A Guide To Tax Season For Small Business Owners

A Guide To Tax Season For Small Business Owners

It’s that time of year again – everyone is talking taxes and it’s at the top of your mind even though you’ve been trying to avoid it all year. Besides just getting your taxes filed to avoid scary calls from the CRA and those hefty penalties and interest – tax season is a great opportunity to get a clear picture of your company’s financial health.

Money is the bloodline of your business so it’s important to have a finger on the pulse of your finances and not be afraid of it.

To make it just a little easier for you and in hopes that you can use tax season as an opportunity to understand where all your hard earned money is going, here is a guide with some quick tips and helpful information that might make this season a little easier and more informative for you!

Get Your Financial Books in Order

If you’re one of those people who have meticulously organized and tracked your business finances (i.e. income and expenses) throughout the year then you’re ahead of the game.

However, if you’ve been putting off dealing with your business finances all year, then now is the time to sit down and get organized!

If you’re a sole proprietor, using a tool like Microsoft Excel is a cost-effective and simple tool to track all your income and expenses. Alternatively, a more robust option is to use cloud-based accounting software such as Xero. There are other great cloud-based solutions such as Receipt Bank or Hubdoc that can really help you get your receipts and invoices organized. These are also great tools to store all your supporting documents, in the event of a CRA audit/review. You wouldn’t want to pass over receipts that have completely faded, in which case, they might disallow your expenses!

If you just don’t have the time to get your books in order and you have room in your budget, consider hiring a qualified bookkeeper to help you. Having clean and organized books will also help reduce your cost to file taxes (if you’re paying an accountant to file for you).

Pro Tip: Keep your detailed and itemized receipts for everything! Bank statements do not count as supporting documents for expense claims.

Don’t Miss The Deadlines for Filing Income Tax Returns

Small businesses that are operating as a sole proprietorship or partnership will have until June 15th to file their taxes. However, it’s important to note that any income taxes owing are due by April 30th. If you file late and end up owing taxes, you’ll pay interest and penalties on your outstanding tax balance until you submit your payment to the CRA. Keep your money in your pockets!

Small Business Tax Myths

1. My business did not make any money so I don’t need to report anything on my tax return.

False. Even if you had a net loss for the year (i.e. more expenses than income), you are still required to report your business income and expenses on your tax return. Moreover, it’s actually beneficial for you to report that net loss as you can apply the loss to other sources of income, such as employment income or investment income. If you can’t use those business losses in the current year, you can carry them back for three years and recover taxes previously paid or carry them forward for 20 years, to offset future earnings.

2. I made less than a thousand dollars and it’s just a hobby so I don’t have to report that income.

False. Even if you only made $10, you are required to report that income to the CRA. The CRA does not determine what is and what isn’t a business by how much money you make or by your intentions to “run a business”. They define a business as “any activity that you do for profit”.

Review the Financial Health of Your Business

Once your business finances are in order after filing your taxes, this is a great time for you to review the financial health of your business, see how you performed in the past year, and set financial goals for the year ahead. Did you make money or did you spend way more than you brought in? Was there an area where you spent way more than you expected? Where can you streamline costs and cutback on expenses?

Most business owners think that racking up tax deductions is great as it reduces your taxable income. However, you are still running a business and the goal is that your business will make money. Reducing unnecessary expenses also means there is more cash in your pockets and less outflow of money. Paying taxes is not a bad thing. It means that you are running a profitable business!

Consider this:

Scenario 1 –

  • If you made $1000 of income and spent $500 on expenses. You will only get taxed on $500. The taxes you would have to pay to the CRA would be approximately $125.
  • Amount of money left in your pocket at the end of the year = $375 ($1000 of  income minus $500 of expenses and $125 of taxes).

Scenario 2 –

  • However, if you made $1000 of income and spent only $200 on expenses. You will get taxed on $800. The taxes you would have to pay to the CRA would be approximately $200.
  • Amount of money left in your pocket at the end of the year = $600 ($1000 of  income minus $200 of expenses and $200 of taxes).
  • You are still better off at the end of the year, if you managed your expenses and spent less money on things just for the sake of a “tax write off”.
Let’s talk about T4s!

Let’s talk about T4s!

What is a T4 Slip?

A T4 slip, or “Statement of Remuneration Paid,” is a tax form produced by an employer and furnished to both an employee as well as the CRA. The form includes wages paid, taxes withheld as well as assorted other information, such as amounts contributed to pension plans and employment insurance.

