- Sole Proprietors should ensure that funds set aside aside for taxes include an amount for CPP, everyone has to pay CPP . Sole Proprietors pay their CPP at tax time, as opposed to salaried persons who pay theirs each pay period. A good estimate in year 1 is to set aside 25 to 30% of gross revenue to cover income taxes and CPP. After that the payments to be set aside will be determined based on your previous year’s filing
- File on time, and pay installments on time. This saves on interest and penalties. Penalty is 5% of taxes owing. Ensure you discuss with your accountant your filing deadlines and the implications.
- Keep business bank account separate from personal bank account.
- Provide invoices for all work done and keep record of actual receipts for expenses incurred
- Remember to maintain a mileage log – for shareholders, you can be paid mileage tax free from the corporation, as opposed to sole proprietors where the total mileage travelled is apportioned and then used as a deduction in calculating your taxes. In either case, a mileage log is important
- HST input tax credit can be claimed on home office expenses and mileage reimbursements
- Designate one credit card for business expenses (even if it is one you got in your name). That way the interest can be claimed easily
- Wait until you have are just about to reach $30,000 in sales before you get a HST number. Once you have the HST number , you must start collecting taxes, and if your register too early, this might push forward a lot of administration that you didn’t bargin for
- When signing up for HST, please ensure that the reporting period lines up with your business fiscal year. This makes record keeping much easier. So if your fiscal year end is Dec 31, then your HST should be Dec 31 st as well, or if quarterly, it should be calendar quarters, so that it will line up with the fiscal year end and recordkeeping
- Ask your accountant if you qualify for using the Quick method to prepare your HST returns
- Stay on top of your recordkeeping
- Ensure you discuss the various compensation structure options (and implications) available to you as the business owner, with your accountant
- Compensation via dividend is treated as investment income (as opposed to earned income), as such no CPP, EI, or health tax is payable on these. This compensation method can therefore result in good tax savings, however, the taxpayer will have no contributions to the CPP.
CRA Audit triggers (personal and business taxes)
- Small business losses for more than 3 years
- Specific targeted industries, which change from time to time – CRA is currently focussing on cash based businesses (eg., restaurants and tradespersons) and the underground economy, where money is passed “under the table”.
- Certain personal tax deductions are often scrutinized – Moving expenses, tuition transfers, large medical expense claims, childcare expenses and donation receipts
Green Meikle & Smith Chartered Professional Accountants
Authorized to practice public accounting by the Chartered Professional Accountants of Ontario
1020 Matheson Blvd. E. Unit 10
Mississauga, ON L4W 4J9
905-919-3543 Ext 101