors. A corporation can also create and publish online content on social media platforms and earn income from various sources, such as advertising, sponsorships, partnerships, etc. However, the tax implications for a corporate influencer are different from those of an individual influencer. A corporate influencer must file a Corporate Income Tax Return (T2) and pay tax on its taxable income at the applicable corporate tax rate. The corporate tax rate depends on several factors, such as the type of corporation, the province or territory where it operates, and the amount of income it earns.
Can social media influencers claim expenses?
You may be able to deduct eligible business expenses to offset the income you earned from social media activities and reduce your taxes. To be deductible, such expenses must have been incurred to earn income from your social media activities. You may not deduct personal expenses or expenses that are not reasonable in the circumstances. As with any self-employment income, social influencers can deduct a variety of expenses from their income as long as the expenses are reasonable. Some of these expenses are:
Assuming that you are self-employed, you would report any deductible expenses on Form T2125. You must be able to provide proof in support of any expenses that you claim, should the CRA request it.
If you qualify as a corporation, you have the opportunity to deduct reasonable and directly related business expenses from your earnings, thereby significantly reducing your taxable income. Eligible expenses include, but are not limited to:
As with any other business, if you are claiming expenses in your tax returns, you are required to maintain receipts for at least six years in the event of an audit by the CRA.
Are There GST/HST Implications for Social Media Influencers?
There are also GST/HST implications for social media influencers. If the income derived from their taxable source exceeds $30,000 over consecutive calendar quarters you will need to register for, collect, and pay the goods and services tax (GST)/harmonized sales tax (HST) on all taxable sales from your online activities. Taxable supplies can include supplies of property and/or services made in the course of commercial activities and are subject to the GST/HST. Even if you do not exceed this threshold, you may still choose to register voluntarily as a small supplier. If the social influencer has already registered for GST/HST, he/she may be eligible to claim Input Tax Credits (ITC) for the GST/HST paid on purchases and expenses related to their commercial activities. However, a claim for an input tax credit can only be made when GST/HST is payable on business activities. Simply put, if you have no income, you cannot claim an input tax credit (ITC).
What Steps Should Be Taken When Income Hasn’t Been Reported To CRA?
Failure to report taxable income from social media activities can result in the assessment of penalties and interest. You may be able to reduce or avoid punitive action if you voluntarily come forward to the CRA to report any income you may have inadvertently omitted from your previous tax return(s).
According to the CRA, to be valid, an application under the Voluntary Disclosure Program must be complete, be voluntary, involve the application or potential application of a penalty, include information that is at least one year past due, and include payment of the estimated taxes owed.
If you don’t qualify for the Voluntary Disclosure Program, it is also possible to request a change or an adjustment to a prior year’s tax return. In such cases, you may be assessed applicable penalties and/or interest.
Getting Early Help from A Tax Accountant Is A Good Idea
As you continue your efforts to grow your brand, remember that not everyone who follows you is there to simply like or comment on your content. The CRA is also online, keeping a close eye on social media influencers to ensure they comply with income tax obligations from their activities online.
By accurately reporting income, claiming eligible expenses, and adhering to GST/HST requirements, influencers can ensure compliance with CRA regulations while optimizing their tax position. Given the complexity of Canadian tax laws and individual circumstances, with the right support and guidance from our tax accountants in Toronto influencers can confidently manage their tax affairs and focus on what they do best: creating engaging content and building their online presence.
Not all accounting firms and accountants understand enough about social media influencers to be a big help. So, if you are a social media influencer – or streamer or podcaster – and are starting to make money from your efforts, it is the best time to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Tax is one of those things that can keep you up at night. This difficulty could stem from a variety of different reasons – perhaps the business wasn’t profitable enough the year before, or maybe your business is still feeling the effects of the COVID-19 pandemic.
In most cases, you already know when you file your tax return that you are going to owe the Canada Revenue Agency (CRA). Or maybe, you already have a balance owing, and you are going to be adding more money to that balance, or possibly you have no idea whatsoever why it is that your Notice of Assessment (NOA) has a balance owing on it that you cannot afford to pay in full.
If that scenario arises, there are some key steps you should follow to prevent the CRA from taking immediate legal action. I apprehend that you are looking for a magical answer to make it disappear – unfortunately, there isn’t one, but that doesn’t mean it cannot be reduced or handled. Cooperation with CRA is essential and strongly recommended to make your life easier in the long run. They are always likely to listen to businesses that are struggling and are more likely to agree to a compromise if you have been upfront with them.
If you can’t pay your taxes the CRA may withhold tax credits as a means of recovering the outstanding tax debt. This can mean forgoing GST/HST tax credits, the climate action incentive payment, and other tax credits until the CRA has recovered the amount owed.
Realizing that you can't afford your tax bill can be shocking and incredibly stressful to think about. The good news is that enough people have been in your shoes to create a bit of a playbook.
