Canadian Small Business Tax Filing Tips for 2023

• February 2023. Netfile opens for those who want to get a head start on filing. The exact day isn’t yet known as the Canada Revenue Agency (CRA) hasn’t announced the date.

• February 28, 2023. If you have employees, this is the last day to file their T4 slips.

• March 1, 2023. It’s the last day to contribute to your registered retirement savings plan (RRSP) for the 2022 tax year. Contributions to an RRSP help reduce your tax bill.

• March 31, 2023. Partnerships must file a partnership information return by this date.

• May 1, 2023. May 1 is the deadline for individuals to file their returns. It’s usually the last day of April, but it is a day later because April 30 falls on a Sunday in 2023. It’s also the due date for any money owed to the government to be paid, including those who are self-employed (even though the filing deadline is six weeks later).

• June 15, 2023. This deadline is for most entrepreneurs, business owners, sole proprietors, and self-employed professionals (including those with side hustles) to file their returns.

If your business is incorporated, your tax-filing deadline is six months after the corporation’s fiscal year ends. For example, if the corporation’s fiscal year end is January 31, your tax return is due July 31. Any payments owed are due two months after the end of your corporation’s fiscal year.

There’s an exception to this rule if you have a Canadian-controlled private corporation and it has less than $500,000 in annual income. If that’s the case, the deadline for payments is three months after the end of the corporation’s fiscal year.

Penalties for a Late Filing

There’s a late-filing penalty if you owe money to the CRA. It’s 5% of the balance owing, plus an extra 1% every month for up to 12 months.

That’s why you should file your taxes on time even if you can’t pay what’s owed. Doing so will allow you to avoid paying a penalty, but you will still have to pay interest on the unpaid balance.

GST/HST Filing and Payment Deadlines

The deadlines vary based on your GST/HST filing period. They’re either monthly, quarterly or annually.

If the filing period is monthly or quarterly, the filing and payment deadlines are one month after the end of the reporting period.

For an annual filing period with a year-end of December 31, the filing deadline in 2023 is May 1 and the payment deadline is June 15. For an annual filing period with a year-end other than December 31, the filing and payment deadlines are three months after the fiscal year-end.

Documents Required for Filing

The two main forms you’ll need to file are a T1, which is a standard tax return, and a T2125 (statement of professional or business activities). If you have multiple businesses, you need to file a separate T2125 for each. On your T2125, you will have to enter all your business income as well as any expenses such as business insurance.

For those who work full-time and operate a business as a side hustle, you’ll need to enter the information from your T4 on your return and submit a T2125. 

Incorporated businesses must file a T2, which is a corporation income tax return.

What Happens If You’re Audited

There’s always the possibility of being audited. You may be chosen randomly or because there appears to be non-compliance with tax obligations. You shouldn’t throw out any recent tax returns or related documents for those reasons. The government says: “you must keep all required records and supporting documents for a period of six years from the end of the last tax year they relate to.”

If you have hired an expert to help you or file your taxes, they can represent you. If you did your taxes on your own, you can represent yourself or hire someone to work on your behalf. Depending on the required work, hiring someone may be costly, but it can save you some time and peace of mind.

To reduce your chances of being audited, you should be aware of what can raise a red flag at the CRA:

• Having large deductions. While you can deduct many expenses for business purposes (such as meals, entertainment, and travel), you shouldn’t claim those you can’t remember, whether for business or pleasure.

• Reporting recurring losses. Some businesses aren’t always profitable, but having a loss year after year will look suspicious, especially since you’re in business to make money.

• Owning a cash-intensive business. Restaurants, bars, salons, and variety stores are just a few examples of a cash-intensive business. There’s an opportunity here not to report all your income if a large portion of sales are in cash, which is why the CRA will be more likely to scrutinize your books.

• Employing family members. There’s no law against having your spouse or other members of the family working for you, but make sure you follow the rules.

• Writing off 100% of vehicle expenses. It will be rare for all your vehicle expenses to be for business use unless you have access to another vehicle. 

You shouldn’t worry about an audit if you keep detailed records and don’t have anything to hide from the CRA.

Planning and Getting Help

Even though your tax return might not be due right now, the time to start planning is now. 

It may be in your best interest to get professional advice from a tax expert or an accountant. They can advise you on what deductions and credits are available and fill out all the required forms on your behalf. Of course, a cost will be involved, but leaving it to an expert will give you more time to focus on your business.

Getting the Right Insurance Coverage

As a business owner, you also need to ensure you have the proper type of insurance. 

You should consider commercial property insurance in the event there are losses or damage to your property and contents, commercial general liability insurance to protect yourself in case a customer is injured onsite, and professional liability insurance if you’re unable to deliver a service as promised. Also, know that your business insurance policy is tax deductible.

Having the right coverage will give you the protection your business needs. Speak to a licensed Zensurance broker if you have questions about what your insurance policy should contain.

– Reviewed by Vinoth Thiru, Team Lead, Technology and Professional Liability, Zensurance.