You have decided to incorporate. Congratulations!
Here is a short blog on basic tax compliance requirements for a corporation. This overview will prepare you for what’s ahead, and keep your new corporation in compliance with the law, and in control. We discuss GST/HST and sales tax returns, payroll, T5s, and corporate tax returns. While the goal of this blog is to help readers to “do it themselves” by summarizing a complex subject area. Readers are cautioned to do their research, and to contact us with any questions to ensure all requirements are met.
GST/HST AND SALES TAX RETURNS
After incorporating and opening your corporate bank account, your next step might be to send your first invoices to your clients. Does GST/HST or sales tax apply?
Each service offering a business provides will fall in one of three basic categories: GST/HST exempt, GST/HST zero rated, and GST/HST taxable. A business can have all three, in the same business, and should register when its GST/HST taxable sales exceed 30,000. For the detailed guidance on when to register for and start charging the GST/HST, please see this link. Yes, we suppose that this is a “free ride” meaning that you don’t need to charge tax on your first 30,000 of taxable sales. Once registered with CRA however, tax must be charged even on the first dollar, and returns will be due monthly quarterly or annually depending on the size of the business. Filing will be paperless and is done online. GST/HST NETFILE Service link.
A new corporation will face the decision of whether to pay the shareholder by salary/payroll, or using dividends, or combination of both. If payroll is needed, the business should register a payroll account before the first employee is hired, and will determine the filing frequency (quarterly, monthly, weekly, biweekly). Payroll frequency is based on the size of the “Average Monthly Withholding Amount” and as described in the Employers’ Guide.
When taxes are withheld, small businesses can use Payroll Deductions Online Calculator to calculate deductions. Larger businesses use electronic payroll processors Ceridian or ADP to calculate both payroll deductions and T4s. Any withheld amounts are paid to the government in accordance with the company’s filing frequency, as described two paragraphs above.
T4’s are due annually on the last day of February. T4s can be done electronically on the “CRA My business Account Login” site. Small businesses can also complete fillable forms T4 (Fillable) and T4 Summary (Fillable) and mail the slips. For more than 50 employees, electronic filing is mandatory.
When the business pays the shareholders using dividends, it prepares a T5 information return each year on the last day of February. T5 slips are due the last day of March. T5s can be done electronically. Small businesses can complete these fillable forms T5 (Fillable) and mail the slips. For more than 50 employees, electronic filing is mandatory.
CORPORATE INCOME TAX RETURNS
Corporate tax returns are due 180 days following year-end, however don’t wait until then to pay your tax bill. The final tax payment for each year is due 2 months after year-end, or possibly 3 months after year-end if you are small. Deadlines may have been extended due to COVID.
Most corporations can file their return electronically. While it’s possible to file manually for corporations with revenue under $1 million, many chose to file electronically due to the ease and relatively low cost of doing so. Tax preparers can select from the following list of software providers of certified Corporate Tax Return Filing Software.
While no two circumstances will ever be identical, we hope that this overview of some of the basic filing requirements has prepared you for what’s required, and that you’re able to keep your new corporation in compliance, and in control. We hope that this blog will set you on your way to doing much of the work yourself. As always however, we stand ready to assist you to meet your filing deadlines.