Step 1: File Your Taxes Even if You Can't Pay Them
Even if you can’t pay all or part of what you owe to the CRA, you must file your tax return on time. Not filing is penalized harshly:
Step 2: Be Prepared to Prove Your Inability to Pay in Full
The second key to avoiding immediate legal action when you are unable to pay your tax bill in full is to be prepared to prove to the CRA that you are unable to make payment in full.
The CRA has access to a review of your tax file and determines whether they feel you are able to make payment in full or whether they will allow you to make incremental payments on a schedule – a payment plan.
The CRA will ask you for information relating to your income and expenses and use this information to determine your “Ability to Pay”. Having timely and accurate information available can make the difference between a repayment arrangement and a garnishment or freeze on your bank account.
Once you can prove your inability to pay your tax bill in full, you should continue to keep communication lines open with the CRA. It is important to keep them informed of any changes in your income or expenses rather than waiting for them to find out first.
Step 3: Start the negotiation with the CRA.
For any reason, if your finances present you with a tax bill that is too large to pay in full begin communicating with the Canada Revenue Agency instantly. The CRA likes to know that you are aware of the balance owed and that you have a plan in place to deal with it. Even if you do not have a plan, this is the best time to ask the CRA for any possible options you can avail of. Request the CRA to work out a payment plan. If you're unable to pay in full right away, the CRA will allow you to pay your debt in installments instead of all at once in a lump sum. You can set up a repayment plan either online or over the phone.
Keep in mind, that everything that you say will be added as a note in the permanent diary that the CRA has on you in their systems, so if you’re very rude off the get-go, then you can expect in any future dealings that your attitude might be brought up.
Step 4: Financially Recalibrate Yourself – Look for Other Sources of Income to Pay Off Tax Debt
Add up your assets, income, and liabilities to get a better idea of your current financial responsibilities. What, if anything, can you de-prioritize to free up money to pay your taxes?
If you haven’t already, consider creating an emergency fund for unexpected expenses like a tax bill. While you’re at it, ask yourself what else you might need to add or remove from your budget. Have any of your financial goals changed in recent years?
Step 5: Sticking to Your Payment Arrangement
Once you have reached a re-payment arrangement with the CRA for your balance owing, you must remain current on your tax obligations as they come due, or the payment arrangement is canceled.
That means, if you make a promise to pay an amount every month but forget that you need to make an installment payment, payroll remittance, or GST/HST payment, then you must notify the CRA of that error, and seek to adjust the arrangement. Failing to do so, and missing a payment to keep up with the terms of the re-payment arrangement is a giant no-no.
If, after starting your repayment plan, your circumstances change and you can no longer afford the plan, you MUST contact the CRA to come up with a solution. It is important to communicate with the CRA if you are unable to make a scheduled payment due to circumstances beyond your control. If you don't the CRA will proceed with legal actions to collect the outstanding funds you owe. Proactive and upfront communication with the CRA sets the tone for the discussions that will follow with the CRA representatives or with your assigned collections officer. Showing initiative and telling the truth almost guarantees an open dialogue and should something go awry during the period in which you are in collections, your good-faith bargaining should help quite a lot. Failure to do so can void the arrangement and will result in immediate legal actions being taken by the CRA.
Paying off one debt, while starting another is not allowed.
It All Starts with the Right Steps and Speaking to The Right Tax Professionals
Are you worried that you won't be able to pay the corporation taxes? Filing Taxes can take you through your finances, outline your debt relief options, and help you get your tax debt in order. Our experts can advise on how best to deal with this cut-throat tax situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
If you own a company in Canada, you are required to file a T2 corporate income tax return each year. Depending on your industry, structure, and income, your corporate income tax return T2 will vary from any other company.
Some companies, such as startups and new SMEs, may operate for years before reaching a profitable threshold. Other enterprises are incorporated legally but then do not start business operations until years later. It is more common than you may think for a corporation in Canada to have zero income.
But what if you had no income for this year? Are you still required to file zero or no returns with the CRA?
Nevertheless, the CRA (Canada Revenue Agency) still expects a corporation with zero income to file a tax return. This does not need to be a full T2 return – the CRA T2 short form exists for corporations looking to file a nil return.
For Canadian business owners with no activity, filing a nil corporate tax return can still be a concern. This blog offers guidance on navigating this process, ensuring compliance, and easing worries. Whether a sole proprietor, partnership, or corporation, we break down the steps needed to file correctly, providing confidence and peace of mind.
Understanding Nil Corporate Tax Return – What is a Nil Return?
When it comes to filing a corporate tax return in Canada, the process may seem overwhelming, especially if your company had zero activity during the tax year. However, fret not! Filing a nil corporate tax return is a straightforward process that can be handled hassle-free. Let’s dive in and understand the ins and outs of filing a nil corporate tax return.
NIL Return filing is a way of communicating to the income tax department that the taxpayer does not fall under the purview of income tax.
