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Many small business owners are often hesitant to outsource their bookkeeping needs. Outsourcing the tracking of their business income, expenses, and government filings is often viewed as an unnecessary cost. Additionally, they may be uncomfortable giving someone else access to their company’s financial information. These are both valid reasons that give small business owners’ pause, but in reality, outsourcing your bookkeeping needs is a smart business decision.
When talking to prospective bookkeeping clients, we reinforce that if someone is a good cabinet maker, that doesn’t mean that they can run a successful cabinet making business. Doing your own bookkeeping requires time, knowledge (of accounting and bookkeeping software) and requires you to be organized and have an eye for detail. Bookkeeping services have the experience to manage your books efficiently, while adhering to government filing deadlines which frees up business owners to do what they do best — service their clients. Simply put, let someone else manage your books, while you manage your business. This can be a painful lesson when the government levies penalties and interest for late filed returns.
When your business is in start-up mode, you may not need a bookkeeper initially as you can easily track your sales and expenses on an excel spreadsheet. As your business grows, so will the demands on your time and the volume of bookkeeping entries necessary to track all your business activities.
If you are in a start up situation, it is prudent to meet with an accountant or bookkeeper as they can guide you in registering your business or corporation, registering for HST, source deductions or WSIB, and provide perspective on what to expect as you get your business off the ground. They have valuable experience that can shorten the learning curve for any new business.
CORPORATE T2 RETURNS
Filing Deadline: Six months after your year-end
Corporate Returns must be filed no later than six months after the end of each tax year. When the corporation’s tax year ends on the last day of a month, file the return by the last day of the sixth month after the year end date. When the year end date r is not the last day of a month, file the return by the same day of the sixth month after the end of the tax year. For example, if a corporation’s year end date is December 31st, then the corporate return must be filed no later than June 30th of the following year. If your year end is June 15th, then your return is due by December 15th. If the T2 filing deadline falls on a Saturday or Sunday, then the return is due by the first business days after the filing deadline.
NOTE: You must file a return within 3 years in order to receive a tax refund.
You will be charged 5% of the tax owing if the corporate return is not filed by the filing deadline. Interest of 1% per month will be charged on any unpaid taxes up to 12 months.
Demand to File
If a corporation is issued a Demand to File by the CRA, and does not comply, and the CRA assesses a failure to file penalty ($250) in any of the three preceding years, interest of 10% will be charged on the unpaid taxes + 2% per month for a maximum of 20 months. You need to action a Demand to File immediately to avoid heavy penalties and interest.
Corporations generally have to pay their taxes in installments, with the final payment for the balance of tax due to be paid within two to three months after their year end date. Generally speaking, installments are required if a corporation has tax owing of more than $3000. Installments are usually due on a monthly or quarterly (March 31st, June 30th, September 30th & December 31st) basis.
The CRA charges interest on any late or insufficient installment payments. The interest rate is determined quarterly in accordance with the prescribed interest rate compounded daily. Currently, the rate is 5%.
Clients often get anxious about tax filing deadlines and the possibilities of what that means in the eyes of the Canada Revenue Agency. When that happens, many clients adopt a “head in the sand” position and choose to ignore filing deadlines. As we know from experience, sooner or later, we must face up to the reality of the situation and tackle it head-on.
Let’s take a look at filing deadlines and what happens if those deadlines are not adhered to.
PERSONAL T1 RETURNS – Individuals with Employment Income
Filing Deadline: April 30th (midnight)
If April 30th falls on a Saturday or Sunday, then the deadline shifts to the following Monday. If you are mailing in your return, it must be postmarked prior to this deadline. You can also submit your return electronically via a tax preparer or home tax software program. Additionally, you can always drop off your return at a local CRA office: http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html .
If you are owed a refund from CRA, you can file your return anytime — there is no penalty for late filing. If, on the other hand, you owe CRA money, then you will pay a late filing penalty (5% of the balance owing + 1% of the balance owing for each full month that the return is late up to a maximum of 12 months) . If you have been charged a late filing penalty in any of the preceding three years, the late filing penalty may be 10% of the balance owing + 2% per month. Interest is also charged on the balance owing and that rate is determined by CRA every three month. Currently, the rate is 5% of the amount owed per year.
