How should I organize my receipts?

By Randall Orser | Small Business

Euro banknotes and piggy bank TNOrganizing your receipts is important when working with a bookkeeper, accountant, or tax preparer. And, of course, when Canada Revenue Agency (CRA) comes calling wanting to look at your receipts. For the former, having your receipts organized makes entering the information go much smoother, and could result in a cost saving on their fees. For CRA, your ability to find a receipt easily and fast ensures that your audit goes without a hitch, and CRA is happy you provided the information in a very timely manner. As someone once said, ‘Do you want the four hour audit, or the four day one?’ How you organize your receipts determines that.

Bookkeeping

The best way to organize your receipts for bookkeeping is by month, based on your fiscal year. The reason is that when we’re entering your receipts we reconcile by the month, therefore, having everything by the month makes it easy to ensure we have everything. Now once everything is entered how you file those receipts depends on the size of your business.

For most sole proprietorships, filing by category (as per the Statement of Business Activities on your personal tax return) will work just fine. That is by office, meals, travel, telephone/internet (or communications), advertising/marketing, etc. CRA when they do a review or audit will look at the lines on the Statement of Business Activities and want to look at the receipts that pertain to that line item. Bank statements, as well as credit card statements, would be filed together so they are quickly accessible.

If you’re a larger sole proprietorship, or corporation, then you are probably better off filing your receipts based on the purchaser rather than the expense category. If you get your telephone/internet from Telus then have a file for Telus, or Shaw or Rogers. Have a file for each major vendor with which you do business. I do find it helpful to have a file for Meals and Automobile as these two categories get looked at the most; rather than having them under a vendor category.

For bank and credit card statements you can attach the smaller receipts to the statement, so they don’t get lost. Go by the statement dates for attaching receipts not just the month.

Also keep files for each leases, contracts, etc. so you can find them when they come up for renewal, or just to know when they are coming up for renewal.

Employees

You should have a separate file for each employee. This file can contain their employment contract, TD1s, signing up for benefits plans, contact information (including emergency contact information), time sheets, paystubs, T4s, annual or other reviews, disciplinary actions taken (and letters written about such to the employee), etc. Document everything you do with an employee so that you are covered if you have to let them go, or they quit, and some kind of action needs to be taken or has been taken.

Taxes

For your personal taxes, you can keep all your slips together along with a copy of your return. I’d keep each year in it’s own envelope (we have our ‘Tax Stuff’ envelopes) or folder, and attach all donations, medical expenses, etc. together, along with your T-slips (T3, T4, T5, etc.). For the sole proprietor, I’d keep a copy of your income statement and balance sheet for that year in this file too.

For corporations, I’d have a file that keeps all your year-end documents together: the corporate tax return, the year-end financial statements, along with the adjusting entries and the adjusted year-end trial balance. Don’t forget to enter your year-end adjusting entries so your data file matches what was filed with CRA.

Hopefully you never have CRA come calling. However, you will find that as long as you keep everything organized anytime CRA comes calling you won’t be in a panic about finding items as they are at your fingertips. With an organized filing system, you can find things quickly when you need them.

Why Is My Tax Notice Of Assessment Different Than What Was Filed?

By Randall Orser | Personal Income Tax

Tax In Piggy Shows Taxation Payment DueEvery year after you file your personal income taxes, Canada Revenue Agency (CRA) sends you a Notice of Assessment (NOA). On this NOA, CRA will state any information that relates to changes made during their processing of your return, what any carry forwards for non-capital and net capital losses will be, information on your current TFSA, and what is your next year RRSP contribution limit.

Occasionally, you find that something has been changed by CRA due to information they received that you perhaps didn’t get, such as an additional slip, or carry forwards you may have forgotten about. It could also have been a mistake during the preparation of your return.