A zero-tax return, also known as a nil-tax return, refers to a corporate tax return that shows no income during the tax year. Usually, this is because a company is inactive or is operating at a loss during the tax year for any number of reasons.
It essentially declares that the corporation did not generate any revenue, incur expenses, or make any taxable transactions during that period. It’s crucial for small business owners in Canada to grasp the concept’s significance. The process involves determining the tax year, gathering necessary paperwork, completing Form T2 Short Return, reporting zero income, and reviewing the submission. Maintaining precise financial records, keeping abreast of tax laws, contemplating professional assistance, and employing tax software can streamline the filing procedure.
Who Has to File a Nil-Tax Return for The Company?
The resident Canadian companies must file a corporate income tax return for each year it has no income or loss.
Non-resident Canadian companies must file a zero-tax return if any of the below situations apply and the non-resident corporation has a loss or zero income.
Are You Eligible to Use the CRA T2 Short Form?
The CRA T2 short form was created to simplify corporate tax return filing for eligible firms that do not need to provide large amounts of financial detail to the CRA. Not all corporations are eligible to use the T2 short form, even if they have a zero-income tax return in Canada.
For a corporation to use a short form, it must either be A Canadian-controlled private corporation (CCPC) throughout the tax year and this year operating at a nil net income or loss for income tax purposes. A corporation exempt from tax under section 149 (such as a non-profit organization).
In addition, the corporation must meet all of the following conditions to use the T2 short:
If your company meets this criterion, you can use the T2 short to file your nil tax return.
Steps to Filing a Nil Corporate Tax Return
Filing a nil corporate tax return in Canada when your business has had no activity can be a straightforward process. By following these simple steps, you can handle it hassle-free:
1. Ensure your fiscal period aligns with the tax year
It’s important to have your fiscal period aligned with the tax year set by the Canada Revenue Agency (CRA). The tax year in Canada runs from January 1st to December 31st. Make sure your fiscal period matches this timeframe to effectively report your business’s financial information. If you’re unsure about your fiscal period or need assistance in aligning it with the tax year, contacting an accounting firm or a tax service can provide the guidance you need.
2. Gather the necessary documents
Prepare the necessary documents for filing your nil corporate tax return. This typically includes your corporation’s financial statement, which outlines your company’s income, expenses, and overall financial health. Ensure you have all the necessary receipts, invoices, and financial records to support the information you’ll be reporting on the tax return. Having your previous year’s tax return handy can also help provide context and continuity in your financial reporting.
3. Complete the T2 Short Return form
When filing a nil corporate tax return in Canada, you use the T2 Short Return form. This form is specifically designed for small businesses and corporations with no activity or income to report. It’s a simplified version of the standard T2 form and requires less information to be filled out. The T2 Short Return form lets the CRA know that your business has no taxable income for the year. You can find this form on the CRA website or by contacting the CRA directly.
4. Submit your tax return
Once you have completed the T2 Short Return form and ensured all the necessary information is included, it’s time to submit your tax return to the CRA. The tax return should be signed by an authorized signing officer of the corporation, typically the business owner or a designated individual. Make sure to review all the information provided for accuracy and completeness before submitting. You can submit the tax return electronically through the CRA’s online portal or by mailing it to the designated tax center.
Tips for a Hassle-Free Nil Corporate Tax Return
Filing a nil corporate tax return in Canada can be a straightforward, seamless, and stress-free process, even if your business had no activity during the tax year. Here are some helpful tips to ensure a hassle-free experience:
1. Understand the requirements
Familiarize yourself with the guidelines and regulations set by the Canada Revenue Agency (CRA) for filing a nil corporate tax return. This will help you stay on top of any changes or updates that may affect your filing.
Ensure that you have all the necessary documents and information at hand before beginning the process. This includes your corporation’s financial statement, the previous year’s tax return, and any other required documents specific to your business.
2. Choose the right form
For a nil corporate tax return, you will need to use Form T2 Short Return. This is the most straightforward way to report a nil income for your business.
The T2 Short Return form is designed for corporations with no significant business expenses or deductions to claim. It requires minimum information and reduces the administrative burden for small businesses.
3. Seek professional assistance if needed
While filing a nil corporate tax return can be relatively simple, it is always a good idea to seek the advice of a qualified accounting firm or tax service provider. They can guide you through the process, ensure accurate completion of forms, and help you avoid any potential pitfalls.
Hiring an accounting firm or utilizing an accounting package can save you time and effort, providing peace of mind that your return is handled correctly.
4. Be aware of deadlines
Even if you have no corporate income to report, it is crucial to file your nil corporate tax return on time to avoid penalties or late filing fees.
The filing deadline for a nil corporate tax return is six months after the end of your tax year. Make sure to mark this date in your calendar and submit your return well in advance to avoid any last-minute complications.
5. Maintain records
As a small business owner, it is essential to maintain organized records of your financial transactions, even if your business had no activity during the tax year.
