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President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.

Is it Time for Your Small Business to Register for the GST/HST?

By Randall Orser | Sales Taxes

This is one question I get asked a lot by new businesses, whether or not they should register for the GST/HST.  I usually say ‘Yes’ so you get used to charging it and your customers get used to paying it.  We’ll talk about what is the GST/HST and when do I register for it.  If you’re incorporated then it’s a definite ‘yes’ to registering as you went to the bother of incorporating, you may as well collect GST/HST.

What is GST/HST?

GST stands for Goods and Services Tax and HST stands for Harmonized Sales Tax. The HST is where a province has merged its provincial sales tax (PST) with the GST. In Ontario, that province merged it’s 8% PST with the GST and made an HST of 13% (the provincial portion was lowered by 2% points). Note, the GST and HST are the same tax, just different percentages, and you remit them at the same time on the same form.

The GST is a tax that applies to the supply of most property and services in Canada. Generally, the HST applies to the same base of property and services as the GST. In some participating provinces, there are point-of-sale rebates equivalent to the provincial part of the HST on certain items.

Although the consumer pays the tax, businesses are generally responsible for collecting and remitting it to the government (Quebec administers its GST/HST). Businesses that are required to have a GST/HST registration number are called registrants. Registrants collect the GST/HST on most of their sales and pay the GST/HST on most purchases they make to operate their business. They can claim an input tax credit, to recover the GST/HST paid or payable on the purchases they use in their commercial activities.

When do I register for GST/HST?

Generally, you don’t have to register if you’re worldwide sales are less than $30,000, unless you want to be able claim for any GST/HST you paid out to suppliers. You should be looking at the past 4 quarters of sales and if at any time it’s coming close to $30,000 then you should register. For example, if you find that your sales are at $30,000 by the end of June, then you need to register; however, if it’s December 28th, then you probably won’t have to register.

If you’re starting a business and expect to make a lot of supply or equipment purchases then you need to register for GST/HST as soon as your business name is approved and registered, and, definitely, before you buy anything for the business. I have seen so many people get excited about their new enterprise that they go crazy buying stuff and then realize they should register for the GST/HST. Of course, once you’ve bought stuff it’s too late, and CRA won’t backdate your GST/HST registration unless you’ve been invoicing customers (you’ll have to prove that you’ve invoiced customers).

There are situations where you don’t register as you’re selling an exempt product/service, such as insurance or a financial planner. In this case, you can’t register, would not charge GST/HST, and cannot claim any input tax credits either.

Another situation when it’s best to register from the start is when you buy an existing business, or part of a business. When a business sells to another business then the businesses can opt to elect that the GST/HST does not apply to the supply of the business. You would file form GST44 - Election Concerning the Acquisition of a Business or Part of a Business and send that in with your first GST/HST return after acquiring the business. If you’re GST/HST return is filed electronically then just send the GST44 into your tax centre.

If you’re mostly business-to-business sales then definitely register as businesses are used to paying GST/HST, and they know that if you’re not charging GST/HST then you’re making less than $30,000 and that you’re a new business. For business to consumer, it’s a bit more difficult as consumers’ hate paying tax and will sometimes go to great lengths not to pay it. In the end, I still think it’s best to register for GST/HST as your goal is to have a business and this makes you look more professional.

What are Input Tax Credits?

By Randall Orser | Business , Sales Taxes , Small Business

Input Tax Credits or (ITC's) are the sum of the GST/HST you paid on legitimate business expenses or the allowable portion of the GST/HST paid.  The CRA refers to these as Input Tax Credits and they used by businesses to recover the GST/HST paid on purchases and expenses related to operating their business.

To use ITC's you must be registered for the GST/HST and then each time you incur an expense or make a purchase related to your business you need to keep your receipt and keep track of these payments in your bookkeeping system.  It is very important that you keep your receipts so that you can prove your claim in case of a CRA audit.

Some of the expenses that you can claim ITC's per the CRA website include: rent, equipment rentals, advertising related expenses such as business cards, flyers and ads, accounting and other professional fees, home office and motor vehicle expenses, office expenses such as stationery, postage, computer and a certain amount of travel including airfare, car rental and hotel rooms.  You can also claim ITC's on Capital expenses including: capital property, machinery and vehicles, furniture and appliances, and improvements to capital property.  See the CRA website for a full list.