The most common mistake we find is the missing slip. You had more than one job in the tax year, or non-registered investments that send out a slip you don’t get or that slip comes after you’ve done your taxes. If you do have non-registered investments, allow enough time for those slips to come before you file your taxes. T3 Statement of Trust Income Allocations and Designations slips are the last slips you’ll usually receive. I find it best to wait until Mid-March or later to do your taxes, if you get any kind of slip for non-registered investments. Those slips usually come on a T3, T5, 5008.

Another slip that is commonly forgot about is the T4RSP, which is a slip you receive when you take money out of your RRSP during the year. It is amazing how many people forget they did this, do their taxes, and then get a NOA very different from what they thought it would be. This can be a major difference depending on how much you withdrew, and what was your income for that year.

For those of you that still paper file, yes there are still people using paper, addition errors are the biggest mistake. Double, and triple, check your addition and subtraction. Make sure that you have the correct figures before you send in your return. A good idea is to do it in pencil (never file your return in pencil) first then do it over in pen. If you’ve paid based on what you’ve filed, and you file too close to the deadline, you may be charged penalties and interest if the balance owing goes above what you already paid, and CRA processes your return after April 30th.

Your instalment payments are another item that can make your NOA different from what you filed. Sometime in February you get a statement of instalments paid that apply to the prior tax year. It’s best to make sure you get this statement before filing, and call CRA if you don’t have it by March. Always ensure exactly what you paid for instalments for the prior tax year before filing your taxes.

When you do get your NOA check it, and compare it to what was filed. If you used a tax preparer, send it to them, so they can see what happened after your return was filed. It’s important to check your NOA so next year you know for what to look when you go to prepare your next year’s taxes.

As an employer, do I get any credits for having apprentices?

By Randall Orser | Personal Income Tax

Dollar bills falling in of a piggy bank in a magical landscape TNThe federal and provincial governments have been encouraging people to join the trades in the last few years, and through the apprenticeship programs they have given employers who hire apprentices credits. This has allowed employers to bring on apprentices and have help with paying their wages. This is another great way to help small businesses that are the main employers in most provinces in Canada.

Apprenticeship Job Creation Tax Credit (AJCTC)

The AJCTC is a non-refundable tax credit equal to 10% of the eligible salaries and wages payable to eligible apprentices in respect of employment after May 1, 2006. The maximum credit an employer can claim is $2,000 per year for each eligible apprentice. If your business hires an “eligible apprentice”, you qualify to claim the credit.

An “eligible apprentice” is someone who is working in a prescribed trade in the first two years of their apprenticeship contract. This contract must be registered with a federal, provincial or territorial government under an apprenticeship program designed to certify or license individuals in the trade. A prescribed trade includes the trades currently listed as Red Seal Trades. The Red Seal Program is recognized as the interprovincial standard of excellence in the skilled trades.

If you are an employer, you will be able to claim the credit on your Individual Income Tax Return, on line 412 – Investment tax credit, by filing Form T2038(IND), Investment Tax Credit (Individuals). In addition, any unused credit may be carried back 3 years and carried forward 20 years. When two or more related employers employ the same apprentice, special rules apply to ensure that the $2,000 limit is allocated to only one employer.

Hiring Credit for Small Business (HCSB)

While this credit applies to all employees you hire, I thought I’d mention it as its one people forget about. The HCSB stimulates new employment and supports small businesses, while providing relief from the employer’s share of employment insurance (EI) premiums by crediting up to $1,000 on their payroll account. As of August 2, 2013, over $209 million has been credited to over 549,000 eligible employers.

Basically you get the difference between your EI premiums from one year to the next, up to a maximum of $1,000. For example, in 2012 you paid $1,329 in EI Premiums and in 2013 you paid $1,799 you would get a credit of $470 in 2014, which you can use to reduce your current payroll remittance.

Provincial Credits

Each province or territory also has it’s own credits for employers of apprentices. You should check with Canada Revenue Agency and your provincial apprenticeship authority to see what’s available.

