Sunrise CPA

Resources

Understanding and managing corporate taxes is a crucial aspect of running a business in Canada. This guide aims to provide you with valuable information and insights into the corporate tax landscape, helping you navigate the complexities and optimize your tax strategy.

Overview of Corporate Tax: In Canada, corporations are subject to federal and provincial/territorial income taxes. The federal corporate tax rate is applied to taxable income earned at the federal level, while provincial/territorial tax rates are applied to income earned within each respective jurisdiction. It's important to be aware of both federal and provincial/territorial tax rates that apply to your business.

Taxable Income Calculation: Corporate taxable income is determined by subtracting eligible expenses and deductions from the business's total income. Eligible expenses may include business operating expenses, salaries, benefits, depreciation, and interest payments. It's crucial to keep detailed records of expenses and maintain accurate financial statements to support your taxable income calculations.

Small Business Deduction: The small business deduction is a tax incentive aimed at supporting small businesses in Canada. It allows eligible corporations to apply a reduced tax rate on a portion of their active business income, up to a specified limit. Understanding the rules and limitations of the small business deduction can help you minimize your tax burden.

Capital Cost Allowance (CCA): The CCA is a tax provision that allows businesses to claim deductions for the wear and tear, obsolescence, or depreciation of eligible capital assets used in their operations. It's important to properly classify and track your capital assets and understand the CCA classes and rates applicable to each asset category.

Tax Credits and Incentives: Canada offers various tax credits and incentives at the federal and provincial/territorial levels to encourage business growth and investment. These may include research and development (R&D) tax credits, investment tax credits, and credits for hiring apprentices or supporting certain industries. Familiarize yourself with available tax credits and incentives that your business may qualify for to maximize your tax savings.

Filing and Payment Deadlines: Corporate tax returns in Canada are generally due within six months after the end of your fiscal year. However, it's essential to confirm the specific filing deadlines with the Canada Revenue Agency (CRA) and the provincial/territorial tax authorities. Timely filing and payment of taxes are crucial to avoid penalties and interest charges.

Professional Tax Advice: Corporate tax planning can be complex, and it's recommended to consult with a our qualified tax professional or accountant to ensure compliance and optimize your tax strategy. We will provide personalized advice, help you identify tax-saving opportunities, and ensure that you are taking advantage of all available deductions, credits, and incentives.

Remember, tax laws and regulations can change, so it's important to stay updated with the latest tax developments and consult with a professional to ensure your tax compliance and minimize your tax liability.

At Sunrise CPA, we specialize in corporate tax services, offering expert guidance and support to businesses across Canada. Our team of experienced tax professionals can help you navigate the complexities of corporate taxation, maximize your tax savings, and ensure compliance with regulatory requirements.

Should I Incorporate?

Advntage:

There are many advantages and disadvantages to incorporating your business. The first advantage is that corporations have limited liability, thus limiting shareholder's liability to the amount that they have invested in their shares. Secondly it presenting a professional image to customers, suppliers, and investors
Canadian Controlled Private Corporations pay a much lower tax rate on the first $500,000 of active business income compared to unincorporated companies.
The third major tax advantage is the $866,000 capital gains deduction for the sale of shares of qualifying small business corporations.

Disadvantages:

Higher setup, administrative and accounting costs, as well as not being able to deduct business losses against other income of shareholders.

What Government tax Account do I need?

CRA will assign your company a 9 digit Business Number.

Other account is GST/HST, payroll, corporate income tax account, and the import/export account.

Do I register for GST/HST?

GST/HST registration can be either mandatory or voluntary. You must register your business once your total worldwide taxable supplies of goods and services exceed the small supplier limit of $30,000 in a single calendar quarter or in four consecutive calendar quarters.

Salary Vs Dividend

Generally, total taxes on wages are lower than dividends, but wages tend to be more expensive because of the CPP.
When you pay yourself a salary, you invest for retirement by paying into CPP and contributing to RRSPs. You are eligible for CPP and EI benefits, Canada Workers Benefit and COVID-19 relief. You also get your business to pay your taxes, so you owe nothing or get a refund come tax time.

Take advantage of tax deferral
Income splitting in Canada
Shareholder loans: This is only if the owner has lent the company money. The repayment is not income and is tax-free.
Management fees: If the owner of the corporation is another corporation that provides services, then management fees may be an option.
Other tax account balances: Capital Dividend Account or Paid Up Capital (PUC)

Important Deadline:

The deadline for most Canadians to file this return is April 30, 2023. Since April 30, 2023, falls on a Sunday, your return will be considered filed on time if the Canada Revenue Agency (CRA) receives it, or it is postmarked, on or before May 1, 2023.

