If you’re the brains behind a startup, you might find the thought of dealing with the Canadian tax system, daunting to say the least, especially when new regulations come in, which they can do on a regular basis.
With several different tax obligations to comply with, such as corporate taxes and payroll deductions, requirements for GST/HST, as well as compliance deadlines to meet, help and guidance from a corporate tax accountant can prove invaluable for all manner of startups.
But while hiring professional help is essential for most businesses, it’s also important to have a basic understanding of your tax responsibilities as a startup owner, and this basic guide should help you:
How to register your startup for a business number (BN)
Registering your startup for a BN gives you a unique identifying number that helps you manage all tax and regulatory interactions with the CRA, making it essential for the accurate reporting of all taxes. Without one, you won’t be able to file your startup’s taxes, make payroll deductions, or claim tax credits.
Selecting the best structure for your startup
Your startups tax obligations can be significantly impacted by the type of business structure you choose for it. Every structure, whether it’s a sole proprietorship, corporation or partnership, has implications for your tax liability, tax rate, and tax compliance needs, and a corporate tax specialist can help you understand which one would best align with your startups financial goals, and keep your tax liabilities to a minimum.
Making the most of tax credits and deductions
Startups in Canada are very well supported with various tax credits, including the SR&ED (Scientific Research and Experimental Development) tax incentive program, which offers financial relief for new businesses that are engaged in eligible activities and research, covering certain expenses such materials, overheads and wages.
There is also something called the Small Business Deduction (SBD), that those startups who are private corporations controlled by Canada (CCPC), may qualify for, which could afford them a reduced tax rate on a proportion of their business income.
The importance of keeping accurate records
Tax compliance is mandatory for businesses big and small, and to always comply with tax regulations, it’s imperative that financial records are well maintained. Making the entire process of reporting your startup taxes simple, having accurate and up to date documentation can also help you when it comes to tax credits, substantiating them.
If you struggle to maintain your financial records as the owner of a startup, accounting software or assistance from an accountant can help relieve the pressure of missed deadlines and penalties and prevent you from being targeted for an audit by the CRA.
Getting to grips with your startup’s GST/HST obligations
Registering for, collecting, and remitting GST/HST, is required by all businesses who exceed revenue of $30,000 over a period of four quarters consecutively. But should you choose to register before you hit this financial threshold, you may be able to use your business purchases to claim input tax credits.
Depending on your startup and its size, you may need to file your tax returns on a monthly, quarterly, or annual basis.
All startups should strongly consider hiring a local company tax accountant to help them stay compliant and take advantage of all available tax incentives. Working with one from the outset can help your startup get off to a healthy start financially and manage your obligations as your business grows.