In British Columbia there is the British Columbia Training Tax Credit (Employers), which you file with form T1014. Complete this form to calculate your British Columbia training tax credit for employers. If you are completing the tax return for a corporation, use Schedule 428, British Columbia Training Tax Credit, of the T2 return.

You can claim this credit if you were a resident of British Columbia at the end of the year and you met the following conditions:

• You carried on a business in British Columbia at any time in the year; and

• You employed a person who was registered in an eligible program administered through the British Columbia Industry Training Authority (ITA) at any time in the year.

There are three elements to the training tax credit:

• Basic tax credit for an eligible recognized program (non-Red Seal) (read Part 2 of the worksheet);

• Completion tax credit for an eligible training program (Red Seal and non-Red Seal) (read Part 3 of the worksheet); and

• Enhanced tax credit for First Nations individuals and persons with disabilities (read Part 4 of the worksheet).

If you are an employer who will be hiring apprentices, you’ll be glad to know there are credits available to you for hiring and training your workforce. Government has come to realize that it needs to incentivize employers to bring on and train new employees. Let’s face it, it can be very expensive to hire and train a workforce, and it’s nice to see your efforts are being recognized.

What tax credits are available for apprentices?

By Randall Orser | Personal Income Tax

Breaking the Bank TNYou, or a loved one, have decided to embark on a career in the trades, which is great. Fortunately, there are tax breaks for those who go into the trades as apprentices. Of course, you have to prove your apprentice and be registered with the federal or provincial government, and it leads to a certification or designation in that trade.

Tools Expense

You may be able to deduct the cost of eligible tools you bought in the tax year to earn employment income as a tradesperson and as an eligible apprentice mechanic. This cost includes any GST, and provincial sales tax (PST), or HST you paid. You may also be able to get a rebate of the GST/HST you paid.

An eligible tool is a tool (including associated equipment such as a toolbox) that:

  • You bought to use in your job as a tradesperson and was not used for any purpose before you bought it;
  • Your employer certified as being necessary for you to provide as a condition of, and for use in, your job as a tradesperson; and
  • Is not an electronic communication device (like a cell phone) or electronic data processing equipment (unless the device or equipment can be used only for the purpose of measuring, locating, or calculating).

Your employer has to complete and sign Form T2200, Declaration of Conditions of Employment. Have your employer complete question 11 of Part B of the form to certify that the tools being claimed were bought and provided by you as a condition of your employment as a tradesperson. Attach to Form T2200 a list of the tools you are claiming, as well as the related receipts. You do not have to include Form T2200, your receipts, or your list of tools with your return, but you should keep them in case we ask to see them.

Even though you may have already claimed the tradesperson’s deduction for tools, you may also be able to deduct a part of the cost of eligible tools you bought in 2013 to earn employment income as an eligible apprentice mechanic. You are an eligible apprentice mechanic if you:

  • Are registered in a program established under the laws of Canada or of a province or territory that leads to a designation under those laws as a mechanic licensed to repair self-propelled motorized vehicles (such as automobiles, aircraft, boats, or snowmobiles); and
  • Are employed as an apprentice mechanic.

As an eligible apprentice mechanic, you must first calculate the tradesperson’s tools deduction, if any, that you qualify for. You may qualify for that deduction if you bought eligible tools for your job in 2013.

Tax Credits

The provinces and territories also have their own tax credits for apprentices. British Columbia is one such province. In BC you can file a T1014 British Columbia Training Tax Credit (Individuals). You can claim this credit if you were a resident of British Columbia on December 31, 2013, and you completed an eligible program administered through the British Columbia Industry Training Authority or you passed a challenge exam and received a Certificate of Qualification from the British Columbia Industry Training Authority, in the tax year. Eligible programs and completion requirements are defined by Regulation.

Check with your province, your industry training authority, and Canada Revenue Agency, to see what tax credits are available to you.

Employment Insurance for business owners, is it worth it?