Make sure to keep track of any potential expenses, such as income earned or charitable donations made, as they may have an impact in future tax years.
Maintaining accurate and up-to-date records will not only simplify your tax return process but also provide a comprehensive overview of your financial position.
What is the Deadline to Submit a Nil Return to the CRA?
The deadline to submit a nil return to the CRA for your corporation is within six months of the end of each tax year. Your corporation’s tax year is its fiscal period.
If the corporation's tax year ends on the last day of a month, the return is due by the last day of the sixth month after the end of the tax year.
If the corporation’s tax year does not end on the last day of the month, file the return by the same day of the sixth month after the end of the tax year.
A tax year ending March 31st will have a return deadline of September 30th. A tax year ending September 15th will have a return deadline of March 15.
The Significance of Filing a Nil Corporate Tax Return in Canada
Remember, even if your business hasn’t been active, filing a nil return is essential to stay on the right side of the tax authorities. When it comes to filing your corporate tax return, you might wonder why you need to bother if your business had zero activity during the tax year. Well, let us shed some light on the importance of filing a nil corporate tax return, even when there is no income or taxable activity to report.
1. Compliance with Tax Regulations
Filing a nil corporate tax return ensures that you remain in compliance with the tax regulations set forth by the Canada Revenue Agency (CRA). Regardless of whether your business had any income or expenses during the tax year, the CRA requires that all corporations, including those with no activity, still file a corporate tax return.
By fulfilling this requirement, you demonstrate your commitment to operating your business within the legal framework and maintain a good standing with the authorities.
2. Record-Keeping and Transparency
Filing a nil corporate tax return allows you to maintain accurate records and establish a transparent financial trail. Even if your business didn’t generate any income, the tax return documents serve as proof that you have accounted for the fiscal period in question.
These records can be important in the future, especially if you plan to apply for loans, or grants, or expand your business operations. Having a track record of filing tax returns, even when there is no taxable income, reflects positively on your business’s financial credibility.
3. Utilizing Business Losses
Filing a nil corporate tax return also provides an opportunity to carry forward any business losses. If your business has incurred expenses during the tax year that exceeded its income, these losses can be carried forward and applied against future taxable income.
In such cases, even though you may not be eligible for a refund due to zero income, filing a nil corporate tax return allows you to preserve those losses and potentially reduce future tax burdens when your business becomes profitable.
4. Establishing a Professional Goodwill
Filing a nil corporate tax return demonstrates professionalism and competence. It signifies that you take your business and financial responsibilities seriously, regardless of its current activity level. This can be particularly important when dealing with banks, potential investors, or partners who may request financial statements or tax returns as part of their due diligence process.
Why Is It Advisable to Hire a Professional Accountant to File Your Corporation Nil Tax Return
By following the straightforward steps outlined in this blog, you can breeze through the process and enjoy peace of mind. Even when filing a nil tax return, a corporation can still have many obligations with the CRA and need to fill out the correct forms. Without professional corporate nil tax return preparation and filing, you open your business up to the consequences of missed deadlines, hefty fines, and interest payments.
The team of tax expert accountants at Filing Taxes is dedicated to providing the CRA with accurate and transparent corporation nil tax returns for your company - for as many years as you need. We work with you throughout the year, not just during tax season, to fully leverage our expertise to benefit your business and help you grow. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.
Frequently asked questions
Is there a penalty for not filing a nil tax return in Canada?
On a nil tax return, there would be no tax payable and therefore no direct penalties levied on your corporation for missing the deadline. However, this late filing even on a nil tax return can have unintended consequences and flag your business record within the CRA in the future. It is always advised to file a nil tax return by the deadline.
What are the benefits of filing a nil corporate tax return in Canada?
Filing a nil corporate tax return has several benefits. Firstly, it keeps the CRA informed about the status of your business, which can help prevent any unnecessary penalties or audits. Additionally, it allows you to maintain a clean and up-to-date tax record for your business, which can be helpful if you plan to expand or seek financing in the future.
How long do I have to file a nil tax return?
You have until six months after the end of your corporation’s tax year to file a nil tax return with the CRA.
Should I write CRA T2 schedule 100 and 125 in my T2 short?
Schedule 100 and Schedule 125 are required for the T2 brief filing, along with Schedule 145. Schedule 100, Information on the Financial Statements, shows the company’s financial position at the end of the fiscal year. Schedule 125, Income statement information, showing the company’s income and expenses for the year (reported as “no income” and “no expense” for zero income).
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
If you belong to the low to medium-income bracket, then you are automatically eligible for GST/HST credit. Along with annual taxes, most Canadians pay for consumer goods and services or GST daily. It is already added to the prices of goods and services as well as in transactions in properties like land, house, and intangible personal property like downloaded products from the internet. In some parts of Canada, GST is combined with provincial sales tax to create a harmonized sales tax or HST. HST varies by province and adds a significant amount to purchased goods and services. With GST/HST credit, Canadians with low to medium income can get back a portion of all federal sales tax they pay.
