What you need to know about small business tax filing

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What you need to know about small business tax filing

Last updated October 26, 2020. We will update blog posts when more information is released.

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 important tax deadlines, impacts that update your 2020 tax return and more.

Here’s what you need to know for filing your 2020 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 deadlines for small business tax filing in 2020?

This year was different. The federal government extended the tax filing and payment deadlines for most taxpayers due to COVID-19. It’s unlikely these deadlines will be extended next year, so be aware of tax deadlines that impact you.

It’s important to file your tax return, and file on time. It’s also important to pay on time. Postponing filings or payments will only push problems for a couple of months but not make them go away.

Individual tax deadline

The tax filing deadline for your personal tax return is April 30th, 2021.

If you’re self-employed, you and your spouse have until June 15th, 2021 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.

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.

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.

What tax changes will impact my 2020 tax return?

Several COVID-related programs were introduced this year to help small business owners. We outline the most important programs below.

Canada Emergency Business Account Loan

The Canada Emergency Business Account provides up to $40,000 in interest-free loans to small businesses. If you’re facing a decline in revenue right now, this loan will help you cover operating costs like rent or payroll.

The best part is, the loan is interest-free until December 31st, 2022. And up to $10,000 of the loan could be forgiven if you repay it by then. Just note that the forgivable portion of the loan is taxable.

You can apply for the loan through your bank or credit union that holds your primary business operating account.

The government also recently expanded the Canada Emergency Business Account. This expansion would enable businesses eligible for CEBA loans, which continue to be seriously impacted by the pandemic, to access an interest-free loan of up to $20,000, in addition to the original CEBA loan of $40,000. So that’s $60,000 (total) of which $30,000 ends up forgivable if repaid by December 31, 2022.

Farm Credit Canada Funding

The government increased the lending capacity of Farm Credit Canada by $5 billion to help agricultural producers cope during the pandemic. If you’re facing cash flow issues, or feeling the impact of lost sales, this loan will help. You can stay focused on keeping your business running, instead of worrying about how to access funds to keep operating.

If you’re gearing up for harvest season, you can use the loan to purchase inventory or equipment Reach out to Farm Credit Canada to find out what your options are.

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.

Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy is a program you can use to keep your employees on payroll. The taxable benefit provides up to 75% wage subsidy to a qualifying business.

The amount of the subsidy depends on how much the business’ revenue has dropped. You can use the money to prevent layoffs and make it easier to resume operations after the pandemic is over. Plus, salaries are usually the biggest cost on an income statement. With the subsidy, you’ll have some cash flow that you can use for operating costs like rent, utilities, insurance and property taxes.

The government recently announced that Canada Emergency Wage Subsidy has been extended to June 2021.

The rules and calculations can get somewhat complicated. FBC has a program that can help you apply for your wage subsidies and other COVID support programs. Go to www.fbc.ca/reboot-your-business for more information.

When are my RRSP contributions due?

You have until March 1, 2021 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 2020, the RRSP deduction limit is 18% of a taxpayer's pre-tax earned income, or $27,230 (whichever is less).

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 as a small business owner

There are several tax deductions available to you, which will help you bring down your tax bill. Top deductions for 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

Small business tax filing 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.

DOWNLOAD A FREE TAX READINESS TOOLKIT


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