By Randall Orser | Personal Income Tax

Young stylish businessmanThe government in its infinite wisdom (or maybe because it’s so broke) decided to allow self-employed persons to apply for the employment insurance benefit. The benefits you would get are limited to maternity, parental, sickness, compassionate care, and care of critically ill children.

Sorry, but you can’t lay yourself off and collect benefits. Oh, and you have to wait 12 months before you can ever claim any benefits. So, if you’re pregnant now, you’re too late.

What are the Eligibility requirements?

You can enter into an agreement, or register, with the Canada Employment Insurance Commission through Service Canada if you:

  • Operate your own business, or if you work for a corporation but cannot access EI benefits because you control more than 40% of the corporation’s voting shares;
  • Either a Canadian citizen or a permanent resident of Canada.

You will qualify for EI special benefits if:

  • You have reduced the amount of time devoted to your business by more than 40% because:
    • Your child was born;
    • You are caring for your newborn or adopted child or children;
    • You are ill, injured, or in quarantine;
    • You need to provide care or support to a gravely ill family member; or
    • You need to provide care or support to your critically ill or injured child
  • You have earned a minimum amount of self-employed earnings during the calendar year preceding the year you submit a claim. This amount may change from year to year. If you want to apply for benefits in 2014, for example, you would need to earn at least $6,515 in 2013; and
  • For EI sickness claims – you have provided a medical certificate as proof that you are unable to work because of illness, injury, or quarantine; or
    • For compassionate care benefit claims – you have provided medical proof showing that a gravely ill family member who is at risk of dying within 26 weeks needs your care or support;
    • For EI maternity or parental benefit claims – you have provided the expected date of birth of the child and the actual birth date once it has occurred, or the official placement date in the case of adoption; or
    • For parents of critically ill children claims – you have provided a medical certificate completed by a specialist medical doctor stating that your care or your critically ill or injured child requires support.

As you can see it’s quite a bit of work to actually get the benefits and you have to have income to get any kind of benefit. So, if you’re business isn’t making a profit, you’ll be hard pressed to ever collect any employment benefits.

Is it worth doing Employment Insurance (EI)?

I don’t believe in the end it’s worth the hassle to do employment insurance. There are much better ways to deal with a crisis, such as critical illness insurance, disability insurance and other avenues. With the EI program, you’re just contributing into the pool, and it goes out for everyone in that pool to use. You may never use, or if you do there’s a limit to how long and how much you get paid. In the end, you need to setup a savings/insurance program for those times when you’re going to be off work.

I received a gift from my employer and it was added to my income and taxed, why?

By Randall Orser | Personal Income Tax

employee gift--tidbits 2014-03-19 TNWe all like to receive a gift from someone we know, and let’s face it we all feel special when we do. As an employee, when you receive something from your employer, you know you’re doing a good job and are being recognized for it, or it could be for a special occasion, such as a birthday. Sadly, the government doesn’t see it that way and considers any gift received as being in the course of employment, even a birthday gift.

Gifts and Awards

A gift or award that you get as an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, CRA does have a policy that exempts non-cash gifts and awards in some cases.

Cash and near-cash gifts or awards are always a taxable benefit for you, the employee. A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks.

A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.

An award has to be for an employment-related accomplishment such as outstanding service, employees’ suggestions, or meeting or exceeding safety standards. It is recognition of an your overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.

An award given to your employees for performance-related reasons (such as performing well in the job he or she were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.

There are other things that can be considered a taxable benefit:

  • Social events and hospitality functions.
  • Loyalty and other points programs.
  • Gifts and awards given through prize draws and social committees that are not controlled and funded by the employer.
  • Gifts and awards given where there is no employer/employee relationship, such as awards from a manufacturer or promotional items to employees of a retailer.

You Can Get Non-Cash Gifts That Are Not Taxable

Your employer may give you an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value (FMV) of the gifts and awards you are given is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

You will be happy to know that items of small or trivial value will not be considered a taxable benefit. These items are not included when calculating the total value of gifts and awards given in the year for the purpose of the exemption.