According to the CRA you can only claim Input Tax Credits for anything related to your business and the the purchase or expense must be reasonable in quality, nature and cost.  Some of the things that you can't claim for include: some capital property, membership fees or dues to a club which include dining, recreation or sporting facilities (including golf clubs, and fitness clubs) unless you acquire the membership to resell in the course of your business, and taxable goods and services bought or imported to provide exempt (zero rated) goods and services.

From an article by Susan Ward

What does your CRA Notice of Assessment Mean?

By Randall Orser | Personal Finances , Personal Income Tax

You can look at your CRA Notice of Assessment as a receipt for filing your tax return and an annual statement that tells you how much income tax you owe, how much you can expect for a tax refund, what income tax you already paid and any tax credits that you are eligible for. 

The NOA is calculated from the information that you submit on your tax return and contains a lot of information that you may need to make future financial decisions.  If you have a RRSP then the NOA is particularly helpful as it tells you the maximum contribution that you can make to your RRSP in the following year.  It is important to know how much room you have so that you do not over contribute and have to pay penalties.  If you participated in the Home Buyer's Plan or the Lifelong Learning Plan and withdrew from your RRSP for those purposes then your NOA will tell you when future payments are due and how much you need to pay. 

You should always keep your notice of assessment in a file along with your receipts for that tax year.  If you see anything in your Notice of Assessment that does not seem correct to you, you have 90 days to formally object or make amendments to any of the information on the document.  A NOA will also inform you if you happen to be the subject of an audit from the CRA.  If you do not agree with the reasons for an audit you have 90 days to make a formal objection.

You can get your NOA in two ways, in the mail from the CRA or when the CRA notifies you that your assessment is available for you to view via CRA Online Mail.  You can register for CRA Online Mail through your CRA MyAccount.  If you lose your paper copy you can use MyAccount to view and print your notices of assessment or reassessment, this includes any notices issued since Feb 9th 2015, and summaries of notices issued after 2004.  If you filed your taxes using NETFILE it can take up two weeks to see your Notice of Assessment. 

From an article by Wealth Simple

What you Should do with your 2019 Tax Refund

By Randall Orser | Personal Finances , Personal Income Tax

Around 19 million Canadians can expect a tax refund in 2020, the average refund is $1400.  In a normal year you might be tempted to go out and splurge with your refund but this year during the pandemic you might want to consider doing something else with your refund.

  • Spend some of it – this might be the last thing that many people might be thinking of doing with their refund as they are out of work or struggling financially.  If this is the case with you, you might consider spending part of it especially in small businesses which are struggling to survive. If you are still working, have a stable income, your debt load is under control and your retirement savings are on track then you might consider spending some or all of your refund.  Consumer spending is necessary to help businesses get back on their feet and help us to get out of the current recession.
  • Use your refund to pay down your debt – especially on those high interest credit cards.  If your bank is allowing you to defer your mortgage payments take advantage of that if you can and redirect your payments to your credit cards or other high interest debt along with your tax refund.
  • Invest for the future – some good financial planning advice is to have at least three months of spending available as an emergency fund.  If you have done this in the past you are probably very thankful for that nest egg right now.  If you have never done this, now might be the time to start your emergency fund, start saving for retirement or add some extra money to your RRSP.  If you are not at your limit investing extra this year should help your tax situation for 2020.  As the investment market has taken a hit this year, you might consider saving your refund to invest in the market when securities may be “on-sale”.
  • Give some away – Charities are hurting as much as if not more than businesses at this time.  Canadians are not donating their money or time as much to help with the important services that charities provide.  If you don’t need all your refund, consider giving some to your favorite charity.
  • Upgrade your skills – if you have lost your job due to Covid-19, think about upgrading your skills to make yourself more marketable when looking for a new job.  This is a good time to consider how you can upgrade your skills and you can use your tax refund to help pay for that training.
  • Finally, many things have changed in 2020 due to Covid-19.  Millions of people have received government support most of which is taxable, but no tax has been withheld from payments such as the Canada Emergency Response Benefit.   You might be surprised next year to find that you owe taxes on your 2020 return so it would be a good idea to put your refund in a savings account so that you have some money set aside if instead of getting a refund you have to pay. 
  • From an article by Tim Cestnick in the Globe and Mail 

Is it Time for the Annual Clean-up and Back-up of your Files?

By Randall Orser | Business Income Taxes , Cloud-computing , Small Business

The end of the year is a good time to put some time and attention into cleaning up and backing up your files. Cleaning up your files lets you clear up physical, digital and psychological space so everyone can get more done. Backing up is essential in case something goes wrong.

