Taxation

Types of Taxes

Personal Income Tax – A tax on an individual’s income paid to the government, business-related income, and investment income. Personal income also includes pension income, income from rental properties, and capital gains.

Corporate Income Tax – A tax that a corporation has to pay to the government, based on the corporation’s net income.

Harmonized Sales Tax (HST) – A tax on the selling price of goods and services. If you are self-employed, these taxes can be recovered by claiming input tax credits (ITCs). How often you have to file taxes?

  • You must file a personal tax return every year for the previous year
  • Every year, the file-by-date is midnight, April 30
  • Business owners who are self-employed, and their spouses, are required to file an annual income tax return by June 15
  • If you owe tax, you must pay it by April 30, even if your filing deadline isn’t until June 15
  • If you owe more than $3,000 in any year, you may be able to pay it in four instalments, due on the 15th day of March, June, September, and December
  • If you do not pay your taxes on time, you will incur interest and penalties

 

How and Where to Report Taxes

Canada Revenue Agency (CRA) collects taxes and administers laws for the federal government and most provinces and territories.

To file your taxes, you need the General Income Tax and Benefits package from CRA. The package includes a guide, tax return, related schedules, and provincial schedules. There are several ways to get your tax package: online, by phone, or in person at CRA offices and Canada Post outlets during the filing season.

All corporations that do business in Canada have to file a T2 corporate income tax return each tax year, even if there is no tax owing. The only exception is a registered charity. Registered charities must file an annual information return. Visit www.cra-arc.gc.ca or call 1-800-959-5525.

 

Harmonized Sales Tax (HST)

HST stands for Harmonized Sales Tax, a tax on the sale of goods and services. It consists of two tax rates combined: the 5 percent federal Goods and Services Tax (GST) and the 10 percent Nova Scotia Provincial Sales Tax (PST).

When your business has sales of taxable goods and services of more than $30,000 you will need to register your business with CRA for an HST/GST account. See the requirements of the Small Supplier requirements to determine when your business will be required to register, visit: www.canada.ca/ en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html#H2_206If your revenue does not exceed $30,000, you can choose not to register for HST. In that case, you are not obliged to charge HST for your products or services. However, you must pay HST on goods and services that you purchase for your business. Not charging HST means your customers pay lower prices. On the other hand, you cannot claim any HST that you paid to buy your business.

 

How to Register for HST

When you registered your business (see Section 4), you received a nine-digit business number. When you register for HST, you receive a 15-digit number that is the same first nine digits of your business number, with the addition of two letters and four numbers at the end.

If you operate a Canadian business and registered for the HST, you can claim Input Tax Credits (ITCs) for the HST you have paid for business purchases. This may result in a refund.

To claim ITCs, you must register with the CRA to collect HST although you are not required to do so unless sales revenues are greater than $30,000.

Once you register for HST ITC refunds, you have to charge HST on anything from which you earn revenue by selling goods or services.

You must keep accurate records of your claimed ITCs. You must also keep accurate records of sales, expenses, and HST collected.

Although you can make claims for ITCs without sending any documentation or receipts, you must keep supporting documents in case of an audit.

All receipts must show the vendor’s name, the date, the amount of HST, the vendor’s 15-digit HST number, the method of payment (cash, cheque, credit card, etc.), and a description of the items purchased.

 

Charging HST can help you survive the start-up phase of your business. 

The period when a business spends more money than it generates is called the start-up phase. Save all your receipts for equipment purchased and other costs that you might have. This means that ITCs can contribute to the cash flow of your new venture. Business expenses that generate ITCs include:

  • Goods for resale
  • Advertisement costs
  • Equipment such as furniture, vehicles, and computers
  • Operating expenses such as rent, utilities, office supplies, and equipment rentals