Examples of items for small or trivial value include:

  • Coffee or tea;
  • T-shirts with employer’s logos;
  • Mugs;
  • Plaques or trophies.

More than likely the taxable benefit you received has fallen into one of the areas above. If you don’t remember receiving a gift or award, talk to your employer and get them to clarify exactly for what is the taxable benefit.

Why have I been asked by CRA to remit tax for a non-resident company I use?

By Randall Orser | Personal Income Tax

Tax concept TNThis kind of remittance usually occurs when you’re dealing with a franchisor to which you’re paying royalties or other monies, and the franchisor does not have a headquarters in Canada. However, any non-resident to whom you pay for services rendered in Canada may require you to withhold monies for taxes.

Every payer, including a non-resident payer, who makes a payment to a non-resident of Canada for services provided in Canada must withhold and remit an amount in accordance with the requirements under the Canadian Income Tax Act.

What Does The Act Mean By ‘Services Provided In Canada’?

Of course, the government doesn’t really define what they mean by the above term. Many of us have used outsourced talent in other countries to do certain things, from web development to consulting. In the end you have to use your best judgment as to whether or not the services you’re using fit into this term.

From what I found it appears Canada Revenue Agency is only concerned when it’s someone who comes into Canada to perform services. Or, it’s something that is an on-going process, such as the royalties mentioned earlier.

Some services this situation definitely applies would be speakers, actors, and other who come to Canada to perform. Or, you’re the director of a company in Canada and are paid directors fees.

Does this apply to a company you pay for hosting, or you’re doing ads on Facebook, etc.? Generally no. Many of these companies do have a presence in Canada, so you wouldn’t have to take off tax.

What Do I Have To Deduct And How Do I Remit It?

Whenever you pay someone who’s a non-resident, you must deduct 15% of the amount and remit that to the government. For example, you’re paying John Doe $5,000 for services provided, you must deduct $750.00 and remit that to the government.

You have to remit your non-resident tax deductions so that we receive them on or before the 15th day of the month following the month the amount was paid or credited to the non-resident. We consider the payment to be received on the date the payment is received at your Canadian financial institution or at the CRA. If the due date is a Saturday, Sunday, or Canadian public holiday, your remittance is due on the next business day.

You remit the non-resident tax through a payroll remittance account. Yes, the same one you’d use if you had employees. If you have a payroll remittance account now, add another account with RP0002 so you can keep the non-resident payments separate. If you don’t have one, then set up a new account, and if you don’t plan on having employees just use RP0001 for that account.

Every year you will have to file an NR4 slip for each non-resident you are paying along with an NR4 Summary. This applies whether it’s an individual, partnership, or corporation. You must give recipients their T4A-NR slips on or before the last day of February following the calendar year to which the slips apply. If you do not, you may be subject to a penalty.

Can A Non-Resident Apply For An Exemption?

If the non-resident can show that the withholding is more than their potential tax liability in Canada, either due to treaty protection or income and expenses, CRA may waive or reduce the withholding. Non-residents who want to ask for a waiver or reduction of withholding have to file a waiver application to the tax services office in the area where their services are to be provided. Non-residents working in the film industry should send their applications to the applicable Film Services Unit in the Toronto, Montréal or Vancouver tax services office.

Waiver applications have to be filed no later than 30 days before the period of service begins, or 30 days before the first payment for the related services. The non-resident has to give you a letter from us authorizing a waiver or reduction of the withholding amount. If you do not receive such a letter, you have to withhold the usual 15%.

There are two different kinds of waivers a Regulation 105 (most non-residents) and a Regulation 107 (for the film industry).

Whenever you are dealing with non-residents of Canada ensure that the monies you’re giving them aren’t going to fall within this non-resident tax situation. You can talk to your accountant/bookkeeper, or call Canada Revenue.