What are T4 slips?

If various tax slips were ever assembled in a police lineup, the T4 would be the one that gets picked out every time. Every Canadian adult who’s had a full time job would recognize the T4, the shorthand name for “Statement of Remuneration Paid” form. Right here on the CRA’s website, “T4 Statement of Remuneration Paid (slip),”you’ll find the T4’s official home. The slip includes your name, social insurance number and how much you were paid in a given year, as well as the amount of taxes that were withheld. Additionally, on the form, you’ll find scads of other financial information from a tax year–the amount of your contributions to a registered pension plan (RPP), union dues you paid, how much you contributed to Employment Insurance (EI), Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP). The CRA sets out all the particulars on this page here.

Who gets T4 slips?

Employers send T4s not only to you, the employee, they also provide identical copies to the CRA. Besides feelings of moral obligation, this is the big reason you really need to pay your taxes every year; you may feel invisible, but if you received a T4, the tax authorities know exactly how much you earned in any given year.

When do I receive my T4?

T4s are a pretty reliable bunch, arriving annually at the very beginning of March, a good eight weeks before tax day. If an employer mails in the slips, the T4s must be postmarked on the last day of February, or the employer will risk being assessed penalties.

Other T4 Slips

The T4 is the king of the jungle in an ecosystem of hundreds of slips. Completists may enjoy spending hours reviewing the CRA’s “forms listed by number” page but for brevity’s sake, we’ll acquaint you with a few of T4s more popular cousins. What do all these T slips have in common? They’re statements of income and both you and the CRA receive copies.

  • T3: statement of trust income allocations and designations
  • T4A: statement of freelance, pension, retirement, annuity or other income
  • T4A§: statement of Canada Pension Plan benefits.
  • T4A(OAS): statement of Old Age Security benefits.
  • T4RSP: statement of RRSP withdrawals
  • T4RIF: statement of Registered Retirement Income Fund income
  • T5: statement of investment income

What is a T4 summary?

T4 summary, also known as Summary of Remuneration Paid, is the one-page form filled out by employers and sent to the CRA that adds up the total dollar amounts of the T4 slips the company has provided for individual employees. An employer submits its T4 summary along with its T4 slips to the CRA.

The T4 form explained

The Most Important Boxes on the T4

We’re not big on playing favourites. We love all the boxes on the T4, and if you do too, check out the CRA’s guide that outlines the purpose of every box on the form.

But here are a select few T4 boxes that you’ll hear about quite a bit.

  • Box 14: employment income.
  • Box 16/Box 17: employee’s CPP/QPP contributions
  • Box 18: employee’s EI premiums
  • Box 20: RPP contributions
  • Box 46: charitable donations
  • Box 85: employee-paid premiums for private health service plan

How to get a T4 online

The absolute best way to access your current tax year T4 and past year T4 slips is through the CRA’s website. You’ll find T4 forms in the CRA’s personal taxpayer section known as “My Account,” an interface the agency explains is “a secure portal that lets you view your personal income tax and benefit information and manage your tax affairs online.” There are two ways to sign in and access “My Account.” The first is you have an account with one of the sixteen big banks the CRA calls “sign in partners.” If you can access your account online, you can easily use that sign in info to get directly into the “My Account” section. The second method is by using a CRA user ID and password to log directly into the CRA website. If you don’t have a login and password (or have forgotten it) register for one here. To confirm you are indeed you, they’ll ask for your social insurance number as well as one of the figures from a past T4 slip. On its “Registration process to access the CRA login services” page, the CRA provides step-by-step instructions and various trouble shooting solutions.

How to get past T4 slips

If you’ve lost one or more T4 slips and need a copy, the absolute best place to retrieve them is through the “My Account” section on the CRA’s website. Directly above, in the “How to get a T4 online” section, you’ll find some detailed instructions on how to access the site. The CRA should have T4 slips dating back several years. If the information you’re seeking is missing, reach out to the human resources department of the current or former employer who issued the slip. They should be able to set you up.

What are the Canadian tax brackets in 2022?

What are the Canadian tax brackets in 2022?

It’s a yearly rite of passage for Canadians to jump through hoops trying to figure out how much tax to pay. Normally, it’s an exhausting exercise. But we’ve gathered all of there relevant information in one place to help you get through everyone’s least favourite season. Here’s what you need to know about income tax rates.