GST/HST credit is a tax-free initiative to help Canadians with medium to low income by offsetting the amount of GST or HST they pay all through the year. It is issued quarterly every year by the CRA. Along with GST/HST credit, Canadians can also be eligible for certain provincial and territorial credits included in various payments they made.
If one turns 18, one must file for income tax even though they do not have any income so that they can immediately be eligible for GST/HST credit in the first pay period after they reach the age of 19. Otherwise, every Canadian who files taxes is automatically eligible for this. If an individual fits the criteria of GST/HST credit then he/she will receive a notice of determination. In the case of eligible couples, the tax credit will be paid and the notice of determination will be paid to the spouse whose tax return is calculated first. Every ineligible person will be sent a notice and they can always object to this notice if necessary. If one is eligible the notice and payment will be made by direct deposit or mailed by cheque.
If you are an international student or have newly shifted to Canada, can apply for GST/HST tax credit by following the below steps:
As an individual newly arrived in Canada, one has up to three years to ask for a retroactive payment. You can also claim GST/HST credit for a child who is under the age of 19 and also living with you. At the beginning of the month you can claim it if the child is:
If one is responsible for primarily taking care of a child or giving birth to a child, then one can apply for the tax credit by directly applying for Canada child benefit or mailing the R66 form to their respective tax center. Changes in their marital status or individual situation such as divorce, marriage, death, and childbirth may lead the CRA to recalculate the GST/HST credit.
The amount you receive as GST/HST credit depends on whether you are married or not, how many children you have, and your family income. For the 2020 tax year, which pays out from 2021 to 2022, the maximum amount is:
The CRA sends the tax credit payment on the 5th day of July, October, January, and April.
GST/HST tax credit can help Canadians with medium to low income, save a lot of their hard-earned money. Filing Taxes tax accountants help Canadians file their taxes at the right time, apply for Canada Child Benefit and get GST/HST tax credits as well.
If you are encountering any challenges in filing your GST/HST Return feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
The current reporting requirements for Charities & Non-Profit Organizations have left a lot of our clients wondering what exactly they are required to file. This article is intended to act as a general guideline for the reporting requirements of Charities & Non-Profit Organizations.
Charities
Under the Income Tax Act, every registered charity has to file an information return each year. The return must be filed no later than six months after the end of the registered charity’s fiscal period.
The Information Return includes:
CRA will send a Registered Charity Information Return Summary to acknowledge that they have received and processed your return. A charity that does not file its return can lose its registered status and may be liable for a $500 penalty.
A registered charity must spend a specific amount each year on charitable programs or as gifts to qualified donees. The gifts can be anything from plant wear jewellery to food supplements. This amount varies according to the registered charity’s designation and is called its “disbursement quota”. The purpose of the disbursement quota is:
Essentially, the disbursement quota is in place to ensure that registered charities actively use their tax-assisted donations to help others according to their charitable purposes. To help registered charities plan their expenditures, the quota is largely based on what happened in the previous years. Consequently, at the end of one year, a registered charity should have a fair estimate of how much it will need to spend on its charitable programs the following year.
A disbursement excess is created when a charity spends more on charitable activities or by way of gifts to qualified donees than it is required to by its disbursement quota for that year. A charity can apply a disbursement excess from one year against a disbursement shortfall occurring in the immediately preceding fiscal period. If necessary, a charity can also draw on a disbursement excess for up to five of its following fiscal periods to help it meet its disbursement quota.
If a charity spends less on charitable activities or by way of gifts to qualified donees than its disbursement quota for that year, it has a disbursement shortfall. A charity can draw on previous years’ disbursement excesses to cover a shortfall. If no excesses are available to draw on, the charity can try to spend enough the following year to create an excess that will make up for the shortfall. Continuous shortfalls can lead to revocation of the charity’s registration.
Non-Profit Organizations (NPOs)
A non-profit organization must file a Non-Profit Organization Information Return (Form T1044) if:
Once an organization has filed an NPO information return for a fiscal period, it must file an information return for all subsequent fiscal periods as long as it remains an NPO and regardless of the dollar value of its revenues or the book value of its assets in those later years.
An organization has to file its NPO information return no later than six months after the end of its fiscal period. If the organization fails to do so on time, the basic penalty is $25 a day. There is a minimum penalty of $100 and a maximum of $2,500 for each failure to file. An NPO is not required to include financial statements with the NPO information return.
Unlike charities, there is currently no disbursement quota that regulates where an NPO must spend its revenues.
Ultimately, it is the responsibility of the Board of Directors to ensure that their organization complies with the aforementioned reporting requirements. If you have any questions relating to the reporting requirements of your organization.
Maximize Your Tax Return
As a charity or NPO owner in Canada, it is important to understand the reporting requirements that apply to you, the tax return process, and any tax deductions you may be applying for.