Here's how to do your annual file clean-up and backup.

Delete Clutter from Project Management

If you still have old projects open in your project management software, delete them or archive them now. People on your project management software should only be seeing projects that are actually relevant to their work right now.

Archive Physical Files

If you have a lot of physical files lying around that aren't being used anymore, archive them. Small businesses can open a small storage facility to store their archived files. Larger businesses can open an account with a file archive facility.

What to Back Up

At least once a year, you should back up:

§ An entire copy of your website. You should have the "front" end of your website, including the CSS and HTML code, as well as the "back" end infrastructure (e.g. server code) all backed up somewhere.

§ Your entire database should be backed up as well.

§ Your email list and newsletter list should be backed up, along with any mailing sequences.

§ Your customer list should also be backed up.

§ Your forums or any other communication channels should be fully backed up. You should be able to restore your community if anything happened.

Basically, anything that could critically cripple your business if it disappeared should be backed up regularly.

At Least Three Backup Sources

You should have at least three backups of all your most important data. Each offers a different level of protection.

§ Online backup - Online backups work well for small files and for files stored on personal computers.

§ On site backups - These can be done as frequently as once a month. Simply take all your digital data and dump them on a hard drive, then store that drive.

§ Off-site backups - On site backups can't protect your data against earthquakes, fires, floods and other disasters that could affect the physical devices your data is stored on. Off-site backups will hold your data for you, so you're protected in case of a disaster.

Just one level of protection isn't enough to protect you against a catastrophe. Higher levels of protection require more work and are generally performed less frequently.

Change Dropbox Passwords

At least once a year, ask all your employees to change their Dropbox, Google Drive and other backup passwords. Passwords now need to be more complex, and best are ones that are 16 or more characters.

If you perform these tasks regularly, you'll be well protected against disasters in all forms.

When are Canadian Business Taxes Due?

By Randall Orser | Business Income Taxes , Partnerships

The due dates for Canadian Business tax returns as well as the amount of tax due, depends upon how your business is structured as well as your fiscal year end. 

If your business is a sole proprietorship or a partnership your business return becomes part of your T1 personal tax return, and your business income is reported on form T2125.  You and your spouse have until June 15th to file your taxes, but you must pay any amounts due by April 30th to avoid penalties.

If your business is a corporation you can choose any date for your fiscal year end but if the corporation has a balance owing it must be paid within two months after your fiscal year end.    However Canadian-controlled private corporations are an exception to this rule in that they have three months to pay their income tax balance if they meet certain conditions. 

Corporations must also pay taxes in the province or territory where the business resides in addition to their federal taxes.  Corporate taxes are administered by the CRA except for in Quebec and Alberta.  

If your business is incorporated, you need to file a T2 tax return every year whether or not your company owes any tax.  Sole proprietors and partnerships that are active must file individual returns regardless of if they have any business income to report.  The form 2125 must be completed as you may have incurred business expenses even if your business had no revenue, which means that you will have a business loss that can be written off against your other personal income.    This can be particularly relevant for people who have just started a small business on the side but still have regular employment, as your business may not generate income in the first few years, but your expenses can be written off against your income up to a limit.

How the Pandemic has Affected Tax Return and Payment Deadlines

The government has announced a number of changes to the filing deadlines and payment deadlines for business taxpayers in 2020. For self-employed individuals and their spouses, the tax deadline remains at June 15th, but payments will not be due until September 1st.

There are also changes to the tax and payment deadlines for partnerships and corporations.  The partnership filing deadline for those with a Dec 31st, 2019 year-end was extended to May 1st.  The tax filing deadline for corporations has been extended to June 1, 2020 in some cases if the tax return would ordinarily be due between March 18 and June 1, it is now due June 1. Otherwise, the normal six-month filing deadline applies.

For Corporations payments of Part 1 tax that become due on or after March 18th will not be due until September 1st  but there is no extension to Part lV which is a refundable tax on certain inter-corporate dividends received by Canadian private corporations and is due when the corporate return is filed. 

GST/HST remittances have also been extended for payments due after March 18th.  They will now be due on June 30th, this includes monthly payments for the February, March and April reporting periods, quarterly collections for January 1 to March 31, 2020 and annual filers whose return or instalments are due in March, April or May.

From articles by Susan Ward and BDO Canada

When can you Expect your Tax Refund this year?

