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What you need to know about small business tax filing

Last updated Feb. 16, 2021. 

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 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?

Last 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 again this 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.

LEARN MORE: Late filing penalties for small business taxes.

Individual tax deadline

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

If you’re self-employed, you and your spouse have until June 15th 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 last 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 $60,000 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 $20,000 of the loan could be forgiven if you repay it by then. Just note that the forgivable portion of the loan is taxable in the year it’s received.

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

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. You can deduct any interest incurred on the loan to help you lower your taxable income.

Download your free tax preparation toolkit for farmers and agricultural producers.

Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (CEWS) is a taxable benefit available to employers who have experienced a drop in revenue due to COVID-19, to cover part of their employee wages retroactive to March 15, 2020.

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 Canada Emergency Wage Subsidy is taxable. You must include the amount of CEWS you receive as taxable income on your corporate income tax return.

LEARN MORE: Tax implications of COVID-19 programs (CRB, CEWS, CERS, CERB, CEBA and TWS).

When are my RRSP contributions due?

You have until March 1st 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 2018 and 2019, 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. Download your free tax preparation toolkit for trades and contractors. 

Free Guide: Tax Preparation Toolkit for Small Business Owners

We know you’re dreading it, but it’s got to be done – and with a little preparation, you can fulfill your tax obligations without any stress. Our simple, easy-to-understand toolkit will teach you how to get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for the tax filing deadline. There’s even a printable checklist that lists all the documents you’ll need as a business owner, and tax write offs you shouldn’t miss out on. Get the prep out of the way so you can get back to running your business. Download your toolkit today.

Book a free consultation 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.