You started your own company, business is booming, and money is pouring in.
It’s all good, right? Nothing left to do but cruise from this point on. Unfortunately, this is what many new business owners think, and when tax season comes, they are left floundering, unsure of how to file for taxes, which taxes to file for, and how to deal with the many unique tax considerations small and medium-sized businesses need to be aware of, like we mentioned in our last blog post.
Tax planning not only ensures that your company is following all legal guidelines, but also allows you to identify potential tax advantages and pitfalls before it’s too late.
There are many questions you should ask yourself if you want to make sure you’re covering every tax consideration for your business. Let’s start with the first question you should ask in order to avoid unnecessary taxes and penalties by the CRA:
How is your business structured?
This may seem obvious, but not everyone realizes that how your business is structured will change your tax requirements. The Canadian Revenue Agency (CRA) recognizes three types of business structures: sole proprietorship, partnership, and corporation.
If you’re a sole proprietor, you’re the sole owner of an unincorporated business. You receive all the profits (which is great!), claim all losses (which is not as great), and assume all the risk – this extends even to your personal property and assets. In your case, your business taxes are filed with your personal tax returns, and you must complete a T2125 Statement of Business Activities.
In a partnership, you own your business with another entity. Profits are shared, and your business is treated much like a sole proprietorship. The same T2125 form needs to be filled out and you’ll have to file form T5013, Statement of Partnership Income, if you meet certain requirements.
Your business income taxes as a sole proprietorship or partnership are due at the same time as your personal income taxes – typically April 30th (the deadline is approaching soon!). But don’t panic – we can help.
Corporations are a whole different matter. As a completely separate legal entity altogether, you’ll have to file a T2 corporation income tax return no later than six months after your business’ year end.
If you have questions about the specifics of your business’ structure, or you are considering incorporation, our experienced team will be able to answer all your questions. Call us at 647-476-2145 or schedule an appointment with us.