What you need to know about small business tax filing

Last updated: Jan. 23, 2022 

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 and a few quick tips to help lower your taxes (scroll down for your free Tax Preparation Toolkit for the 2022 tax year).

Here’s what you need to know for filing your small business 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?

There are several important deadlines you should be aware of for your 2021 income tax filing. These dates will vary depending on how your business is structured.
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.

LEARN MORE: Late filing penalties for small business taxes.

Personal income tax deadline

The tax filing deadline for your personal tax return is April 30, 2023 but since April 30 falls on a Sunday, you have until May 1, 2023 to file.

If you’re married or common-law, you and your spouse have until June 15, 2023, to file your returns. This will include your T1 (personal tax form) and your T2125, Statement of Business or Professional Activities.

Here’s the catch: although the CRA gives you extra time to file, if you have any amount owing, this amount must be paid by the April 30th deadline to avoid interest and penalties. So, it really is in your best interest to meet the April 30th deadline each year.

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.

When are my RRSP contributions due?

You have until March 1st of every year 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 the 2021 tax year, you can contribute 18% of  your reported 2020 income to your RRSP, up to a maximum of $27,830.

You can also carry forward contribution room from previous years. If you didn’t max out your contribution room in 2019 and 2020, 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 farmer 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.

Free Download: Year-End Tax Planning Strategies for Your Small Business

Many small business owners wait until spring to start thinking about their taxes, but this simple act of waiting could cost them thousands.

Fall is actually the best time to start think about your taxes. It allows you to get organized and assess what actions you can take before the end of the tax year to lower your future business or corporate income taxes.

Consider this toolkit your roadmap to help you get organized, reduce your tax burden, and keep more money in your pocket.

About FBC

FBC was founded on the belief that Canadians should receive every benefit of filing their taxes. Three-generations later, our family-owned business continues to support farmers, truckers, trades and other small businesses minimize their taxes, simplify their books, and pay their employees.

Take 15-minutes to connect with us.  Let’s see if we’re a good fit for you and your business. Book online or call us at 1-800-265-1002