If you are looking for a professional Tax Accountant who can lead you through the process of claiming business expenses on your tax return, then feel free to reach out to Filing Taxes. Our professionals take into account the laws in your jurisdiction, so you get the maximum benefits no matter where in the country you live. If you would like a tax accountant to file your return, book a call with our tax expert to file your taxes from start to finish. Experts at Filing Taxes will be happy to assist you in this pursuit. To speak with an experienced accountant, contact Filing Taxes at 416-479-8532 or [email protected]. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
If you have recently incorporated your business in Canada, you may have wondered when your year-end date is, or when it should be. This article will explain the factors to consider when choosing your year-end date and will help you choose which is the right year-end date for your business. We’ll also address some common scenarios, which will help you decide the right year-end date for you.
Here are the main factors to consider when selecting your year-end date:
What Dates You Can Choose?
In Canada, you can select a year-end date for your corporation. Typically this would be the end of a month to keep everything nice and clean, but you can choose any date you’d like.
How to Make Your Year-end Date Official?
Your year-end date gets set when you file your first corporate tax return. On the return, you will be declaring what your year-end date is by entering the end date of your first fiscal period. This will then become your year-end date moving forward.
Note that this date could be different from your GST/HST reporting period. If you completed your incorporation through a lawyer, they may have declared your GST period, but this can be different from your fiscal year. The best practice is to keep these dates aligned, but you will be able to adjust your GST period later if you wish.
Factors to consider when choosing your year-end date
1. Your Incorporation Date
Many new corporation owners will want to push their first year-end date as far into the future as possible. The main reason you might want to do this is that year-ends come at a cost. If you can push that cost further into the future, you can hang on to your cash for longer.
Your first fiscal period can be as long as 53 weeks, or 372 days. Let’s say that you incorporated on June 25, 2022. You could make your first year-end date June 30, 2023, giving you the longest first fiscal period possible. The result is that you have successfully deferred your first year’s tax amount owing. For Canadian-controlled private corporations (CCPCs), taxes for this period are due three months after your year-end date, giving you over 15 months from your incorporation to your corporate tax due date. Not too shabby.
Your due date for filing would be even later, September 30, 2022, giving you more than 18 months from the time you incorporated to the time you have to file your taxes and pay your accountant’s bill.
All other things being equal, we often recommend that people push the year-end date as far as possible to delay this expense. New businesses have lots of expenses in their first year of operations, so delaying some expenses can be helpful.
2. Tax Planning
Choosing a year-end date in the second half of the year (July 31 - November 30) can provide a limited tax planning opportunity. The idea here is that you can declare a bonus to the corporation and get an expense deduction and, hence, pay no tax on that income during that year. You then can delay the payment of that bonus until the next calendar year (as long as it is no longer than 180 days after the year-end) and the tax is not paid personally until the following year.
This is a limited tax planning opportunity because it is simply a deferral of the tax. You will have to pay it, but the longer you can keep your money in your hands, the better.
3. Your Business Cycle
In my opinion, this is the most important factor of all. If you have natural cycles in your business, choose a year-end date that aligns with this. A good example would be a food truck. They may open their season with a St. Patrick’s Day parade and close it with a Halloween pumpkin patch gathering. A smart choice for a year-end, in this case, might be October 31st or November 30th.
What about December 31st?
You may get the sense that accountants want to push you off the calendar year. You may also get the sense that this is for purely selfish reasons in that it’s the busiest time of year for them.
Choosing Your Year-end
When choosing your year-end, this is the ranking of factors that I go back to and suggest you do too. Of course, you can adapt your incorporation date to fit the ideal all-around scenario, but most people aren’t willing to delay their incorporation just to get the ideal year-end date.
1. Business cycle - this is the most important factor as you will have to live with this year-end date for a long time and the last thing you want is to be dealing with accounting questions during a busy sales period. This might not be important for some businesses, or you may not know yet when your business cycle will be, so please don’t stress about this.
2. Long first fiscal period - delaying expenses is useful, so I recommend taking this into account when choosing your year-end date.
3. Tax planning - this is nice when it works out, but I would not adjust your year-end date just for tax planning purposes. It’s more of a nice to have.
Changing Your Year-end Date
Although not advisable in most circumstances, it is possible to change your year-end date. You will need a good reason and will have to file an additional tax return for the created stub period, but it’s possible! Here's CRA's breakdown on how to change your year-end date.
Examples of Year-end Dates
Here are a couple of examples to illustrate how the factors might affect your year-end date decision.
Example 1
A research agency was incorporated on April 17, 2022. They serve mostly not-for-profit organizations and governments.
In this scenario, a March 31 year-end date is appropriate. For one, this is the longest first year that they will be able to accomplish (an April 30, 2022 year-end would result in them having a short stub year for April 17-April 30, 2022, and they would require a corporate tax return for that short period-no discounts for short years!). This year-end would also align with their business cycle as many NPOs and government agencies have a March 31 fiscal year as well. Nice!