Federal Tax Bracket Rates for 2022

The following are the federal tax rates for 2022 according to the Canada Revenue Agency (CRA):

  • 15% on the first $49,020 of taxable income, and
  • 20.5% on the portion of taxable income over $49,020 up to $98,040 and
  • 26% on the portion of taxable income over $98,040 up to $151,978 and
  • 29% on the portion of taxable income over $151,978 up to $216,511 and
  • 33% of taxable income over $216,511

How to Identify your Tax Bracket

How much tax you’ll pay is determined by where you live in Canada, and how much income you declare from all sources. Importantly, your provincial rate is determined by the province you are living in on December 31 of the tax year. So, if you move from Ontario to Nova Scotia in July, and you find yourself living in Nova Scotia on December 31, you would fall under the Nova Scotia provincial tax rates.

How Tax Brackets Work

Your tax bracket is based on “taxable income”, which is your gross income from all sources, minus any tax deductions you may qualify for. In other words, it’s your net income after you’ve claimed all your eligible deductions.

Once you know what your taxable income is, you’ll then apply the relevant federal and provincial rates to your net taxable income. You should calculate your federal income tax first, your provincial rate second, and then add the two together — and presto!

Your marginal tax rate is the combined federal and provincial income taxes you pay on all sources of income at tax time. The tax rate varies by how much income you declare at the end of the year on your T1 General Income Tax Return (the form with the exciting-sounding name that you fill out at tax time) and where you live in Canada.

Federal Tax Bracket Rates 2022

The following are the federal tax rates for 2022 according to the Canada Revenue Agency (CRA):

  • 15% on the first $49,020 of taxable income, and
  • 20.5% on the portion of taxable income over $49,020 up to $98,040 and
  • 26% on the portion of taxable income over $98,040 up to $151,978 and
  • 29% on the portion of taxable income over $151,978 up to $216,511 and
  • 33% of taxable income over $216,511

Provincial Tax Brackets Rates 2022 (in addition to federal tax)

Like we said, the province you are living in on December 31 will determine the provincial portion of your income tax. So, if you are planning skipping town to a province with lower taxes, do it before December 31 of the calendar year. The following are the provincial tax rates for 2022 (in addition to federal tax) according to the Canada Revenue Agency:

British Columbia5.06% on the first $42,184 of taxable income
7.7% on the next $42,184 up to $84,369
10.5% on the next $84,369 up to $96,866
12.29% on the next $96,866 up to $117,623
14.7% on the next $117,623 up to $159,483
16.8% on the amount over $159,483 up to $222,420
Alberta10% on the first $131,220
12% on the next $131,221-$157,464
13% on the next $157,465-$209,952
14% on the next $209,953-$314,928
15% on the amount over $314,928
Saskatchewan10.5% on the first $45,677 of taxable income,
12.5% on $45,677 up to $130,506
14.5% on the amount over $130,506
Manitoba10.8% on the first $33,723 of taxable income
12.75% on the next $33,723 up to $72,885
17.4% on the amount over $72,885
Ontario5.05% on the first $45,142 of taxable income
9.15% on the next $45,142 up to $90,287
11.16% on the next $90,287 up to $150,000
12.16% on the next $150,001-$220,000
13.16 % on the amount over $220,000
Quebec15% on the first $45,105 of taxable income
20% on the next $45,105 up to $90,200
24% on the next $90,200 up to $109,755
25.75% on the amount over $109,755
New Brunswick9.68% on the first $43,835 of taxable income
14.82% on the next $43,835 up to $87,671
16.52% on the next $87,671 up to $142,534
17.84% on the next $142,534 up to $162,383
20.3% on the amount over $162,383
Nova Scotia8.79% on the first $29,590 of taxable income
14.95% on the next $29,591-$59,180
16.67% on the next $59,181-$93,000
17.5% on the next $93,001-$150,000
21% on the amount over $150,000
Prince Edward Island9.8% on the first $31,984 of taxable income
13.8% on the next 31,985 – $63,969
16.7% on the amount over $63,969
Newfoundland and Labrador8.7% on the first $38,081 of taxable income
14.5% on the next $38,081 up to $76,161
15.8% on the next $76,161 up to $135,973
17.3% on the next $135,973 up to $190,363
18.3% on the amount over $190,363
Nunavut4% on the first $46,740 of taxable income
7% on the next $46,740 up to $93,480
9% on the next $93,480 up to $151,978
11.5% on the amount over $151,978
Yukon6.4% on the first $49,020 of taxable income
9% on the next $49,020 up to $98,040
10.9% on the next $98,040 up to $151,978
12.8% on the next $151,978 – $500,000
15% on the amount over $500,000
Northwest Territories5.9% on the first $44,396 of taxable income
8.6% on the next $44,396 up to $88,796
12.2% on the next $88,796 up to $144,362
14.05% on the amount over $144,362

Remember: Your marginal tax rate is the total of both federal and provincial taxes on income.

