Originally published: August 2, 2021
Remember last year's scramble to gather receipts and decipher confusing forms? It's time to ditch the tax-time drama!
We've put together the best tax prep checklist for your small business in Canada. It's simple, easily digestible, and will make you wish you knew about it last year!
Whether you're submitting your tax information to a tax professional or you're doing it yourself – this checklist will help ensure you've covered all your bases. Because in the end, you're responsible for your business's tax return.
The Best Tax Prep Checklist for Small Business Canada
Here's a quick snippet of what you'll need to get organized (continue reading below for more detailed information):
1. Business Identification Details
The first step in filing your return will be to enter the general details about your business. Of course, this seems simple; however, having this information ready to go will eliminate the small stressors when completing your return forms.
Of course, if you’ve chosen to have a tax professional complete your paperwork, this information will have to be provided to them directly. You will need to make sure you have:
The Legal Name and Address of Your Business
If your business doesn’t have an official name, you will use your name.
The Industry Code for Your Business
If using a tax professional, they will know which six-digit industry code to use if you’ve provided them with your business details.
You can reference this government website to find out more about which industries are available. Please note, the Canadian Industry website’s codes are for paper filings and should only be used as a direct reference.
If you’ve chosen to file your return using software such as TurboTax, use the code provided on the software itself.
Business Partner Information
If you’re the sole owner of your business, you can skip over this step. If you have a business partner, you will need to have their information available.
Previous Income Tax Instalment Information
Make sure to organize and have copies of all the instalments you’ve already paid in the year when it comes to taxes and payroll. You’ll need to provide proof of payment to your tax professional. Alternatively, you’ll need to have these details handy when completing your tax return yourself.
Tax Return from the Previous Year
You’ll need to locate your 2023 notice of assessment when filing business income this year’s tax return. If you’ve chosen to hire the same tax professional as in previous years, they may have this information on file.
If you don’t have a copy of your previous year’s notice of assessment, you can print it by logging into your CRA account online.
Ensuring you have the above simple information at your fingertips will make the data entry portion easier for you and your tax professional. Making sure you’ve gathered all of the data required will also help avoid future follow-ups.
Now that we’ve got the simple information covered, you’ll also need to compile other details that are more in-depth.
2. Business Income
Your business income can come from a variety of sources. Depending on the nature of your business, revenue could come from selling your product or providing a service to your customers.
You’ll need to find and organize all of your paid invoices and summarize them to come up with your gross income (before taxes). Be sure to factor in other payments that may have affected your income, for example, subcontractor payments or discounts.
3. Expenses and Capital Cost Allowance
Your expenses for the year will come from various things; you’ll need to compile the receipts as proof of your expenses. If you’ve done this on a weekly, monthly, and quarterly basis, this shouldn’t take much time (if you haven't, you may be in it for the long haul!). Some of your receipts may include but are not limited to expenses for:
office supplies, courier, and postage fees,
advertising,
travel,
telephone and internet,
meals relating to client meetings,
legal, accounting, and professional fees,
motor vehicles, and
mortgage, utilities, and rent payments.
Current v. Capital Expenses
Your expenses will be made up of both current and capital expenses. To decide whether an amount is a current or capital expense, you can refer to this chart provided by the CRA.
Current expenses are deducted from your income in the year the expense was actually incurred. For example, if you spent $50 on nails for your nail gun last year, the entire $50 can be claimed as an expense on this year’s return.
Unlike current expenses, capital expenses are deducted over time. If you spent $500 on your nail gun, you’ll only be able to claim a portion this year, the remaining portion will be used for deductions in future years – this is your Capital Cost Allowance (also referred to as CCA).
The CRA has created a number of classes for depreciable properties (capital expenses), these classes identify the CCA percentage rate for any given item.
The amount you deduct each year will lower the Undepreciated Capital Cost (also referred to as UCC) of the item. This is the capital expense amount remaining after deductions are made at any given time. Once the UCC is zero, you’ll no longer be able to use the item as a deduction.
