Tax Compliance For Small Business

Learn Your Tax Filing Deadlines and Obligations

By L.Kenway BComm CPB Retired

Edited October 31, 2024  |  Updated October 26, 2024  |  Originally published on Bookkeeping-Essentials.com in 2011.

WHAT'S IN THIS ARTICLE
Introduction | Compliance deadlines | Help | Highlights | What is tax compliance? | Disclosure requirements | Habits | Annual indexation adjustments | T2125 | Tax installments | T2 | Directory's liability | FAQ

New business owners tend to put off their tax compliance responsibilities and obligations until the end of their first year. It's better to get all your ducks in a row from the start.

What exactly is tax compliance for small businesses in Canada?

Tax compliance for small businesses refers to meeting all your responsibilities and obligations to report and file your sales taxes (GHS HST PST), payroll taxes (source deductions and employer contributions), business income taxes as well as other government taxes or forms such as records of employment (ROE) when necessary. Basically tax compliance is about staying onside of all the tax laws pertaining to operating a business in Canada.

CRA WANTS YOU TO BE A DUCK

If it looks like a duck, swims like a duck, quacks like a duck, it is probably a duck. If you are a small business owner in Canada, you must look like a duck, swim like a duck, and quack like a duck. How do you do this? You can get a business license, purchase business insurance, have a business bank account, select a credit card you use only for business expenses, and buy supplement business coverage on your personal vehicle if you use it for business because you want to be a duck! You do. You really do! Why? Because CRA wants you to be a duck.

NEW BUSINESS OWNERS

New business owners tend to put off their tax compliance responsibilities and obligations until the end of their first year. By this time everything has piled up making you want to walk away instead of dealing with all the paperwork. When you do finally sit down to wade your way through the mess, you don't remember a lot of the little things needed to have an accurate set of books. This is where tech can be your friend. Scan your receipts as you go with notes or email/upload them to a document management app like LedgerDocs again with notes. If you make a HABIT to do it right there in the store or restaurant, you won't be second guessing yourself later.

If you want your business to succeed past year five, make it a HABIT to file and pay your compliance taxes on time. If you can't pay, be responsible by still meeting your reporting requirements, and making payment arrangements with the CRA. Sticking your head in the sand won't make the problem go away; it will only get worse.

-- Get all your ducks in a row. -- Save yourself some headaches. --

To make it easier for you to develop the HABIT of getting and keeping all your ducks in a row, I've put all your basic deadlines pertaining to tax compliance for small business into one site. I hope this free resource saves you time in your busy, over-scheduled day.

The time for a map is before you enter the forest. Here's your map to meeting your tax compliance obligations.

Help getting all your ducks in a row

What are you looking for? GST deadlines, payroll deadlines, business income tax, independent contractor deadlines ... WHAT! There are deadlines for independent contractors?

Tax Compliance for Small Business in Canada

What is tax compliance for small business? As mentioned in the introduction, the Canada Revenue Agency (CRA) requires regular reporting of Canadian sales tax, payroll taxes, and income taxes. Each province and territory has its own tax-related requirements as well. These regulations are often referred to as government compliance requirements.

Owning and operating a business in Canada means you also have some key legal issues you need to consider. Queen's Legal Aid says, "The sole proprietor can be held personally liable for all debts and obligations of the business. This risk extends to any liability incurred by any of its employees. Thus, the owner may be held personally responsible for things such as unpaid debts or legal actions that arise against the business."

Remember, to have a profitable long-term business in Canada, you must look like a duck, swim like a duck, and quack like a duck. You do this by learning good tax compliance habits.

Sidebar: Funny thing About Habits

This is the year I start making my health a priority and establishing new habits. I have time! I'm retired now. In hindsight, I should have started earlier.

Funny thing about habits. I'm currently reading Fiber Fueled - The Plant-Based Gut Health Program by Dr. Will Bulsiewicz. He's a gastroenterologist and as a newly retired person (meaning age related stuff), I find myself in the position of needing to improve my gut microbiome ... for a whole slew of reasons not the least of which is to reduce inflammation - the root of most disease. Hence reading his book.

You'll be happy to know ... or not ... I'm having good results following the Diversity Diet. It's an inclusion diet and easy to follow. No calorie counting. You don't have to stop eating stuff you are already eating ... but you may find the more you follow the program, some of your food choices may change by choice. You just have to aim to have 30 different plant based foods a week to improve your gut microbiomes which should improve the rest of your physical and mental health. Apparently most of us only eat ten.

Anyway Dr. Will gives great advice, some of which you can apply to the rest of your life. His take on habits is spot on. So the diatribe following is based on information in one of his emails ... I'm on his mail-out list. I found the truth of what he said can be applied to other areas of my life ... and to your business.

