When are your taxes even due?
When is the tax filing deadline in Canada? For individuals it’s April 30th, UNLESS you have a sole-proprietorship (aka you are “self-employed” or have an unincorporated business) in which case it’s June 15th. And if you qualify for that June 15th extension, your spouse/common-law partner automatically does too. The tricky part to remember however, is that tax payments are due on April 30th for ALL individuals, so if you haven’t calculated and paid your tax by then, interest will start accruing on the balance owing from April 30th. For this reason, I tell my clients to forget about the June extension and encourage them to send their info to me by April to avoid that interest! Similarly, if your business is incorporated, your tax payment is due three months after the year-end even though the filing of the return isn’t due until six months after the year-end.
Income and expense tracking tips
When it comes to reporting your business activity on your tax return, sole-proprietors are responsible for an income statement, consisting of income and expenses for the year, with expenses summarized by category. Usually summarizing your income is the easy part – you can get all your invoices into a spreadsheet, use your sales program to generate a report, or if you had a separate business bank account you can tally the deposits from clients/customer payments.
Expenses are more difficult. If you’re keeping a lot of paper receipts, I always recommend filing them by category in an accordion folder as you get them. Common expense categories are: Advertising, Travel/Auto, Rent/Home office, Insurance, Interest/bank fees, phone/internet. Keep in mind with respect to Home Office expenses, you’re tracking all your home expenses but then prorating them for your office portion ie. 10-20% of total space.
The best expense-tracking method, however, is always recording them somewhere during the year like in accounting software or in a spreadsheet, so you’re not left with a mountain of receipts to go through later. Even with just a spreadsheet, if you can record the date, description, category, HST and total amount paid for each expense, putting your expenses together for your return becomes a matter of just sorting that spreadsheet by category. If you’re not registered for HST, another way to put all your expenses together (other than cash expenses) is to pull them directly from your credit card/bank statements. For emailed receipts, labeling the emails as you get them is your best option to file those expenses. Lastly, be sure to keep your receipts and supporting documents for 7 years in case the CRA asks you to support your expenses claimed.
Don’t forget about HST!
If you are registered for HST, don’t forget to track that HST amount you paid on expenses because you’ll be reporting that on your HST return to reduce the HST you’re remitting to the government that you charged on your sales. HST return filing and payments are due the same date as your taxes (April 30th for individuals or 3 months after a corporation’s year-end).
What kind of accounting system do you need?
For corporations, accounting software is recommended because you’re not only responsible for an income statement but a balance sheet too, which means you’ll need to report the balances of your corporate assets and liabilities at the year-end date (bank accounts, loans, credit card balances, accounts receivable/payable etc.). Sole-proprietors can use spreadsheets, accounting software, or anything in between. I provide customized accounting solutions for a lot of my clients, incorporated and otherwise, because every business is different. Automation – meaning having a self-sustaining accounting system – is the ultimate goal to reduce time/costs spent on accounting during the year.
Other considerations
On your personal return, other non-business-related credits common to most individuals are medical expenses, donations, post-secondary tuition/courses, and child care expenses, to name a few.
When it comes to making your tax payment, not only can you send it online, but the CRA now gives you the option to allow them to direct debit the payment from your bank account if they have your account info and you explicitly instruct them to do so on your tax return. If you’re entitled to a refund, the CRA’s preferred payment method is direct deposit into your bank account as well.
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