As a small business your tax accounting is made simpler when your focus on the essentials such as tracking every transaction, keeping your personal and business separate, tracking deductible expenses and remitting 5% GST when required. Using cloud bookkeeping and automating receipts can also make tax time calmer and less chaotic. There are a few simple tips you can incorporate into your on-going operations.
- Which taxes actually apply to Calgary small businesses
- The weekly bookkeeping loop that keeps you audit-ready
- What you can write off without crossing CRA lines
- Key tax deadlines and forms for corporations and sole proprietors
- When to pay yourself a salary vs. dividends
- When it’s time to call in a pro (and typical Calgary accountant pricing)
Taxes and Calgary Small Businesses
GST
- If you’re wondering do I need to charge GST in Alberta – you need to know that if your worldwide taxable sales exceed $30,000 in four consecutive calendar quarters, then yes, you have to register for a GST number and collect 5% on each invoice.
Corporate Income Tax
- If you’re a Canadian-controlled private corporation (CCPC) using the small business deduction, your combined federal and Alberta corporate information tax rate is roughly 11% on the first $500,000 of active business income. If you’re a sole proprietor, you pay personal tax rates on net business income.
Payroll
- If you pay staff (or yourself via salary), you must withhold and remit payroll deductions to CRA usually by the 15th of the following month for regular remittance. Salary (T4) creates RRSP room and CPP contributions. If you take dividends (T5) you will get cash flexibility but no CPP pr RRSP room. Many owners use a mix. Not sure? Ask us about what works for you.
Installments
- If you owe more than $3,000 in corporate taxes or GST last year, you will likely need to make monthly or quarterly installments this year. Set the money aside and automate the installments to avoid costs late penalties.
Bookkeeping for Audit Purposes
To make bookkeeping simple, think of your books like brushing your teeth…those tiny, consistent habits win in the long run. This is the way Calgary business owners can go from shoebox to sunshine by doing a simple loop. It can also save you money in GST credits!
- Connect your bank and credit cards to a cloud software such as QuickBooks or Xero)
- Snap every receipt into a receipt app such as Dext, Hubdoc.
- Categorize new transaction and attach receipts so there’s no loose ends
- Reconcile bank and credit card accounts to the statement balance
- Review unpaid bills, outstanding invoices, and GST collected vs. paid
- Run a quick Profit & Loss, and Balance Sheet to dedicate anything that might seem inaccurate
- Back up all key reports to a folder named by month which will make life easier in future
Bookkeeping for Audit Purposes
To make bookkeeping simple, think of your books like brushing your teeth…those tiny, consistent habits win in the long run. This is the way Calgary business owners can go from shoebox to sunshine by doing a simple loop. It can also save you money in GST credits!
- Connect your bank and credit cards to a cloud software such as QuickBooks or Xero)
- Snap every receipt into a receipt app such as Dext, Hubdoc.
- Categorize new transaction and attach receipts so there’s no loose ends
- Reconcile bank and credit card accounts to the statement balance
- Review unpaid bills, outstanding invoices, and GST collected vs. paid
- Run a quick Profit & Loss, and Balance Sheet to dedicate anything that might seem inaccurate
- Back up all key reports to a folder named by month which will make life easier in future
Write-offs
Stick to what is CRA-proof when considering write-offs for your business. Here are the key points to consider.
Home Office
- If your principal place of business is in your home, expenses such as utilities, rent, mortgage interest, property tax and insurance can all be deducted. Tip: keep a simple floor plan sketch in your files to demonstrate the areas appropriated to the business.
Vehicle
- Track your business kilometres all year round with an app such as MileIQ or Driversnote. Claim gas, insurance, repairs, and depreciation (CCA) in proportion to business use.
Meals and Entertainment
- Generally 50% of meals and entertainment that are business related can be deducted. Be sure to note who you met and why it is a business expense on the receipt.
Equipment and Technology
- Laptops, tools and machinery are capital assets and can be deductd via CCA over time.
Phones
- Anything related to the business such as cell phone (or landlines), Internet service or software can be deductible.
Tax Deadlines
Missing deadlines can incur interest penalties. Putting deadlines into your calendar can save you money! Here are a few must know dates to remember.
- Corporate Tax (T2) is filed within 6 months of your fiscal year-end. Any balance owing is due 2 months after year-end.
- Sole proprietor (T1) is filed by June 15, but any balance owing needs to be paid by April 30 to avoid interest.
- GST/HST – as a monthly or quarterly filers, you must pay the GST owning within 1 month after the end of your reporting period. Annual filers often have up to 3 months. An example is if your fiscal year ends December 31, payment is due April 30 (3 months after year-end).
- Payroll requires sources deductions by the 15th of the following month for regular remitters. T4s and summary is due by end of February (as do Dividends / T5s).
- Installments for corporate tax and GST are due monthly or quarterly. Missed installments can rack up interest faster than you might expect.
Salary vs. Dividends
Both salary and dividends are legitimate ways for you to pay yourself from an incorporated business. The right mix depends on tax efficiency, cash flow, retirement planning and lifestyle needs. Here’s a few tips to consider.
When to pay yourself a salary
- You want RRSP contribution room
- Your want to contribute to CPP (for your future pension)
- You want consistent income for mortgages or loans
- You want to maximize childcare or caregiver credits
- Your corporation has enough profit to justify the payroll overhead
When to pay yourself dividends
- You want simpler, lower-cost payouts (no CPP, etc.)
- You want to increase short-term cash flow
- You want to access corporate after-tax funds efficiently
- You have fluctuating income
When to choose a combination
- You can have a mix by paying yourself a basic salary and paying out dividends for any additional income.
- This works to avoid overpaying CPP, building RRSP room and giving you a better opportunity for qualifying for loans.
Calling a Pro
As a business owner you can DIY or your can use your time to do what you do best and hire a professional to do your bookkeeping and accounting. It depends on your time and ability to set yourself up for success. Let’s look at what it would cost to hire a professional to help you out.
- Monthly Bookkeeping can be about $250 to $1,000 depending on volume, payroll and GST complexity
- Year-End Corporate Package that includes T2, financial statements and tax planning can run about $1,500 to $3,000 for straight-forward files.
- To cleanup or catch-up on your taxes, well that can vary. Expect $800 to $2,500 plus based on number of months and amount of time.
- Payroll often costs $30 to $50 per employee per month, plus year-end slips.
If you’re behind on your GST, guessing at what you can write-off, or mixing personal and business expenses, you might want to give us a call to discuss what can work best for you.
You don’t need to conquer small business tax accounting overnight. Start with small habits, claim the right write-offs, and calendar those due dates. When you’re ready, Crescendo Accounting can help you breathe easier by setting up the systems, filing on time and making tax season boring (in the best way).
Ready for calm books and clear answers? Request a Quote and let’s get you sorted.
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