Tax Returns

The Canadian tax filing system is dependent on individual self-assessment.  In regard to income, taxpayers are expected to provide truthful and accurate information so that the CRA may correctly assess their taxes. It is basically the honour system.  But there are severe consequences for intentional transgressions (and even for those in error).  And while a taxpayer will not likely be even penalized for taking their spouse to a hockey game and expensing the tickets, for more serious matters like under-declaring a material amount of income or a material inflation of expenses, the CRA has no problem penalizing and even criminally prosecuting taxpayers.

My advice is to always be truthful on your tax filings and keep proper records to support your filings.  One day you may find yourself audited and you will be glad that you didn’t play any games.  Remember that the CRA receives information about taxpayers from many different sources.  At some point in the future the CRA may receive information about your business because they audited a supplier or customer, or from a bank, or even from a foreign country.  Assume that the CRA will be privy to all business information and file your returns as such.

 

When, What, Where, and How Expensive?

 

A sole proprietor must file a T1 income tax return by April 30 for the preceding tax year. This is the same filing that must be done for any other individual.  The difference will be that a sole proprietor will include their business income and expenses and prepare the statement of business expenses.  These returns cost about $150 – $350 per year depending on their complexity and can also be done with the off-the-shelf tax filing software.

Corporations must file T2 returns on the other hand, which can be fairly involved and can run about $2000 per year or more.

For partnerships with 6 or more partners, a Partnership Information Return must be filed by March 31 for the December 31, year-end.

For those businesses that have payroll accounts, T4 and T4A information returns must be filed by employers (for the previous year) by the end of February. A T4 statement of remuneration MUST be filed along with a T4A statement of pension, retirement, annuity and other income.

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