When running a corporation, there are several hats you have to wear and one of the most important departments is finance and accounting. Without a good finance and accounting department, it would be hard to effectively and efficiently run your business. Taxes and cash flow management are important factors in this department. There are very punitive payments that can be made if corporations are late in their tax filing matters.
Avoid Filing Late Returns
If you file your returns late, there would be penalties and interest applied under the Income Tax Act of Canada. The requirements and regulations under this act would allow CRA to penalize a corporation for being late in their filing. The failure to file penalty is 5% on the unpaid tax that is due on the filing deadline (3 months after the corporations year-end), plus 1% of this unpaid tax for each month that the return is late, up to a max of 12 months. If the CRA issues a demand letter to the corporation, the failure to file penalty increases to 10% on the unpaid tax that was due, plus 2% of this unpaid tax for each month the return is late, up to a max of 20 months. This is not including any interest that will be charged on top of the failure to file penalty. These failure to file penalties are avoidable with sound accounting records, and a company that will remember such deadlines, so you never have to pay a penalty again.
Corporate Tax Return Filing
Corporations are required to file a corporate tax return and the applicable provincial tax return in a timely and accurate manner, even when no taxes are owing, or you are an inactive corporation. Only Alberta and Quebec provinces are required to file a separate tax return, but all other provinces in Canada are administered jointly under the CRA and require only the one Federal Income Tax Return. The CRA will remit to the applicable provinces their share of the taxes paid by the corporation. The taxes need to be paid three months after the corporations year-end to avoid interest. The tax return also needs to be filed no later than six months after the corporations year-end to avoid any late filing penalties. Partnership and Trust returns have different requirements and are typically required to be filed by March 31 (exceptions do apply) following the calendar year.
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GST / HST / PST Requirements
If your corporation’s revenues/sales are expected to be over $30,000, you are required to prepare and file a GST/HST return. PST is a separate filing and varies from province to province. GST/HST returns are due three months following a corporation’s year-end. GST is remitted net of revenues and any input tax credits (ITCs). Not all expenses have applicable GST/HST).
Information Returns T4/T5
If your corporation pays salaries to employees, or owners, or declares dividends to its shareholders, you are required to file information returns. The T4 return and slips are prepared if your corporation pays a salary and remits source deductions, and T5 return and slips are prepared if the corporation declares a dividend. Both of these returns are due by February following the calendar year. These returns do not follow the corporation’s year-end as they are based on a calendar year-end only.
Clean Audit Trail
Finally, another important factor to consider is for your corporation to have a clean audit trail. Corporations are required to maintain bookkeeping or a general ledger of their activity. These ledgers come in various forms such as manual excel synoptics, online software such as Quickbooks or Wave, or a full ERP system. CRA requires corporations to report all income earned, keep receipts, and supporting documents for expenses and keep their records available for 7 years after filing their taxes.
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