I have to renovate my home to accommodate my disability, is there a tax credit for that?

By Randall Orser | Personal Income Tax

Shower BenchThere comes a time when age may not allow you to get around as well as you used to, or something tragic happens that limits your mobility or ability to live in your current home. Whatever the reason you can write off expenses to make your home more accessible. These construction/renovation expenses are classed under medical expenses and deducted accordingly. These expenses are classified as medical expenses and claimed on Line 330. You may also claim these expenses for a dependent that lives with you.

Renovation or construction expenses

You can write off the amounts paid for changes to give a person access to (or greater mobility or functioning within) your home, when that person has severe and prolonged mobility impairment or lacks normal physical development.

Costs for renovating or altering an existing dwelling or the incremental costs in building your principal place of residence may be incurred. These costs can be claimed minus any related rebates such as for goods and services tax/harmonized sales tax (GST/HST).

Renovation or construction expenses have to be reasonable (as per Canada Revenue Agency) and meet the following conditions:

  • They would not typically be expected to increase the value of the dwelling; and
  • Persons who have normal physical development or who do not have severe and prolonged mobility impairment would not normally incur them.

Make sure you get a breakdown of the costs. Costs could include:

  • Buying and installing outdoor or indoor ramps if you cannot use stairs;
  • Enlarging halls and doorways to give you access to the various rooms of your dwelling; and
  • Lowering kitchen or bathroom cabinets so you can use them.

While these incurred costs to renovate or alter a dwelling to accommodate the use of a wheelchair may qualify as medical expenses under the conditions described above, these types of expenses related to other types of impairment may also qualify. In all cases, you must keep receipts and any other related documents to support your claim. Also, you must be able to show that your particular circumstances and the expenses incurred meet all of the conditions mentioned above.

Examples of common renovation or construction expenses that would generally not be considered eligible medical expenses, because they would be expected to increase the value of the dwelling or because they would normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment, include:

  • Hardwood flooring;
  • Hot tubs; and
  • Pools.

The types of renovations or alterations that could be eligible are not restricted to the above examples. Claims would be considered on a case-by-case basis. It is a question of fact whether your or a particular renovation or alteration will qualify. Of course, the onus is on your to prove that the conditions to qualify for this medical expense have been met.

A former employee refuses to give his SIN, what do I do?

By Randall Orser | Personal Income Tax

Businessman showing document or contract, isolatedI have actually run into this a couple of time over the past few years. You hire someone, they work for a few days and when you start asking for their Social Insurance Number (SIN) and other information, they stall and then quit before you can get the information. Now you have no information on someone who worked for a few days. Another scenario is you hire them, make it through the first payroll, then they happen to just quit, and you have no information other than their name and some information on their resume.

What do you do in this situation?

For the scenario where you haven’t paid the employee, then make sure you make note of their hours up to the day they quit. If the employee does come back, then you will have to issue a paycheque. However, make sure the employee fills out a Federal and Provincial TD1 before you give it to them. I’d even go as far as ensuring the SIN is a valid SIN by asking to see their SIN card. If you suspect they may be misleading you then you can call Service Canada to verify the SIN.

For the employee whom you’ve had one payroll, if they’ve only had that one payroll then you only have to worry about the T4. Now, you have no information on this person other than a name and maybe a phone number. You still have to file the T4 with what personal information you have. You’ll get a call from Canada Revenue Agency (CRA), and you’ll have to explain that the person quit before giving you any information, and they now refuse to give it to you. If you have a phone number and/or address for the employee give those to CRA.

The first thing you should do when hiring an employee is have them fill out a TD1, which gives you their basic information and the exemptions for determining taxes. Better is having some kind of employee information sheet that all new hires fill out. On this sheet you ask for their full legal name, address, phone number, email, SIN, birthdate, emergency contact information and any other pertinent information for your company/industry.

