Registering for tax

As soon as you set up your small business, check whether or not you need to register for tax. Small business tax is handled by the provinces/territories.

Rules for sole proprietorships vary. Some areas require all small proprietorships to register for tax. Others only require sole proprietorships to be registered if they operate under a trading name. A few do not require them to register at all. Check the website of your provincial or territorial government for information on the local rules in your area.

All corporations need to register for tax in their province/territory. This is because corporations are considered legal people in their own right.

If you are an employer and/or you collect tax to be remitted to the federal government (e.g. sales tax), register with the Canada Revenue Agency. You also need to register with the CRA if your business revenue exceeds $30,000 per year. Please note that this is revenue, not profit.

Keeping records for tax

Once you actually open your business, keep records of all business income. It’s advisable to keep records of all business expenses. You may be able to claim at least some of these as tax deductions for your small business.

If you have an accountant, they can tell you for sure which expenses qualify for a tax deduction. If you don’t, you can find the necessary information online. It may take some time, but it’s worth making the effort.

Keeping records can actually be very simple, especially if you only use electronic payments (e.g. payment cards). Even small businesses can generally afford a POS system and proper accounting software. What’s more, these can often be linked. That means all your incoming payments can be fed straight into your accounting system.

Outgoing expenses may need to be entered manually, but this is usually very easy. Many accounting packages now have robust optical character recognition abilities. This means that they can find the key data on electronic receipts or photos of paper receipts. They then input this automatically.

A note for sole proprietors

If you are a sole proprietor (self-employed), it’s vital that you make a clear distinction between your business income and expenses, and any other income and expenses you have.

Ideally, have a specific bank account for business income and a specific debit card for business expenses.

Even so, still make a point of recording income and expenses as soon as you possibly can. If you are using the same bank account and payment cards for your business and your personal activities, be extremely careful to put each transaction in the right category.

Filing your tax

The process of filing a tax return is actually really straightforward. Your accounting software may do it for you. If it doesn’t, file your tax return online with your province/territory and/or the CRA. The online services give you both the forms and the relevant due dates.

Currently, paper forms are still available if you really want to use them, but it is extremely likely that these will be phased out in future, at least for incorporated businesses.

Many provincial and territorial authorities have information and guidance on filing tax as a small business. Some host webinars. You can also contact the relevant service for further information. Keep in mind that response times can be lengthy. If you have the budget, it really can be a lot easier to use an accountant.

The CRA also has a lot of information on its website. It hosts webinars and has liaison officers to give small businesses a more personal level of assistance.