If you have questions about your CCA, it would be best to contact CRA directly or speak to your tax professional.
4. Review Write-Offs (Inventory & Past-Due Receivables)
Reviewing your current inventory and past-due receivables at the end of every year is crucial to ensure you don’t pay extra tax.
Ideally, throughout the year, you would keep up on your past-due receivables and inventory so that you know where your business stands at any given time. Not only can you write off certain business expenses and the value of items sold, but you can also write off past-due receivables.
Inventory
If applicable, review your current inventory to come up with a figure for unsold items. The value of the things not sold is the amount left in inventory and will be carried forward to the next year.
Past-Due Receivables
Now is also the time to review all of your past-due receivables to determine whether:
your client will eventually pay;
your client will likely not pay, in which case the account should go to collections; or
your client will more than likely not pay, in which case you can write off the bill for a tax deduction.
5. Compile Your Financial Reports
Reviewing and compiling your financial data and reports for the year can be very important for your business.
Make a point to review your reports more often than yearly (monthly & quarterly would be best) so that you can identify negative trends and make changes. It will also help ensure that your reports are accurate and that you can back up the amounts.
You’ll need to have your net income and losses totalled for the year. The totals will be identified by creating a profit and loss statement.
If you’ve been using bookkeeping software for your bookkeeping tasks, this process will be straightforward as you can quickly generate the statement. If you’ve chosen to use a manual system, you will need to create a statement using the receipts and invoices identified above as your business income and expenses.
If you’ve chosen to use a tax professional, they may want to see other financial documents demonstrating your business’s financial health.
They may request copies of your financial statements, which would include your cash flow statement, a balance sheet, as well as your income statement.
Audits and the Importance of Accuracy
Not only is it essential to be thorough when compiling all of your financial information to take advantage of tax deductions, but you also need to have proof of every number recorded for audit purposes.
Your proof can be in the form of invoices, receipts, and even bank and credit card statements.
If everything is organized and accurate, you can have peace of mind knowing that you’re ready if you’re subject to a CRA audit.
Everything's Compiled. How do I file my Small Business Tax Return?
First you must know how your business is structured so that you’ll know when and how to file your taxes. If you’ve registered your small business as a sole proprietorship or you’re a self-employed individual, you’ll file your taxes on your personal tax return during income tax season.
In Canada, the deadline to pay your personal taxes is April 30, 2024 and the deadline for self-employed individuals is June 15, 2024.
It’s important to note that even though the deadline to file your taxes (for self-employed only) is later in the year, you must still adhere to paying your taxes by the April 30th deadline to avoid paying interest fees.
Can I File My Own Business Tax Return?
Many business owners choose to hire a tax professional to ensure they’re taking full advantage of their entitlements for tax deductions.
If you’re an unincorporated business, you can hire a bookkeeper that offers tax filing services, or you can choose to hire an accountant.
If you would like to take on your tax return yourself, you can file it with the assistance of a tax software such as TurboTax.
As long as you have your business information organized and at your fingertips, you should be ready to complete your return.
Closing the Year
Having a good system in place all year long will make your tax preparation very easy. If you don’t keep up with the tasks or hire a bookkeeper to complete the tasks, things will quickly snowball and get out of hand. A couple-hour project will quickly turn into a three-day project!
To prepare yourself for the end of the year, make sure you’ve compiled your:
business information,
receipts,
income information, and
financial reports.
After you’ve completed our tax prep checklist, you’ll be ready to enter your tax return yourself, or you’ll be prepared to hand it all over to a tax professional.
Suppose you’ve been on top of your bookkeeping tasks all year, good for you!
If you haven’t and are now noticing the importance of a good bookkeeping system, check out our weekly, monthly, and quarterly checklists to set you up for success next year.
Are you wondering how you’re possibly going to get this all done before this year’s tax deadline?
Book an initial consultation with us today, and we can discuss how we will ease your stress and clean up your business’s finances in advance of the tax return deadline.