Example of tax calculation

Meet a fictional chap named John who lives in British Columbia. John has been contributing to a RRSP to reduce his taxable income. After his RRSP contribution and other tax deductions and tax credits, he has taxable total income of $55,000. Here’s what his tax calculation might look like:

John’s Federal tax bill The first $49,020 is taxed at 15% (the lowest income tax bracket), which works out to $7,353. He has $5,980 remaining, ($55,000-$49,020) — that amount will be taxed at a higher rate of 20.5% which works out to $1,225.9. This means his total federal tax owing is $7,353 + $1,225.9 = $8,578.9

John’s provincial tax bill (using BC rates as example) Remember, John’s provincial rate is based on his province of residence as of December 31 of the calendar year. John’s first $42,184 will be taxed at 5.06%, which works out to $2,134.51. The remaining $12,816 ($55,000-$42,184) will be taxed at 7.7% which works out to $986.83. His total provincial tax is $3,121.34.

John’s total tax bill John’s combined federal and provincial taxes owing is $8,578.9 + $3,121.34 = $11,700.24.

Tax Credits and Tax deductions

Tax credits and tax deductions can reduce either your income or the amount of tax you owe.

Tax credits

Both federal and provincial tax credits exist, and you’ll be glad to hear they help you pay less tax. There are two types: Non-refundable and refundable


A non-refundable tax credit reduces the amount of tax payable. In order to claim a non-refundable tax credit, you must actually owe taxes — in other words, you must have earned enough income to owe income tax. Non-refundable tax credits can reduce your tax owing to zero, but if you have more tax credits than tax owing, you do not receive a refund for any surplus amount. Let’s make that more concrete: if you owe $2500 in taxes and have non-refundable tax credits for $2700, your taxes will be reduced to zero, but you will not receive the extra $200.

Some non-refundable tax credits include:

  • Personal exemption amount (anyone who owes tax is entitled to claim this exemption)
  • Exemption for taxpayers over age 65
  • Exemption for taxpayers with children
  • Exemption for people receiving a pension
  • Exemption for people with a certified disability
  • Exemption for people who are caregivers to someone with a disability

Some other non-refundable tax credits include tuition, medical expenses, Employment Insurance and Canada Pension Plan deductions, interest paid on student loans and adoption expenses. Most provinces have tax credits to reduce the provincial tax owing.

Refundable Tax Credits

Refundable tax credits are paid to anyone who qualifies for them, whether they had income or not. Usually, they’re paid out over the year. The most well-known non-refundable tax credit is the GST/HST payment that people with a combined family income of less than $42,000 received.

Tax deductions

Tax deductions don’t work as many people suppose. Instead of reducing the amount of taxes you need to pay, a tax deduction actually reduces the amount of your gross income, which can put you in a lower tax bracket and reduce the amount of taxes you will owe.

The most common tax deductions are:

  • Pension Adjustment. You get credit for any pension contributions made in the calendar year on your behalf. Your employer will list the Pension Adjustment amount in box 52 on your T-4 slip that lists your income and income tax deducted for the year.
  • Union and professional dues
  • Child care expenses
  • Registered Retirement Savings Plan (RRSP) contributions up to the maximum allowable amount per year. Your financial institution will provide you with a contribution receipt, and you can find out how much RRSP contribution room you have by looking on your Notice of Assessment (the summary form that you receive after you have filed your previous year’s taxes), by looking on your tax account or by calling CRA at 1-800-959-8281.
  • Donations to charitable organizations or political parties

If you owe income tax, the Canada Revenue Agency will let you work out a payment plan if you cannot pay the taxes all at once. You will be charged interest on any balance you still owe. But be careful: if you owe income tax and don’t pay, and you don’t make an attempt to work out a payment plan, CRA can seize any refundable tax credits you may be eligible for, and they may take you to court and seize the contents of your bank account.