Recently registered a business? If you're new to the world of business taxation, here's a helpful guide to get you started.
Taxes are unavoidable for any small business, but there are ways you can keep your tax costs to a minimum. For example, knowing what you must pay and when – can help you avoid unnecessary penalties and interest.
Here are some of the taxes that might apply to your small business, depending on where your business is located in Canada and whether or not you do business outside of the country.
1. Goods and Services Tax (GST)
This is a tax on all goods and services purchased in Canada that must be collected with your sales. The current rate for GST is 5%, but you don’t have to collect it for sales outside of Canada. Once you register for GST, you can also apply for rebates on GST you pay on goods and services purchased by your business. You must register for GST if your business earns more than $30,000 per year.
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2. Provincial Sales Tax (PST)
You’ll have to remit annual provincial sales tax on your sales in all provinces, except Alberta. Additionally, Nunavut, Yukon and Northwest Territories have no territorial sales taxes. In Quebec, the provincial sales tax is known as QST. Rates for provinces range from 6% to 10%.
If you sell to other provinces, check the rules in those provinces as rules vary widely. Most will require you to collect their sales taxes. You don’t, however, have to collect sales taxes on goods sold to other countries.
3. Harmonized Sales Tax (HST)
Some provinces have combined (harmonized) their provincial sales tax with the federal GST, meaning you don’t have to file these taxes separately. These provinces include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island.
4. Income Tax
If your business is a sole proprietorship, you report earnings from your business on your personal income taxes. If your business is incorporated, you pay corporation taxes based on your company earnings to both the federal and provincial and territorial governments. There is currently a small business deduction that reduces your federal corporate tax rate to 10%. Income taxes are collected annually, although you may be required to remit more frequently.
5. Excise taxes and duties
These taxes are charged on a wide variety of goods imported into Canada, including spirits, wine, beer, tobacco, inefficient automobiles, automobile air conditioners and some petroleum products. Rates vary, and these taxes are due at the time of entry into Canada.
6. Export and import taxes
Tariffs are taxes that are imposed on goods imported to or exported from Canada. Rates vary widely according to the country you’re doing business with. Visit Export Development Canada to determine what tariffs might apply to your small business.
7. Payroll taxes
As an employer you will be expected to remit taxes to the federal government based on your payroll. These taxes include provincial and federal personal income tax remittances based on employee wages, Canada Pension Plan and Employment Insurance premiums, and sales taxes on taxable benefits you may offer to your employees.
Knowing where to find help
Your bank or independent payroll companies can take care of calculating and remitting the various employee taxes for you, and the cost for this service may be worth the time savings. Accountants and bookkeepers can help you navigate the complicated, time-consuming process of calculating and remitting your business taxes. They should also be able to suggest strategies for passing along costs to your customers and ways to avoid overpaying taxes.
These tips are neither a comprehensive review of the subject matter, nor a substitute for professional tax advice. Be sure to consult with your tax advisor to confirm the suitability of any of these strategies for your personal situation.
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