Starting a new business can be an exciting and challenging endeavor, and navigating the world of taxes can add an extra layer of complexity. While taxes may not be the most exciting aspect of running a business, they are an important consideration that cannot be ignored. In this blog post, we’ll discuss some common tax pitfalls for new businesses in Canada, and how to avoid them.
- Failing to register for a business number: A business number (BN) is a unique nine-digit identifier assigned to businesses in Canada. Registering for a BN is necessary for tax purposes and is required to collect and remit GST/HST, payroll taxes, and other taxes. Failing to register for a BN can result in penalties and interest charges, so it’s important to get this step right from the start.
- Misclassifying workers as independent contractors: If you hire workers to perform services for your business, it’s important to correctly classify them as either employees or independent contractors. Misclassifying workers can result in penalties, interest charges, and even lawsuits. Employees are subject to payroll taxes, and the employer is responsible for remitting these taxes to the government. Independent contractors are responsible for paying their own taxes.
- Failing to keep adequate records: Keeping accurate and complete records is crucial for any business, and can be especially important for tax purposes. Adequate records should include financial statements, bank statements, receipts, and invoices. Failing to keep adequate records can result in penalties, interest charges, and even an audit by the Canada Revenue Agency (CRA).
- Not filing taxes on time: Filing taxes on time is important to avoid penalties and interest charges. In Canada, businesses must file their income tax return within six months of their fiscal year-end. GST/HST returns must be filed annually or quarterly, depending on the size of the business. Failing to file taxes on time can result in penalties and interest charges, and can also trigger an audit by the CRA.
- Not taking advantage of tax credits and deductions: There are many tax credits and deductions available to businesses in Canada, but it’s important to know what you’re eligible for and to take advantage of them. Some common tax credits and deductions for businesses include the small business deduction, scientific research and experimental development (SR&ED) credits, and capital cost allowance (CCA). Failing to take advantage of these tax breaks can result in paying more taxes than necessary.
In conclusion, starting a new business can be a challenging and exciting time, but navigating the world of taxes can be overwhelming. By avoiding common tax pitfalls such as failing to register for a business number, misclassifying workers, failing to keep adequate records, not filing taxes on time, and not taking advantage of tax credits and deductions, you can help ensure your business stays on the right track. It’s always a good idea to consult with a tax professional or accountant to ensure you’re meeting all your tax obligations and taking advantage of any tax breaks available to you.