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What You Need to Know About Filing Small Business Taxes in Canada

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Learn how to file taxes as a small business in Canada with resources to ensure proper filing and deduction opportunities.

As a small business owner, knowing what taxes you’ll be expected to pay will help you avoid unpleasant financial surprises down the road. Here is a brief summary of what you can expect when paying Canadian federal and provincial taxes on your company’s revenue.

What are small business taxes in Canada?

At the federal level, small and medium-sized businesses are expected to pay taxes on any money they earn from a trade, a profession, manufacturing or “any other activity you carry on for profit”. 

In Canada, small businesses are defined as those with fewer than 100 employees, while medium businesses have less than 500 people on staff. Both small and medium-sized businesses who make CAD $500,000 or under can claim the small business deduction on their revenue. This deduction brings the federal net business tax rate down to 9%. 

Each province and territory has it own corporate rates for small businesses. with rates ranging from a low of 0% in Manitoba to a high of up to 5% in Quebec. As a result, before you get going, research exactly what additional business taxes you will have to pay at the provincial or territorial level.

How to file your taxes

Many owners of small and medium-businesses successfully file their own annual taxes. Those who do typically rely on user-friendly accounting and tax software, like TurboTax or Ufile. Online information from the government of Canada’s official website can help walk you through each necessary step for filing your taxes.

Alternatively, you can employ the services of an accountant. Professionals can input tax credits and perform various calculations that only an experienced tax filer would know. If you choose to have an accountant do your taxes, remember to give them enough time to prepare all the necessary forms to save you paying penalties for missing deadlines.

Keeping detailed records of all your business expenses is will help you diligently account for all your expenses and deductions. It’s recommended to keep your records in both physical and digital forms, if possible. Small and medium-sized business owners should keep their expense and deduction records and paperwork for at least 6 years.

Small business tax deductions in Canada

To keep your taxes as low as possible, try to spend time researching the various federal and provincial tax credits available to them. You can also claim as many deductions as possible. In general, all of the following are allowable business tax deductions for SMEs.

  • Home office expenses
  • Business-related travel costs
  • Advertising expenses
  • Legal and accounting fees
  • Office rent and insurance
  • Bad debts

“It’s recommended that you digitize as much of your documentation as possible for a number of reasons. For example, all records must be legible. The ink from paper documents such as receipts and invoices can often fade over time,” says the Charter of Professional Accountants of British Columbia. 

Because either the provincial or federal government can investigate their respective tax filings at any time, owners of small and medium-sized businesses should hold their records for a minimum of 6 years.

The basics of tax filing for SMEs

Knowing the best practices for filing provincial and federal business taxes will increase your understanding of your firm’s bottom line. Maximizing deductions and tax credits while avoiding filing deadlines will help you save money on your tax notice.
Whether you file them yourself or use a professional accountant, keep track of your tax information so you’re never caught unprepared during tax season. 

Visit our blog for more helpful SME information and resources or sign up for our newsletter to keep up on all the latest from Cubeler.

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