April is the busiest time of year for bookkeepers and tax accountants. Often, as we’ve discovered, this also comes as quite a stressful time for many a business owner. The realization that managing one’s business books isn’t a once-a-year job.
If this is you this year, there is good news ahead! You can proactively set yourself up for less stress next year by ensuring you are compliant all year long, starting today. Follow the below tips to make your next tax year a breeze by saving money, time and stress, while ensuring you remain compliant with Revenue Canada all year long.
Compliance Tip 1: Read your mail.
This seems obvious, but there are so many of us that see the brown envelope from the Canada Revenue Agency (CRA) and put it in a corner, unopened. Choosing to stay naïve about why CRA is contacting you is a sure-fire way to open yourself up to possible penalties. In fact, we’ve had conversations with some business owners who didn’t open their CRA mail and wondered why they have $1,000 in penalties. The answers were in that brown envelope.
Here’s the thing: CRA is no different than any other vendor. They are either looking for payment or are giving you a refund and need action from you. So, save yourself some time, money and stress, and read your mail.
Compliance Tip 2: Pay your tax liabilities.
Depending on how large your tax liabilities are, CRA will want this on a regular basis, which could be monthly or quarterly. CRA will try to notify you (which is why Compliance Tip 1 is so important), but it is easy to miss or misunderstand what is required of you. Doing your own research and having a trusted advisor is important because this will help you understand what your tax liabilities are and when your submission dates are. This is crucial as specific dates will differ for different companies and individuals.
For example, if you are a sole proprietor, April 30th is the deadline for your personal tax returns, and June 15th is the deadline for your business proprietorship tax returns. However, if you owe any tax to the government, you must submit payment by April 30th. This is the very reason we recommend to all our sole proprietor clients to submit their taxes by April 30th, not June 15th – to help avoid any late payment fees on amounts owing. It can be confusing with so many dates to remember, so we have a complete breakdown of key dates for corporations, sole proprietors and individuals here.
Compliance Tip 3: Sole proprietors have tax responsibilities.
The issue many sole proprietors run into is forgetting that they are still responsible for taxes. For instance, sole proprietors typically do not have any income tax deducted from the income they take out of the company. Therefore, they are responsible for making these payments that are due quarterly to the CRA. If your tax liability is greater than $3,000, then the CRA will want quarterly payments (typically March, June, September and December) rather than yearly payments. You may receive a reminder from them, but it’s your responsibility to be aware of this and initiate it.
You are also required to pay your CPP based on your net income from your business. This can add up quite quickly, so it’s important to know your numbers. Specifically, know your business net income from the previous year and be up-to-date on your numbers from the current year. Without knowing these numbers, it will be difficult to know where you will stand for any liability due to the government when the time comes to file.
Compliance Tip 4: Corporations year end musts.
Corporations have different filing deadlines based on their individual year-end. Not all corporations follow the typical calendar year, choosing for their year ends to fall on another month (e.g. June). Regardless of the year end, the corporation must make sure their company taxes are paid no later than three months after its year-end. The actual tax return is due six months after year-end. Corporations will have extra time to file, but if there is a tax liability, CRA will want their tax in a timely fashion.
Compliance Tip 5: Record retention.
Record retention is vital for business owners and will vary based on the type of transactions and volume of transactions of a business. The reason retaining your records is important is you have easy access to necessary documentation and support should CRA inquire. This can become an administrative burden, particularly in terms of how to organize and store all the paperwork generated by your business. We encourage putting some thought into what will work best for you and your business whether it be manually storing the paper or electronically in the cloud.
Short and simple: You need to keep your records. Records of interest include:
- Bank statements,
- Cheques, if you still use them,
- Customer and vendor invoices for every transaction of your business,
- Legal agreements, and
- Anything that supports what your business has done of the last reporting period.
What can you do first? Read your mail. We cannot stress enough how easy your numbers become when you open your mail or set up e-notifications from the CRA. Following the above tips will truly help relieve your stress, save your money and cut down on time being wasted. Now that you’re ahead of the curve, we would love to talk more about your bookkeeping questions. Contact Priority Business Solutions today.