Dr. Will says, "When you have the right foundation, good health and feeling good overall becomes effortless." The same goes for your business. When you have the right foundation, good money management and compliance practices becomes effortless; feeling good overall about your business is a side benefit as the puzzle pieces start to lock into place.

A quote from his book says, "It’s time for us to redefine health care and acknowledge that health during our lifetime is the sum of all the small choices we make minute by minute, day by day. One choice, whether good or bad, makes little to no difference in the grand scheme of things. People don’t drop dead from having one cigarette. But if you create consistency, a pattern, then you are amplifying that choice over time."

This truism can also be applied to your business. Think about it. I  mean  really  stop  and  think  about  it. How often do you justify tossing aside getting your compliance reports filed and paid on time because of a few bad choices you made yesterday or last week or dare I say last year? Do you just unconsciously decide that there is no point in trying to maintain consistency in meeting your tax compliance deadlines because you'll just mess it up?

Do you stop the habit of brushing your teeth ... WHAT? What do teeth have to do with your business? Hear me out! ... Do you stop the habit of brushing your teeth twice a day because one day you chose not to? Not **!!##% likely. You likely still brush your teeth because it's good for you and it's a habit ... it's a habit! Perfection is not the objective, consistency is.

You can get to the same place with the compliance reporting requirements of your business. It might require a bit of jigging on how you are managing your cashflow and managing your daily receipts ... but I bet I can help you find a system to put your cashflow management pretty much on auto pilot if you are willing to think and move outside the box you are currently in.

Okay we'll pick this thread up later. For now, back to tax compliance in Canada.

CRA has released the 2024 indexation adjustment for personal income tax and benefit amounts in a fact sheet. The chart reflects an indexation increase of 4.7% for 2024 and compares the indexed amounts to the 2021 to 2023 tax years.

ITA (Income Tax Act) s117.1 lays out the indexation calculation for the Canadian personal income tax system. The indexing is based on a comparison of the CPI (Consumer Price Index) all-times average for the 12-month period ending September 30 divided by the same average in the previous 12- month period September 30. The 2025 indexation adjustment is expected to be 2.7%*.

Most of our tax and benefits rate are indexed to inflation. It affects your tax bracket thresholds, CPP contributions and EI premiums, TFSA and RRSP limits, and Old Age Security payments. 

The tax and non-refundable tax credits take effect on January 1 annually. Most benefits are effective July 1, 2024 as they are tied to the filing of your prior year return. 

More >> General tax and benefit filing deadlines 

* per taxtips.ca

Click here for Corporation T2 Deadlines 

The self-employed file their business return on Form T2125 found in T1 package. If the deadline date falls on a weekend or holiday, it moves to the first business day following.

2024/2025 Due Dates (See Note 2)
Self-Employed Quarterly Tax Installments 

CCPCs file their business return using a T2 income tax return. If the deadline date falls on a weekend or holiday, it moves to the first business day following.

Do you have unremitted GST HST owing, unremitted source deductions, or unpaid corporate income taxes? Then you have a problem. Obligations surrounding tax compliance in Canada mean you have opened yourself up to a director's liability. As a company director, please make it a habit to ensure all source deductions, payroll, and income tax remittances are always up-to-date!

The Toronto tax firm Rotfleisch & Samulovitch Professional Corporation's website, TaxPage.com, has excellent information on Director Liability for Unpaid Taxes.

The conditions under which a director is personally liable for unpaid compliance taxes are examined. It is essential to meet your tax filing deadlines to avoid liability. The article explains that:

• Under the Income Tax Act, a director and his/her corporation are liable for failure to deduct, withhold, or remit the required income tax, payroll, or GST amounts, as well as any related interest or penalty.
• A director can deduct the legal or accounting fees incurred to challenge the assessment.
• A director can avoid liability by demonstrating due care and diligence, which usually requires expensive legal representation.
• A director's liability for unpaid compliance taxes ceases two years AFTER he or she ceases to be a director of the corporation.

AUDIT READY 
OPEN A SEPARATE ACCOUNT

The easiest way for small business owners to be tax compliant is to open a separate account to hold all funds held in trust for CRA.

Make it a HABIT of transferring all payroll and GST HST funds collected in trust to the account daily or weekly, whatever works best for you. Don't use the funds to finance your business or your personal lifestyle.

You may want to read about CRA's policy on funds held in trust.

More >> A Simple Way To Manage Your Cash Flow

AT RISK OF PERSONAL ASSESSMENT

KRP's March 2021 newsletter states, "If you are at risk of being assessed, resign as soon as possible, and make sure your resignation is legally recorded in the government register of corporations. Once you resign, there is a two-year deadline beyond which the CRA cannot assess you as a director — provided you do not continue as a “de facto” director."

FAQ About Tax Compliance for Small Business in Canada

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