In either of the situations above: document, document, document. Make note of every conversation you have with the employee asking for this pertinent information, and every phone call you make to ask for it. Write down the date, time and what was said. Also, keep any written (including email) conversations you have with this employee. This way no one can come back and say you didn’t try to get this information out of the employee.

In the end, hiring an employee is a major act in any businesses life. Take it very seriously, as most of the laws are in the employees favour not the employers.

Oh, and one thing that I’ve read and truly believe is to ‘hire slow, and fire fast’!

Do I really have to make installment payments?

By Randall Orser | Personal Income Tax

Salvadanaio vuotoMany taxpayers hate giving their money early to the government, and so don’t make any kind of installments. Canada Revenue Agency (CRA) has realized this and now requires that taxpayers, and corporations, make installments on their various accounts. Generally, you have to make installments when your tax balance owing is more then $3,000 (except in Quebec where it’s $1,800) for the prior tax year.

Personal Taxes

You have to pay tax by installments for the same reason that most people have tax withheld from their income throughout the year. If you earn income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by installments. This can happen if you earn rental, investment, or self-employment income, certain pension payments, or income from more than one job. The $3,000 amount applies to your personal taxes, so if you owe more than that during the prior tax year, you will have to make installments.

If you are on pensions and you’re income is more than $20,000, then you should get something taken off each of the different pensions, such as OAS and CPP by calling Service Canada. For other pensions, call the pension office for that pension.

Also, if CRA has sent you an installment reminder letter, you must make the installments as per this letter, unless you believe your income will be less and you can arrange to make smaller, or no installments. If you believe your income will be more, then you can increase your installments based on what you believe will be your current income.

Business Taxes

Along with your personal taxes, your business related taxes, such as your GST/HST or corporate taxes might require installments. It’s usually only these two accounts that need to do installments, as they are the ones that would be filed annually.

GST/HST is only paid by installments when you are an annual filer. You pay installments when you’re prior year balance owing was over $3,000. Again, if you think you’re going to owe less you can reduce your installments. Or increase them, if you think you’ll owe more than the prior year.

For sole proprietorships, you must pay your installments in April, July, October, and January of the following year. This is where doing your books quarterly at a minimum comes in. You can figure out what you owe for that quarter and remit that as your installment payment. In the following year when you file your annual return you’ll end up owing nothing.

For GST/HST, Corporations would follow their fiscal year and pay on a quarterly basis. For example, if your year-end were August 31st, then you’d pay quarterly installments in September, December, March, and June.

For a corporation’s income taxes, the installments are due monthly by the end of the month. Penalties and interest will apply on any missed or late installments or if you made no installment payments at all.

What if you don’t make your installment payments as required?

CRA charges installment interest if all of the following conditions apply:

  • They send you an installment reminder in 2014 that shows an amount to pay;
  • You are required to make installment payments in 2014; and
  • You did not make installment payments, or you made payments that were late or less than the required amount.

CRA calculates the interest on each installment that you should have paid using the payment option that calculates the least amount of interest up to the balance due date. Then they calculate the interest on each installment you did pay for the year, starting from the later of the date the payment was made or January 1 up to the balance due date. They charge the difference between these two amounts if the difference is more than $25.

Installment interest is compounded daily at the prescribed interest rate.

You may have to pay a penalty if your installment payments are late or less than the required amount. CRA applies this penalty only if your installment interest charges for 2014 are more than $1,000.

To calculate the penalty, CRA determines which of the following amounts is higher:

  • $1,000; or
  • One-quarter of the installment interest that you would have had to pay if you had not made installment payments for 2014.

Then, they subtract the higher amount from your actual installment interest charges for 2014. Finally, they divide the difference by two and the result is your penalty.

Making sure that you pay your installment payments on time is very important these days. As well as knowing whether or not you have to make installment payments at all. If you’re unsure whether to make installment payments, talk to your accountant, bookkeeper or tax preparer.

1 27 28 29 30 31 33