Any outstanding balances owed to CRA can be paid in a number of ways:
a) Online Payment – To pay online, you need to add the CRA to your list of creditors (using your SIN as your account number) through your online banking program. Simply pay it as you would any other bill online.
b) Payment at a Canadian Financial Institute – To pay at a bank, simply make out a cheque for the amount owing to Receiver General. Be sure to put you SIN on the back of the cheque and indicate in the note section the year for which the payment is for (ie. 2013 Taxes). You will need to include a payment form with your cheque which can be requested via the My Account section of the CRA website or via phone 1-800-959-8281. Additionally, your tax preparer should be able to provide the payment form to you. The other option is to wait for your Notice of Assessment (NOA) to arrive (usually 10-14 business days after filing your return) as a payment form will be included with it.
PERSONAL T1 RETURNS – Individuals with Self-Employment Income or Spouses of Individuals with Self Employment Income
Filing Deadline: June 15th (midnight)
If June 15th falls on a Saturday or Sunday, then the deadline shifts to the following Monday. If you are mailing in your return, it must be postmarked prior to this deadline. You can also submit your return electronically via a tax preparer or home tax software program. Additionally, you can always drop off your return at a local CRA office: http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html .
NOTE: if you have a balance owing, the payment deadline is still April 30th.
Missed Deadline / Payment Options
Installments are periodic tax payments made to the CRA for income earned during the year. This situation arises when you are earning income without tax being withheld at the source (ie. rental income, investment income or self employment income). You have to pay installments if your net tax owing is over $3000 in 2014 and in either 2013 or 2012.
Installments are due four times during the year: March 15th, June 15th, September 15th and December 15th. If any of those dates fall on a Saturday, Sunday or holiday, then they are due by the first business day following the payment date. Installments can be made via your financial institution, online or by mailing in a cheque or post-dated cheques to the CRA.
CRA charges a penalty & interest for missed installment payments or any payments that are less than the required amount. Actual amounts of the penalties and interest vary depending on your situation. For more information, visit www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/ntrst-eng.html.
The April 30th tax filing deadline for individuals has long since passed, along with the June 15th filing deadline for those individuals with self-employment income. Although, it’s somewhat surprising how many people put off getting their taxes organized and filed on time, the reality is, that it is a pretty common occurrence.
For those of you who are procrastinating, here are a few reasons to get moving:
1) GOVERNMENT PAYMENTS WILL BE DELAYED
Your net income for the previous year determines your government payments for the next year. By not filing your 2012 return on time, you delay your Child Tax Benefit Payments, Ontario Trillium Benefit, Old Age Security Payments + HST Credits. These payments are typically paid out starting July and run through to the following June. Additionally, if you qualify for drug subsidies, you need to file to maintain this benefit.
2) LATE FILING PENALTIES
If you file your tax return late and you owe money, the CRA will charge you a late filing penalty that is 5% of the balance owing + 1% of the balance owing for each month that the return is late. If you have filed your return late in the preceding three years, the penalties increase for being a repeat offender: 10% of the balance owing + 2% of the balance owing for each month the return is late.
Along with the late filing penalties, CRA also charges you interest on the unpaid balance. Starting May 1st, you will be charged compound interest daily on the balance owing. The interest rate varies depending on the CRA’s prescribed interest rates, which are determined quarterly. Currently, the rate is set at 5%.
Although this sound quite alarming, don’t panic. If, for example, you are filing your 2013 return on June 30th and have a balance owing of $1000, the interest owed would only total $8.33. Although the interest penalty can add up, it is really the late filing penalty that is the more aggressive charge and can multiple in a hurry. Our advice, get your return filed ASAP — even if you do not have the money to pay the balance owing, the late filing penalty is immediately halted which will save you of money.
Chances are, that if you typically get a refund, and, if you income situation has not drastically change since you last file, you will likely be getting a refund. Our experience indicated that if the CRA thinks that you owe them money, they will send you a Demand to File Notice — if they think that they owe you money, you are not likely to hear from them. In this case, no news is usually good news!
Whatever the situation, the best course of action is to get your return(s) filed. If you’re getting a refund, that’s money in your pocket; if you owe, filing your return will halt the late filing penalty and that, too, is money in your pocket! Don’t delay … call us and book an appointment to come and get your taxes organized.