If you’re self-employed or a small business owner, getting ready for tax filing can be daunting.
You already have a lot on your plate from running your business. And you need to keep on top of deadlines and tax changes, and hunt down your receipts, slips and other documents.
We know it can be overwhelming. To help make the filing process less stressful, we’ve compiled some tips below.
Here’s what you need to know for filing your 2019 tax return.
Do I need to file my tax return?
If you’re self-employed and haven’t made any income, you might think there’s no reason to file a tax return.
But if you want to claim the GST, HST credit or Canada Child Benefit, the net income declared on your tax return determines the amount you receive.
Filing a return will also allow you to claim:
- Provincial tax benefits
- Tax refunds for instalment or source deductions
- Refundable medical expense supplement
- Canada Pension Plan or Employment Insurance (EI) premium overpayments
Also, your tax return creates the contribution room in your RRSP. Make sure you file so you receive the credits and benefits you’re entitled to.
What are the tax deadlines in 2020?
Depending on your business structure, there are different deadlines related to tax season.
Individual tax deadline
The tax filing deadline for your personal tax return is April 30th, 2020.
If you’re self-employed, you and your spouse have until June 15th, 2020 to file your personal tax returns. But if you have an amount owing, you must pay by the April 30th deadline to avoid interest and penalties.
If you owe money to the CRA and file your taxes late, you'll have to pay a penalty of 5% of the balance owed plus 1% for each month you are late, to a maximum of 12 months.
If you are late multiple years, the penalty can increase to 10% plus 2% for each month your return is late, to a maximum of 20 months.
Incorporated business tax deadline
Corporate tax returns are due 6 months after the corporation’s fiscal year-end. If your business is incorporated and has a balance that it still needs to pay, you have until 2 months after the end of your fiscal tax year to pay it off.
There are some exceptions to this rule. Canadian-controlled private corporations with annual business income less than $500,000 may have up to 3 months rather than 2 if they meet the eligibility criteria.
What tax changes will impact my 2019 tax return?
The Canadian government introduced new measures that may affect you.
Canada Training Benefit
This refundable tax credit will cover the cost of up to one-half of eligible tuition and fees associated with training.
If you’re eligible, you can accumulate $250 each year in an account, which will cover the training costs.
The lifetime maximum is $5,000. You start accumulating the amount in the 2019 tax year.
EI Training Support Benefit
This benefit is available through the EI program and will provide up to 4 weeks of income support while you’re on training without your regular paycheque.
The benefit is paid at 55% of your average weekly earnings (subject to EI limits). It can be taken within a four-year period when you require time off work to train.
Small business tax rate
The small business tax rate went down from 10% to 9% in 2019.
The tax rate applies to the first $500,000 of qualifying active business income of a Canadian-controlled private corporation.
Now the small business tax rate is an average of 12.2% across Canada, when you combine federal and provincial income tax rates.
Home Buyers’ Plan
Thanks to new rules, first-time home buyers can withdraw up to $35,000 from their RRSPs tax-free to put towards buying a home. This is up from $25,000.
The increased withdrawal limit is available for withdrawals made after March 19, 2019.
Climate Action Incentive
Residents of Manitoba, Ontario, Saskatchewan and Alberta can claim the Climate Action Incentive, a refundable tax credit, on their 2019 tax return.
Accelerated Investment Incentive
You can now take advantage of enhanced first-year Capital Cost Allowance (CCA) for depreciable assets.
If you’re a business owner and buy a vehicle after November 21, 2018, you can claim 150% of the normal CCA rate in the year of purchase. Previously you could only claim at 50% - It’s now triple the original rate.
When are my RRSP contributions due?
You have until March 2, 2020 to contribute to your Registered Retirement Savings Plan (RRSP). Our favourite feature of the RRSP is that it lowers your income tax bill. (Click here for a comparison of the RRSP and TFSA).
Contributions to an RRSP are tax deductible so you receive immediate tax relief and tax-sheltered growth.
Each year you have a set amount of contribution room. For 2019, you can deduct RRSP contributions to 18% of earned income, up to a maximum of $26,500.
You can also carry forward contribution room from previous years. If you didn’t max out your contribution room in 2017 and 2018, you can add those amounts to your limit for this year.
Want to find your contribution room? Review your latest notice of assessment or notice of reassessment in My Account.
What records do I need?
You must keep records of your transactions to support income and expense claims.
Support your reported income with original documents. These include sales invoices, bank deposit slips, fee statements, contracts and receipts.
Keep receipts of each transaction to support your expenses. The CRA won’t accept your bank or credit card statements to justify deductible business expenses. Make sure you have an itemized receipt that corresponds with the transaction.
The receipts must show:
- The date of the purchase
- Name and address of the seller or supplier
- Your name and address
- The full description of the goods or services
- The seller’s business number if they register for GST/HST
If you don’t have receipts, the CRA could disallow your expense claims.
LEARN MORE: 7 simple ways to organize your receipts.
Keep your records for at least six years after your last Notice of Assessment, which is as far back as the CRA will ask to see them in the event of an audit. You can keep the physical receipts or digital copies.
What can I deduct if I'm self-employed?
There are several tax deductions available to you, which will help you bring down your tax bill. Top deductions for self-employed individuals and business owners include:
- Advertising expenses
- Business-use-of-home expenses
- Meals and entertainment
- Office expenses
- Vehicle expenses
LEARN MORE: Top small business tax deductions.
If you’re a farm owner or agricultural producer, you can deduct everything from clearing, levelling and draining land to pesticides.
If you're in the construction industry, you can also deduct bad debts, supplies and tools, union dues and membership fees.
Book an appointment with FBC
Getting organized for tax season can seem overwhelming, but it doesn’t have to be.
FBC works with Canadian small business owners to minimize their income taxes and maximize their assets.
We offer tax planning, preparation and audit representation as well as bookkeeping and financial planning to cover your complete financial needs, all available year-round for one fee.
Interested in learning more? We're offering a no-cost, no-obligation consultation to explain how you can make sure you’re taking advantage of all the tax-saving opportunities available to you.
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