Example 2
A retail store was incorporated on July 3, 2022. They have a typical sales cycle of slow sales throughout the year and make most of their money during the Christmas season.
In this scenario, I would recommend a December 31 year-end date. Okay, not the greatest timing for accountants, but this closely mirrors their business cycle. They will have a short period for their first tax return (July 3–December 31, 2022), but having a June 30 year-end would be awkward for them to analyze their financial results, so this factor would be outweighed by the business cycle factor.
If you are looking for a professional accountant who can assist you in the process of choosing a fiscal year-end for your business, then feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer:The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
When running a small business in Canada, most entrepreneurs are savvy enough to know that when revenues (for taxable supplies) exceed $30,000 in any four consecutive quarters, it is time to register for and collect GST/HST. This also means that you’ll need to file GST/HST returns annually, quarterly, or monthly, depending on your specific scenario and selection.
These are some common areas where we find small business owners who try to prepare or file their sales tax returns on their own make mistakes that can be costly:
A very common error that can occur is related to expenses and input tax credits (ITCs) related to meals and entertainment. For tax purposes, the allowable portion of the tax deduction for meals and entertainment expenses is 50% of the expense. Similarly, it is important to note that the ITC that can be claimed must follow suit, and only 50% of the GST/HST paid on meals and entertainment expenses is eligible to be claimed as ITCs.
Secondly, regarding meals and entertainment expenses, when a tip is left for the server, there is no ITC related to the tip, and it is important to ensure that the ITC claim matches the actual allowable portion of the GST/HST paid.
Automobile Expenses
As many business owners know, when using a personal vehicle for business purposes, the prorated portion of any business-related expenses can be deducted against income. This would include items such as fuel and maintenance. However, a common oversight is that the ITC claim is not prorated by the respective business use portion as well. It is important to track this closely and ensure consistency between the prorated amount used for the tax deduction claim and the ITC claim.
Inter-Corporate Revenues and Expenses
There are often scenarios where a parent company or holding company will charge fees to a subsidiary (or operating company) for taxable supplies such as, for example, rent or management fees. It is common to forget that this is, after all, a commercial transaction, and there should be an agreement or invoice generated, and sales tax must be charged and paid (except for those companies that are eligible and have elected out of GST/HST in such transactions).
Summary and Recommendations
Software is available (such as QuickBooks Online and Xero) that can assist with calculating GST/HST collected and the ITCs to be claimed when filing. However, it is important to note that the software is not perfect and may not catch issues such as those noted above. Let’s be honest, staying on top of your GST/HST can get hard. But managing a business is tougher. Leave the tax filings to our professionals. We’d be happy to help you navigate this maze.
It is always recommended to consult a professional accountant before filing anything with the Canada Revenue Agency to ensure that your risk of errors is minimized as much as possible. If you need any assistance with corporate tax or GST/HST filings, please contact us. To speak with an experienced accountant, contact Filing Taxes either at 416-479-8532 or [email protected]. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
You have worked hard to build your business and create a profitable business. During the first few years, you may have stopped paying to reinvest in your business and grow your business. Now you may be at a point where your business has consolidated, and you are ready to start reaping some of the profits from your business. These ways are essential to understand when employing services like small business accounting. This article discusses some of the more general approaches that business owners can use to withdraw money from a business tax-efficient way.
Reward yourself and your family
Business owners will usually pay their wages similarly to rewarding an employee. If family members work in the company, they can receive a reasonable wage (or salary). This is especially beneficial if family members have little or no other source of income. In this case, a “reasonable” wage would be close to what an unrelated third party would be paid for the same job.
Paying taxable dividends
Dividends can be used to distribute corporate money to you and your family members (this, however, does not reduce corporate tax). This would require that you, your spouse, and your children own shares in your company directly or indirectly (for example, through a trust or holding company). To ensure this is a tax-efficient method of withdrawing money from a company, it will be important to consider the Distributed Income Tax (TOSI) rules and the company attribution rules before any distributions occur.
Convert “hard ACB” to cash
If you bought your business from someone else, the stock you have acquired might have a “hard” adjusted cost base (ACB), which may become relevant when planning to withdraw cash from your business. “Hard ACB” is basically a tax term representing the amount you paid for the shares when you bought them. They can potentially be converted into cash (or debt that can be repaid later) through a holding company, allowing you to access the capital you have invested, without taxes.
Repay existing shareholder loans
To help finance the startup or growth of your business, you can lend funds to your business in the form of a shareholder loan. Now that your business is profitable, it may be a good time to consider whether the business will repay all or part of this loan. Any amount you receive upon liquidation of your shareholder loan will be a tax-free distribution, similar to a return of equity.
Pay a capital dividend
Another potential untaxed distribution that must be considered is the payment of a dividend from your company’s capital dividend account (CDA). Simply put, a CDA is a notional balance that most often represents a non-taxable portion (currently 50%) of any capital gains (or similar income) that a private company has made by managing capital assets (tangible and intangible).
