If you are a small business owner in Ontario (Canada), you need to file an small business income tax return each year. It is your responsibility to keep track of the income and expenses for your business and accurately report this information to the Canada Revenue Agency by the designated due date.
The following provides information on how and when to file an income tax return for Ontario small business owners, including sole proprietorships, partnerships, and corporations.
What are the benefits of having an accountant file your income tax?
You can file your income tax return yourself, or have your accountant prepare and file your taxes for you. The benefits of working with a certified accountant to assist with your income tax is that they are trained professions who keep up with the changes, and can provide recommendations to help save you money. If you do decide to manage your own income tax, it is recommended to meet with your accountant or bookkeeper periodically to insure that everything is being done properly/accurately.
What is business income?
Business income includes income from any activity you do for profit. For example, income from a service business is business income. Business income does not include income received from an employer. [1]
Sole Proprietorship Income Tax
A sole proprietorship is an unincorporated business owned by one individual. It is the simplest kind of business structure. The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all losses, and does not have separate legal status from the business.
If you are a sole proprietor, you are self-employed and pay personal income tax on the net income generated by your business.[2]
As a self-employed individual, when is the due date to file an income tax return?
For those who are self-employed, or who have a spouse or common-law partner who is self-employed, the deadline to file your tax return is the middle of June. If you receive both income from an employer and income from you business, make sure you pay any amount you owe by the personal income tax due date, which is the last day of April, to avoid any interest or penalty charges. Check official tax return deadlines here .
Partnership Income Tax
A partnership is an association or relationship between two or more individuals, corporations, trusts, or partnerships that come together to carry on a trade or business. Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement.
Like a sole proprietorship, a partnership is easy to form. In fact, a simple verbal agreement is enough to form a partnership. However, most partnerships have a written agreement setting out rules for partners entering or leaving the partnership, the division of partnership income, and other matters.
Each partner is responsible for filing an income tax return to report his or her share of the partnership’s net income or loss, including cash or credit, to one of the partnership’s capital accounts. Each partner also must file financial statements or copies of the forms that apply to their situation. [3] The T4068 Guide offers information for completing a small business partnership income tax return.
How do you file a self-employed income tax return? Sole-proprietorship / partnership?
You can use form T2125, Statement of Business or Professional Activities, to report your business and professional income and expenses. If you have both business and professional income, you have to complete a separate Form T2125 for each. You also have to complete a separate form for each business or professional activity you have, if you have two or more of either.
More information to assist with filing a self-employed tax return:
- Calculate your gross income and your net income (loss) (Download PDF) which are required when you complete your General income and benefit return.
- Forms and publications to help with filling out income tax.
- Income Tax packages (all years) – including the return, related schedules, provincial schedules, information, and forms.
- Self-employed taxation guide
Corporations Income Tax
Incorporation can be done at the federal or provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is separate from its shareholders. When forming a corporation, the owners transfer money, property, or services to the corporation in exchange for shares. The owners of these shares are shareholders.[4]
All Ontario corporations have to file an annual corporation income tax T2 return even if there is no tax payable. This includes non-profit organizations, tax-exempt corporations, inactive corporations. [5]
File your return no later than six months after the end of each tax year. The tax year of a corporation is its fiscal period with the date of the incorporation as the first day of the tax year. Most corporations can file their return electronically using the Internet.
More information to assist with filing a corporation tax return:
- Corporation income tax overview – tax rates, business tax credits, record keeping, dividends, corporate tax payments, reassessments, transfer pricing, and more.
- Corporate Income Tax Guide
- Individual Investor Credit – Individual investors pay personal income tax on dividends, which are paid from corporate earnings that have already been taxed. To avoid this double taxation, federal and provincial dividend tax credits are intended to compensate individual shareholders for income tax paid by Canadian companies in which they have invested.
Keeping track of your tax information with the Canada Revenue Agency’s My Account online Service.
My Account is a secure online service offered by the Canada Revenue Agency (CRA) that provides access and ability to manage your income tax, and other related accounts, all in one place.
Business owners (including partners, directors, and officers) can use My Account to
- Access GST/HST account
- Access Payroll account
- Access Excise Taxes
- Access Notices of assessment and carry over amounts
- Access Statement of account and instalment payments
- Update personal information
- Upload documents electronically
- And more..
With permission, employees and representatives can also access an account on behalf of their employer or business clients. [6] . Here is how to register your business My Account.
Other Income Tax-Related Resources
- Small Business Taxes and more – This section explores the many forms of taxation that you may encounter in your business including, GST, HST, payroll deductions, and income tax. It also includes links to other small business information for starting, planning, financing, permits and licenses, selling to governments, and more
- Checklist for small businesses – Includes links to more information on payroll, business number registration, business income and expenses, keeping records, e-services for businesses, business income tax reporting, importing, exporting, and more.
- Income Tax Information – Links to how to calculate, find tax rates, get industry codes and report on business, professional, and corporation income tax. Including
References:
- [1] www.canada.ca – Small Business Income Tax Checklist
- [2] www.canada.ca – small business self-employed income for sole proprietorship
- [3] www.canada.ca – small business income tax partnership
- [4] Canadabusiness.ca – Setting up your business / corporation, partnership or sole proprietorship
- [5] www.canada.ca – corporate income tax return information
- [6] www.canada.ca – e-services business account