By Randall Orser | Personal Income Tax

Are you wondering when you will get your tax refund this year?  We are all hoping that it will not take much longer than usual. The CRA is still processing returns during the Covid-19 pandemic and they are encouraging Canadians to file their returns as early as possible before June 1st.  This is particularly important if you receive income tested benefits such as the GST/HST Credit or the Canada Child Benefit as the payments for 2020/21 are based upon your return for the prior year and are set to begin in July.

The CRA website says that their goal this year is to send refunds within 2 weeks if you filed online and 8 weeks if you file a paper return.  These timelines are only valid for the returns that they receive on or before their due dates. If you live outside of Canada you can expect to wait up to 16 weeks to receive your refund.  

The CRA is encouraging taxpayers to file their returns electronically using professional tax preparation software.  If your return is selected for a more detailed review than it will take longer to process.  The CRA also encourages taxpayer to use direct deposit to get their refunds quicker.

If you haven't received your refund within the timelines above it may be for any of the following reasons:

  1. You owe or are about to owe a balance
  2. You have a garnishment order 
  3. You have other outstanding debts such as student loans, employment insurance, and over payments of social assistance benefits, or immigration loans and training allowance overpayments.
  4. You have any outstanding GST/HST returns from a sole proprietorship or partnership.
  5. You have a refund of less than $2 due.

New this year due to Covid-19 the CRA is recognizing electronic signatures for forms such as the T183 which is signed in-person by millions of Canadians every year to authorize tax preparers to e-file their returns, even though this is only a temporary administrative measure this year.

If you owe money on your 2019 return you have until September 1st to pay which is four months later than the usual April 1st deadline, and you will not be assessed any penalties or interest on your balance due until September 1st, 2020.  if you pay by instalments you now have until September 1st to pay your June 2020 quarterly personal tax instalment with no accumulation of penalties or interest from March 18th to September 1st, 2020.

From an article by Jamie Golombek Financial Post

Are you one of the Almost 50% of Canadians Taking Advantage of the Tax Deadline Extension?

By Randall Orser | Personal Income Tax

A new survey commissioned by H&R Block Canada has revealed that 45% of Canadians still have to file their tax returns.  Millions of Canadians are taking advantage of the extended deadline to file their personal tax returns. As a result of the Covid -19 pandemic the usual April 30th deadline was extended to June 1st.  Self employed taxpayers and their spouses still have until June 15th to file.

This result is consistent with the CRA filing statistics which show that as of April 27th, 2020 they had received 15.5 million personal tax returns for the 2019 season, way less than the 28.4 total returns filed for the 2018 tax year.

The H&R Block survey also found that 10% of Canadians were not aware that the deadline had changed and 1 in 3 of this group had not yet filed.  Of those still to file 50% plan to do so after the original deadline but before the new one.  These people will avoid penalties for late filing, but you should still file as soon as possible especially those who need their refund, credits and benefits, the sooner they file the sooner they will receive these supports. 

The CRA data shows that up to May 1st,  92.1% of returns were filed electronically and almost 85% of the 14.1 million returns processed so far had either no balance owing or a refund due.  The average refund was $1800.

From an article by Jamie Golombek Financial Times May 1, 2020



How to Minimize Taxes on Your Small Business

By Randall Orser | Freelancing , Home Based Business , Personal Income Tax , Small Business

If you own an unincorporated small business then the you must prepare an income statement each year showing all the income and expenses of the business and the resulting net profit or loss is then transferred to your tax return and taxed along with your income from all other sources.  

As a small business owner,  you are entitled to deduct the ongoing costs of doing business, as long as the expenses are reasonable and your motive for being in business is to make a profit.  You must have a good record keeping system such as Quickbooks Essentials  otherwise there is a good chance that you will forget about expenses that you have incurred and lose some receipts for expenses that you could claim.   Some of the most common deductible expenses include advertising, promotions, rent, salaries, legal and accounting fees and auto expenses.