Bottom Line
If you find yourself in a situation where withdrawing cash from your business is a matter of necessity or obvious, take the time to properly plan how to withdraw money from your business to ensure that you pay the minimum required amount of tax. However, as we have seen, there is no way to get money out of your business in a tax-efficient way.
If you need any advice on tax-saving strategies from an expert tax accountant in Toronto, Mississauga, Oakville, and Hamilton feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Frequently Asked Questions
[sp_easyaccordion id="5488"]
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Are you a small business in Canada? Or are you passionate about some ideas that you want to implement into your small business, but before you launch your breakthrough product or service, you might want to undertake some tax planning? If you are a Canadian entrepreneur, it is wise to draft a tax planning strategy before starting your business.
The benefits of tax planning are that the taxpayer can use these strategies to avail tax exemptions and benefits, reduce their liability, and pay deducted taxes. Often small businesses hire a tax accountant business accountant to draft the tax plan. Many techniques are commonly used by small businesses. Corporate tax accountants can provide professional advice on which ones should be used; some of these techniques include; income splitting, private pension plan, retirement saving plan, etc.
Here is a list of top corporate tax accountant-recommended planning techniques; these are the tips recommended by Toronto accounting firms.
Always collect receipts
If you wish to avail tax reductions, it is suggested by business accountants that you must always collect receipts for any business-related activities. This will help you reduce your tax burden; tax accountants suggest that any activity undertaken relating to the business must be documented via receipts. This is especially important for small businesses because small expenses here and there add up to be massive.
You can claim tax reductions on these small expenses, and in case you are asked to provide evidence by the CRA, you can present these original receipts.
Working from home tax deductions
Many Canadian start-ups or new businesses operate their business from home. It saves them major costs and has other benefits too. One major advantage of operating a business from home is claiming tax deductions. According to corporate tax accountants, if your office is home-based exclusively or you use your home as an office 50% of the time, you can claim home expenses.
Pay your family but be wise
Small businesses often have payouts to family members; this is called a remuneration strategy. But when making these arrangements, you must make sure that you have a real mix of salaries and dividends for your family members. You must consider individual marginal tax rates and corporate tax benefits and deferrals.
We must remember that these new rules do not apply to wages given to work performed. If you can provide all this information, the family member receiving a salary will not have a taxed income for a whole year.
Capital cost allowance
If the expenses of your business exceed the income of your business. In other words, if your business has a non-capital loss at any time or any year, you must figure out which year, and you may be able to use this loss to decrease your income tax bill. With the help of a corporate tax accountant who has relevant experience working with small-scale businesses, Toronto accounting firms can be helpful in this aspect.
Frequently asked questions
How much should I pay my family members out of my business?
If your spouse or children work for you, you can pay them a salary, but the salary must be realistic and in line with the work performed. A rule of thumb often followed is that you must pay them what you will pay a third-party employee; furthermore, you must also ensure that you document their wages and keep adequate evidence.
Can I distribute non-capital loss over the number of years?
You can decide whether it makes sense to use non-capital loss in the current tax year or to use this non-income loss to recover income tax that has already been paid by you last year, or you may carry this forward to a bigger tax bill. Non-capital losses are often used to offset personal income, and it is possible to carry it back Three years or move forward to 20 years.
What kind of tasks can be outsourced by small businesses?
Small businesses often find it difficult to keep up with day-to-day expenses and their bookkeeping, and many prefer to outsource this task to Toronto accounting firms. Small business expenses include: coffee for the office, posting a letter, buying stationery, and parking fees for work-related commutes. These are all expenses you need to document and keep receipts for, it does seem difficult, but it can be a major source of help to you and your business in the long run.
Are there any rules or restrictions for splitting income amongst family members?
The tax on split income rules makes it difficult to split income with family members. There are restrictions on private corporations. This is done by applying a high tax rate to incomes such as dividends and salaries paid through private corporations. So when this rule is applied, it reduces the benefits of income splitting. It is difficult to completely get to grips with the rules of the TOSI so; therefore, so it is suggested that small businesses work with a designated Toronto accounting firm so they can help you create a thorough strategy.
What kind of expenses can become tax-deductible when working from my home office?
A portion of your home expenses directly in correlation with the business can be claimed for; if your office is spread over 10%, you can claim deductions on expenses such as 10% of your rent or 10% on the utility bills. Here is a list of expenses you can claim a deduction on:
Bottom line
If you need more assistance, contact an accounting firm that can help you file your taxes and advise you on ways that small businesses in Canada can plan taxes to minimize their small business costs.
As a business owner in Canada, part of your business income will go towards paying corporate tax. Whether you are writing your business plan or have already started your business, it is important to understand the taxes that apply to you, the tax return process, and any tax deductions you may be applying for.
If you are looking for a professional Tax Accountant who can lead you through the process of claiming business expenses on your tax return, then feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
This will close in 0 seconds
