If your business generates income, then you will have to complete a tax returnfor your business. Income includes money earned from any activity you carryout for profit, or with the reasonable expectation to make profit.
This income is usually created by:
In general, you can deduct any reasonable expense you have paid, or will have to pay, to earn business income.
Expenses must be supported by proper documentation, for example:
The CRA website has a list of common deductible expenses. If unsure, consider asking an accountant or a bookkeeper. Often, a portion of costs can be listed as an expense in proportion to the estimated business use of said expense.
You will require receipts and invoices to provide proof of business income. These are for your own records as well as for the CRA.
ALL PROOF OF INCOME AND EXPENSES MUST BE KEPT ON FILE FOR 7 YEARS!
Taxes owed are determined by how much your business profits in a tax year (profits = total income – total expenses).
Organizing the above information throughout the year to complete your tax reporting forms is called Bookkeeping.
The tax reporting form for Sole-Proprietorships and Partnerships – “Statement of Business and Professional Activities”.
The tax reporting form for an Incorporated business is called a T2- “Corporation IncomeTax Return”.
Once your T2125 or T2 forms are received from the CRA, they will provide you a notice of assessment which will determine how much your business owes in taxes.
Ideally, you will have been putting aside a portion of your profits each month to pay the amount owing for your business each year.
Request a consultation with one of our business advisors!
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