Get ready to crunch those numbers - tax time is quickly approaching for businesses across Canada. In order to prepare you for the extra pile of paperwork associated with tax returns, we spoke with Canada Revenue Agency to compile a list of tax tips and common errors to make sure your returns are error-free and up to par.
Changes From 2008
First and foremost, there are a few changes to the tax system that come into effect in 2008. In addition to the GST/HST decrease to five per cent, some other reductions that you should take notice of are:
The small business tax rate falls from 13.12 per cent to 11 per cent. This rate is the federal tax rate that is applied to the first $400,000 of business income of a Canadian-controlled private corporation.
The Capital Cost Allowance (CCA) system has been changed and this will affect both building and computer assets for small businesses. The CCA is a tax deduction that businesses can claim for a loss in value of assets due to wear and tear. The new rates apply to assets acquired on or after March 19, 2007. For computers, the old CCA rate of 45 per cent increases to 55 per cent. With buildings, non-residential buildings now have a CCA rate of six per cent as long as the 90 per cent of the building is used for the designated purpose at the end of the taxation year. Buildings used for manufacturing or processing will have a CCA of 10 per cent from the previous four per cent.
For self-employed individuals, the personal income tax instalment rate increases from $2,000 to $3,000.
When it comes to employers, the tax instalment threshold now sits at $3,000, up from the previous rate of $1,000. This means that employers who have a good compliance history and withholding amount averages of less than $1,000 each month, may be able to pay quarterly instead of monthly.
The personal income tax rate drops to 15 per cent and the basic personal amount rises to $9,600 for 2007 and 2008.
Tax Tips for Filing
The number 1 thing that business owners can do prior to filing their return is to keep good records and to store those receipts. That way, if you are ever audited, your bookwork is in tip-top shape and there won't be any last-minute panic. When it comes to the actual filing process, there are a number of tips you can use to make the undertaking a whole lot more painless.
Beatrice Felenon, media relations for Canada Revenue, passed along the following suggestions:
- To help the CRA process your payment correctly, be sure to complete your remittance voucher when making remittances/payments. Payments being made by cheque or money order should be made payable to the Receiver General and submitted along with the completed remittance voucher. Write your full 15-digit Business Number (BN), e.g., 123456789 RC0001, on the back of the cheque or money order. The CRA considers the payment as made on the day they receive the payment, not on the day you mail it.
- You can utilize the CRA's online My Business Account system to confirm/verify the balances on your corporate, payroll and GST accounts. My Business Account is a secure and convenient way for businesses to access their CRA account information online. It offers business owners online access to their GST/HST, payroll, corporation income tax, excise tax, excise duty, and other levies accounts.
- Save time by paying your taxes through your financial institution's Internet or telephone banking services or through a third-party service provider. Electronic payments are convenient, secure, environmentally friendly and provide immediate payment confirmation. You can pay personal and business income taxes, GST/HST, and employer source deductions. You may also be able to schedule post-dated payments or file your GST/HST return and remit any balance owing at the same time.
The CRA's website is also equipped with a Payroll Deductions Online Calculator. The online calculator is compatible with all user operating systems and calculates payroll deductions for all provinces and territories, with the exception of Quebec. Revenu Quebec has a downloadable WINRAS product for payroll deductions in that province.
Self-employed individuals and their spouses have until June 15 to file their annual income tax returns. However, any balance owing must be paid by April 30 even if the return is not due until June 15.
The CRA's Beatrice Felenon also commented on the common errors that are made when filing for a return. Here's a list of some of the more common mistakes:
- 4 Returns: Most commonly, T4 errors are made in when box 24 (EI insurable earnings), box 26 (CPP/QPP pensionable earnings) or box 28 (Exempt) are filled out incorrectly. A section of the CRA's website is devoted to these mistakes (http://www.cra-arc.gc.ca/tax/business/topics/payroll/returns/t4/slips/avoiding-e.html ) or the CRA can be contacted by telephone with questions.
- GST/HST returns:One of the most common mistakes businesses make when filing their GST/HST returns is filing the wrong portion of the return. As of April 2007, the GST/HST return was reformatted to two double-sided pages: the first page is the working copy and the other page contains the portion registrants should be submitting.
Other common mistakes include simple mathematical errors, filling out line 114 (refund claimed) instead of line 115 (payment enclosed) or vice versa, and not indicating that the amount on line 109 (net tax) is a negative amount when claiming a refund.
- T2 Returns:After reviewing the Error Analysis report and determining which errors could be attributed to the taxpayer, here are the "most common" errors.
-tax payable has been calculated incorrectly
-capital loss carry forward has been calculated incorrectly
-taxable income has been calculated incorrectly
-opening balance doesn't match closing balance of previous year (e.g. UCC)
-a component of tax payable has been calculated incorrectly
-financial statement information is missing
For more information, Felenon encourages florists to visit the CRA's website (http://www.cra-arc.gc.ca ) or the Revenu Quebec website (http://www.revenu.gouv.qc.ca/ ). Both agencies can be contacted by telephone or e-mail with any questions or concerns.