As a small business owner tips to help you with bookkeeping:

Separate Business and Personal Finances: Open a separate bank account and credit card for your business. This separation will simplify your bookkeeping and make it easier to track your business transactions.
Choose a Bookkeeping System: Select a bookkeeping system that suits your needs. You can either use manual methods, such as spreadsheets and physical ledgers, or opt for accounting software like QuickBooks or Xero, which offer features to streamline your bookkeeping.
Keep Track of Income and Expenses: Record all business income and expenses accurately and in a timely manner. This includes sales, invoices, receipts, bills, and bank statements. Categorize your transactions to ensure proper classification for tax purposes.
Maintain Organized Records: Keep all your financial records organized and easily accessible. Create folders or use digital storage to store receipts, invoices, and other important documents. It's a good practice to keep records for at least six years, as required by the Canada Revenue Agency (CRA).
Track HST/GST: If your business is registered for the Harmonized Sales Tax (HST) or Goods and Services Tax (GST), ensure you collect and remit the tax correctly. Keep track of your HST/GST payments and claim any input tax credits you're eligible for.
Reconcile Bank Statements: Regularly reconcile your bank and credit card statements with your bookkeeping records. This process helps identify any discrepancies, errors, or missing transactions.
Payroll and Employee Records: If you have employees, maintain accurate payroll records, including salary, benefits, deductions, and remittances. Ensure you comply with employment standards and payroll tax requirements.
Monitor Cash Flow: Keep a close eye on your cash flow by tracking your income and expenses. This will help you identify potential cash shortages or surpluses and make informed financial decisions.
Seek Professional Help if Needed: If you find bookkeeping overwhelming or don't have enough time to manage it effectively, consider hiring a bookkeeper or accountant. They can assist with maintaining your records, preparing financial statements, and providing tax advice.
Stay Updated with Tax Laws: Familiarize yourself with tax laws and regulations relevant to your business. This will help you meet your tax obligations and avoid penalties. The Canada Revenue Agency's website is a valuable resource for tax information.

Manitoba RST (Retail Sales Tax)

Tax Rate: The current RST rate in Manitoba is 7%. This rate is applied to the selling price or value of taxable goods and services.

Taxable Goods and Services: RST applies to a wide range of goods and services, including but not limited to:

Tangible personal property such as furniture, electronics, vehicles, and clothing.
Telecommunications services.
Prepared food and beverages consumed on or off the premises of a restaurant.
Accommodation services.
Leased or rented goods.
Certain services such as repairs, maintenance, and professional services.
Exemptions and Special Rules: Some goods and services are exempt from RST, such as basic groceries, prescription drugs, medical supplies, and certain agricultural products.

There may be specific rules and conditions for exemptions, so it's important to consult official resources or seek professional advice for specific cases.

Manitoba Taxation Division: The Manitoba Taxation Division, under the Manitoba Finance department, administers the RST. Their website provides resources and information regarding RST, including registration, returns, exemptions, and compliance. You can access their website at: https://www.gov.mb.ca/finance/taxation/
RST Registration: If you are engaged in selling taxable goods or providing taxable services in Manitoba, you may need to register for RST. Registration can be done online through the Manitoba Taxation Division's website. Once registered, you are responsible for collecting RST from your customers and remitting it to the government.
Reporting and Filing: Registered businesses are required to file periodic RST returns with the Manitoba Taxation Division, reporting their sales and remitting the tax collected. The frequency of filing depends on the size of your business and the amount of tax collected. The division provides guidelines and resources to assist businesses in understanding their reporting obligations.
Compliance and Audits: The Manitoba Taxation Division may conduct audits to ensure compliance with RST regulations. It's important to maintain accurate records of sales, purchases, and tax collected to facilitate compliance in case of an audit.

RRSP

Registered Retirement Savings Plan (RRSP) Contribution Deadline: The deadline for contributing to an RRSP and applying the contribution to the previous tax year is generally the same as the personal income tax filing deadline, which is April 30th. However, you may also have until 60 days after the end of the calendar year to make an RRSP contribution that will be eligible for the current tax year.

