Few business owners like dealing with paperwork and red tape. Yet, as several business owners and directors across Canada find out each month, non-compliance can be costly.

Every month, small business owners and corporate officers are convicted and fined by Canadian Customs and Revenue Agency (CCRA) for failure to comply with their tax obligations. Common offenses include failure to take and/or remit payroll deductions and failure to file GST/HST returns. Two Nova Scotia businessmen, directors of their incorporated business, faced the consequences of non-compliance recently when each was fined $5,000 for failing to remit taxes deducted from employee pay cheques. Fines typically fall in the range of $1000 to $6000.

SME obligations
As a small business owner or operator, your most basic obligations include deducting taxes if you have employees, collecting and remitting provincial and federal sales taxes if applicable, and filing an annual tax return. You are also required to keep accurate books, including receipts.

You should also check to see if you are required to insure your employees through the Workplace Safety and Insurance Board (WSIB) or if you are required to remit the Employee Health Tax (EHT). As well, look into provincial and municipal obligations such as licensing and retail tax.

Source deductions
Taxes deducted from employee pay cheques are called source deductions, because employers deduct these taxes at the payment source. Employers are responsible for deducting income tax, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, and Employment Insurance (EI) premiums from employee pay cheques.

Employers not only remit the amount withheld from each employee pay cheque, they must also pay additional CPP/QPP and EI deductions, at a rate of 1:1 and 1.4:1 (employer share: employee share) respectively.

Source deductions are due regularly, usually on a monthly basis. Typically, each installment payment is due on the 15th of the following month. If the 15th falls on Saturday, Sunday or a holiday, the remittance is due on the next business day after the 15th. For example, you would need to remit the source deductions for the month of May by the 15th of June. Depending on company size, you may be allowed to remit deductions less frequently, but monthly remittance is the most common timeframe.

CCRA will levy a fine for each payment received after the due date.

GST/HST
Small business owners should also be aware that you do not have to register for the GST/HST if your taxable worldwide revenues are less than $30,000 annually. However, you can register voluntarily. If you plan to make a number of purchases, registration can be to your advantage, as you can only claim the GST back once you are registered.

For many new businesses with high expenses and low revenues, being registered for the GST means you will get back the difference between the GST paid and collected. Also, not charging GST will notify your customers that you earn less than $30,000 annually, which may be undesirable.

Smart tip: if you earn more than ¼ of $30,000 in 3 consecutive months, you should not wait until year-end to register for the GST; you must register and start charging GST/HST immediately. If you wait until year-end, you may discover you are required to pay the GST/HST for the subsequent quarters, even if you were not registered and did not add GST/HST to your invoices.

If you are charging or remitting GST/HST, it is important to file returns according to the prescribed CCRA timetable.

Set the record straight
If you have not met all your tax filing obligations, you are not alone. You can correct things now, however, by making a full disclosure, filing the necessary paperwork, and paying the appropriate taxes plus interest. As long as you do this before CCRA starts an action or investigation, you won't be penalized or prosecuted.

Additional resources
To learn more about tax requirements, visit the CCRA Guide for Canadian Small Business at www.ccra-adrc.gc.ca/E/pub/tg/rc4070eq/rc4070-e.pdf.

For more information about registering your business with WSIB, refer to www.wsib.on.ca/wsib/wsibsite.nsf/public/Home_e.

Order EHT publications or locate the closest Ministry of Finance Tax office at www.rev.gov.on.ca/tare/html/trieeht.htm.

To determine how much to withhold from an employee pay cheque, use Tables on Diskette, a free program published by CCRA, which you can download from www.ccra-adrc.gc.ca/tax/business/tod/menu-e.html.

 

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