Deductions Available to your Small Business

  • Advertising including flyers, brochures and other promotional activities.  You can deduct 50% of the cost of entertainment and business lunches as long as they are used to promote your business to current or prospective clients.
  • Office Rent is deductible, however if you own your business premises or work out of your home you cannot deduct the rental value of these premises.  However you can deduct any related expenses such as mortgage interest, property taxes and insurance.  If part of the premises is used for personal purposes then these expenses must be pro-rated.
  • Salaries and Wages are deductible in full as are the employer paid premiums for the Canada Pension Plan, Employment Insurance, Worker's Compensation as well as sickness, accident, disability or income insurance plans. If your spouse or child works for you their wages are also fully deductible as long as the payments are reasonable and the same as you would pay someone else to do the same work.  As the owner,  your wages are not deductible and should not be included on your income statement.
  • Fees for Outside Professional Services such as bookkeeping, accounting, consulting and tax preparation are deductible.  Legal fees are also deductible as long as they are not incurred to buy capital property, instead they have to be added to the capital cost of the property.
  • Business Taxes annual business licenses are deductible.  Fines and penalties for infractions of public laws are generally not deductible.
  • Automobile Expenses related to earning business income are tax deductible.  If you use your vehicle only partly for business then the expenses must be pro-rated between business and personal use based on the amount of kilometres driven for each.  Expenses include gas, oil, repairs, insurance and maintenance.  For more information log into the CRA website.
  • Capital Expenditures which are expenses relating to the acquisition or improvement of a property used by the business may not be deducted in the year acquired.  Tax law requires that their entire costs be claimed slowly over a period of years through a mechanism called capital cost allowances which allows a certain percentage of the costs to be claimed each year.   The rules of capital cost allowances are quite complicated so it is a good idea to hire a professional accountant or bookkeeper to make sure that you are claiming correctly.  For more information see the CRA website Capital Cost Allowances.  

When your business enjoys a profit you must share part of that with the CRA in the form of income tax.  However when your business shows a loss then the CRA shares in that loss as you are usually allowed to deduct the loss against other income thereby lowering the taxes you would normally pay.  However, you must meet the CRA "reasonable expectation of profit test" as the CRA will only share your loss if there is a reasonable expectation of profit in future years, otherwise your losses will be disallowed as simple personal losses.   

What you Need to Know About Filing Coupled Tax Returns

By Randall Orser | Personal Finances , Personal Income Tax

The Canada Revenue Agency has specific requirements in place for married and common-law Canadians as they file their personal tax returns.

Married and common-law spouses do not file "joint" tax returns as is an option in the USA.  Each Canadian files their own return and indicates their marital status on it, and the identity of that person.  You do not get to decide whether not you claim your marital status on your tax return.  Once you are married you must include your spouse.  Once you are common-law which means you have been living together in a conjugal relationship for 12 months or immediately if you have a child then you must file as common-law you do not have a choice.

The CRA knows your true marital status based on information that you file, credits and deductions that you apply for and other information sent to them which relates to you. Since your marital status has a significant impact on your return - family incomes are combined for calculating income-tested benefits  such as the GST/HST credit or the Canada Child Benefit.  Couples also benefit from combining charitable donations and medical expenses.   If you have received benefits that you are not entitled to you will be asked to repay them with a penalty and interest and failing to indicate your correct marital status is fraud.

If you were married in the tax for which you are filing, you must note your status as married in the "information about you" section of your return, including information about your spouse including their name, social insurance number, net income and employment status.  If your spouse claims credits such as the CCB or GST/HST or if they owe any payments you must report that as well.  This is the same for common-law couples.  

Advantages and Disadvantages of Filing as Married

1.  If you both sold homes to buy tone together only one of the sold properties may be immune from taxes.  You may have to pay capital gains on one of the sales.

2.  If you are a married student with extra tuition to deduct, you may transfer your unused deductions to your spouse.  If your partner's income is below a certain threshold you may be able to claim an additional tax credit.  You can pool your medical expenses and apply the deduction to the partner who can use it best to pay down their taxes similarly with donations.

Filing Coupled Returns

Filing your spouse or partner's information on your return is pretty simple, however when it comes to deciding which expenses or credits to claim on each return it is more difficult and confusing.  It might be in the best interest of both you to have your returns done by a professional who knows all the ins and outs of filing tax returns for couples, so as to avoid mistakes resulting in extra charges and penalties.

Breaking Up

You also need to inform the CRA if your relationship ends as it may change the benefits due to you or the payments that you owe.  If you receive the CCB or GST/HST benefit payments, notify the CRA the month after your relationship has ended.  If you separate, you do not have to inform the CRA until the separation has lasted 90 days.   You can inform the CRA by logging into your MyAccount and completing CRA form RC65, Marital Status Change, or by contacting the CRA directly by phone.

If you live apart for reasons other than the ending of your relationship you still have to file as married for example if you live apart for work, education or medical reasons you are still considered to be married by the CRA.  Once you are married or divorced you will never be able to file again as single.

From an article by Turbo Tax November 2019