We are geared to know about personal tax time. Employers issues a T4 based on the calendar year and we file our taxes on or before April 30 each year.
But then you decide to start your own business. And you also decide to incorporate. This opens up a whole new world to understand.
What is the process now? What happens next? Where to begin? What is the process for your year-end?
In our office, the Year-End process generally goes as follows.
- 2 weeks before your year end, we email an engagement letter which sets out the terms of our arrangement. As well, we also include a list of documents we need to get started. This will typically include:
- trial balance, profit & loss statement, balance sheet or a copy of your QuickBooks file.
- copies of GST/PST returns that have been submitted to CRA
- corporate notice of assessments from the prior year
- summary of Accounts Receivable with balances noted for bad debts or write-offs
- summary of Accounts Payable with balances noted for write-offs
- 4-6 weeks after your year-end, you will either come in for a meeting or email us the information we requested with the signed engagement letter and a retainer for our services (typically 50% of our quoted estimate). Why 4-6 weeks after? Because you need time to reconcile your bank accounts, loans and credit card statements. Unless you receive these electronically, they take time to come in the mail. As well, you might receive statements from vendors or suppliers which need to be recorded or accrued. We want to ensure all your income and expenses have been recorded for the year we are going to complete.
- Once we have your documents, we compile the financial statements. We prepare adjustments like depreciation on your business assets. At this time, we will also do some tax planning. Will we bonus out the income to the shareholders, will you take dividends or will you leave the money in the company and pay the small business tax rate? This process generally includes a few emails and conversations.
- The corporate tax return is then prepared. Other tax filings might also be prepared at this time; i.e. GST returns, PST returns, and/or tax slips.
- We conclude the year-end by meeting in person to review the financial statements and tax returns. Once approved and signed, we file all tax documents with CRA. You will also receive a copy of the financial statements, trial balance, adjusting entries, corporate tax return and any other tax filing we prepared.
As mentioned above, we like to get started about 4-6 weeks after your year-end. When we add our turn around time of approximately 2-4 weeks (dependent on the time it takes for you to respond to our queries), you are at the 2-3 month mark after your year-end. As a small business corporation, although the filing of your corporate tax return is due 6 months after your year-end, the payment of your corporate taxes are generally due at the 3 month mark (some clients it’s 2 months). If we are preparing other tax filings at the same time, they will be due sooner than 6 months; ie. GST return if filed annually is due 3 months after.
Small businesses often struggle with cash flow. Although CRA requires corporate instalments on balances over $3,000, most small businesses do not pay in advance. So having an extra month to plan and prepare for the tax payment, if applicable, is important. As well, if our questions require extra time, the more time we have to plan and prepare, the better.
Furthermore, if we decide to do a bonus, it must be paid out within 180 days. Although we can always defer the payment to the shareholder, the payroll taxes must be paid by the 15th of the following month. So again, the more time to plan, the better. The more time to prepare, the better.
Easy, peasy, right?!!? Obviously the process and specifics will vary client to client but this is our general process.
Let’s not forget about choosing the year-end date…which isn’t always December 31. Choosing the right year-end date is coming up next on our blog.
As always, if you need help or guidance, speak with a Chartered Professional Accountant. We are always here to help you and our first consultation of 30 minutes is always free. Complete our client planner form and let’s get this process started.
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.