Overcontribution Penalties: It's important to monitor your RRSP contribution limit to avoid overcontributing. Exceeding your contribution limit may result in penalties. The penalty is 1% per month on the excess amount until it is withdrawn or absorbed by future contribution room.

Contribution Deadline for Current Tax Year: If you want to contribute to your RRSP for the current tax year, the deadline is generally 60 days after the end of the calendar year. For example, for the 2023 tax year, the deadline for making RRSP contributions that can be applied to your 2023 tax return would be March 1, 2024.

Tax Deductibility: Contributions made to your RRSP are tax-deductible, meaning they can be deducted from your taxable income, potentially reducing your overall tax liability. The tax savings will depend on your marginal tax rate.

Spousal RRSP Contributions: You can contribute to a Spousal RRSP, which allows you to contribute to your spouse's RRSP and potentially split retirement income in the future. Contributions to a Spousal RRSP will affect your own RRSP contribution room, but the withdrawals will be taxed in your spouse's name if withdrawn after a specified period.

First-Time Home Buyer's Plan (HBP)

Eligibility: To be eligible for the HBP, you must meet the following criteria:

You must be considered a first-time homebuyer, which means you have not owned a home as your principal residence within the past four years.
You must have a written agreement to buy or build a qualifying home.
You must be a resident of Canada.
You must have funds available in your RRSP.

Withdrawal Limit: Under the HBP, you can withdraw up to $35,000 from your RRSP to use towards the purchase or construction of a qualifying home. If you are buying the home with a spouse or common-law partner, each person can withdraw up to $35,000, for a combined total of $70,000.

Repayment Period: The amount you withdraw under the HBP must be repaid to your RRSP over a period of 15 years. Repayment begins in the second year following the year of withdrawal. For example, if you withdrew funds in 2023, your repayment would begin in 2024. Each year, you must repay at least 1/15th of the total amount withdrawn until it is fully repaid.

Repayment Amount: When you repay the HBP amount, it does not count as a new RRSP contribution. Instead, it is repaid as a separate HBP repayment. If you fail to repay the required amount in a given year, the unpaid portion will be added to your taxable income for that year.

Home Qualification: The home you purchase or build using HBP funds must meet certain criteria. It must be considered a qualifying home, which generally includes houses, condominiums, townhouses, mobile homes, and shares in co-operative housing. The home must also be intended to be your principal residence.

HBP Application: To participate in the HBP, you need to complete and submit Form T1036, which is the Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP. You can obtain this form from the Canada Revenue Agency (CRA) website or through your financial institution.

Sunrise CPA

Resources

Understanding and managing corporate taxes is a crucial aspect of running a business in Canada. This guide aims to provide you with valuable information and insights into the corporate tax landscape, helping you navigate the complexities and optimize your tax strategy.

Remember, tax laws and regulations can change, so it's important to stay updated with the latest tax developments and consult with a professional to ensure your tax compliance and minimize your tax liability.

Should I Incorporate?

Advntage:

Canadian Controlled Private Corporations pay a much lower tax rate on the first $500,000 of active business income compared to unincorporated companies.

The third major tax advantage is the $866,000 capital gains deduction for the sale of shares of qualifying small business corporations.

Disadvantages:

Higher setup, administrative and accounting costs, as well as not being able to deduct business losses against other income of shareholders.

What Government tax Account do I need? CRA will assign your company a 9 digit Business Number.

Other account is GST/HST, payroll, corporate income tax account, and the import/export account.

Generally, total taxes on wages are lower than dividends, but wages tend to be more expensive because of the CPP.

When you pay yourself a salary, you invest for retirement by paying into CPP and contributing to RRSPs. You are eligible for CPP and EI benefits, Canada Workers Benefit and COVID-19 relief. You also get your business to pay your taxes, so you owe nothing or get a refund come tax time.

Take advantage of tax deferral

Income splitting in Canada

Shareholder loans: This is only if the owner has lent the company money. The repayment is not income and is tax-free.

Management fees: If the owner of the corporation is another corporation that provides services, then management fees may be an option.

Other tax account balances: Capital Dividend Account or Paid Up Capital (PUC)

Important Deadline:

The deadline for most Canadians to file this return is April 30, 2023. Since April 30, 2023, falls on a Sunday, your return will be considered filed on time if the Canada Revenue Agency (CRA) receives it, or it is postmarked, on or before May 1, 2023.

As a small business owner tips to help you with bookkeeping:

Separate Business and Personal Finances: Open a separate bank account and credit card for your business. This separation will simplify your bookkeeping and make it easier to track your business transactions.

Choose a Bookkeeping System: Select a bookkeeping system that suits your needs. You can either use manual methods, such as spreadsheets and physical ledgers, or opt for accounting software like QuickBooks or Xero, which offer features to streamline your bookkeeping.

Keep Track of Income and Expenses: Record all business income and expenses accurately and in a timely manner. This includes sales, invoices, receipts, bills, and bank statements. Categorize your transactions to ensure proper classification for tax purposes.

Maintain Organized Records: Keep all your financial records organized and easily accessible. Create folders or use digital storage to store receipts, invoices, and other important documents. It's a good practice to keep records for at least six years, as required by the Canada Revenue Agency (CRA).

Track HST/GST: If your business is registered for the Harmonized Sales Tax (HST) or Goods and Services Tax (GST), ensure you collect and remit the tax correctly. Keep track of your HST/GST payments and claim any input tax credits you're eligible for.

Reconcile Bank Statements: Regularly reconcile your bank and credit card statements with your bookkeeping records. This process helps identify any discrepancies, errors, or missing transactions.

Payroll and Employee Records: If you have employees, maintain accurate payroll records, including salary, benefits, deductions, and remittances. Ensure you comply with employment standards and payroll tax requirements.

Monitor Cash Flow: Keep a close eye on your cash flow by tracking your income and expenses. This will help you identify potential cash shortages or surpluses and make informed financial decisions.

Seek Professional Help if Needed: If you find bookkeeping overwhelming or don't have enough time to manage it effectively, consider hiring a bookkeeper or accountant. They can assist with maintaining your records, preparing financial statements, and providing tax advice.

Stay Updated with Tax Laws: Familiarize yourself with tax laws and regulations relevant to your business. This will help you meet your tax obligations and avoid penalties. The Canada Revenue Agency's website is a valuable resource for tax information.

Manitoba RST (Retail Sales Tax)

Tax Rate: The current RST rate in Manitoba is 7%. This rate is applied to the selling price or value of taxable goods and services.

Taxable Goods and Services: RST applies to a wide range of goods and services, including but not limited to:

Tangible personal property such as furniture, electronics, vehicles, and clothing.

Telecommunications services.

Prepared food and beverages consumed on or off the premises of a restaurant.

Accommodation services.

Leased or rented goods.

Certain services such as repairs, maintenance, and professional services.

Exemptions and Special Rules: Some goods and services are exempt from RST, such as basic groceries, prescription drugs, medical supplies, and certain agricultural products.

There may be specific rules and conditions for exemptions, so it's important to consult official resources or seek professional advice for specific cases.

Compliance and Audits: The Manitoba Taxation Division may conduct audits to ensure compliance with RST regulations. It's important to maintain accurate records of sales, purchases, and tax collected to facilitate compliance in case of an audit.

RRSP

Overcontribution Penalties: It's important to monitor your RRSP contribution limit to avoid overcontributing. Exceeding your contribution limit may result in penalties. The penalty is 1% per month on the excess amount until it is withdrawn or absorbed by future contribution room.

Tax Deductibility: Contributions made to your RRSP are tax-deductible, meaning they can be deducted from your taxable income, potentially reducing your overall tax liability. The tax savings will depend on your marginal tax rate.

First-Time Home Buyer's Plan (HBP)

Eligibility: To be eligible for the HBP, you must meet the following criteria:

You must be considered a first-time homebuyer, which means you have not owned a home as your principal residence within the past four years.

You must have a written agreement to buy or build a qualifying home.

You must be a resident of Canada.

You must have funds available in your RRSP.

Withdrawal Limit: Under the HBP, you can withdraw up to $35,000 from your RRSP to use towards the purchase or construction of a qualifying home. If you are buying the home with a spouse or common-law partner, each person can withdraw up to $35,000, for a combined total of $70,000.

Repayment Amount: When you repay the HBP amount, it does not count as a new RRSP contribution. Instead, it is repaid as a separate HBP repayment. If you fail to repay the required amount in a given year, the unpaid portion will be added to your taxable income for that year.

HBP Application: To participate in the HBP, you need to complete and submit Form T1036, which is the Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP. You can obtain this form from the Canada Revenue Agency (CRA) website or through your financial institution.

What Government tax Account do I need?

CRA will assign your company a 9 digit Business Number.