Personal Tax Return For Small Business

There are many advantages in becoming a small business owner, such as being your own boss, creating a source of income on your own, and one that is consistent and also being able to watch your business grow and flourish. But any income that is earned from your small business is subject to taxation in Canada, just like Employment Income earned as an employee.

Income tax is paid on any revenue and profits generated or earned from your small business on both the provincial and federal level. A small business may also be required to collect and file a GST report in addition to Income Tax.

If the business is not incorporated, then the business income is reported along with the Personal T1 income tax return with a T2125 (Statement of Business or Professional Activities) tax form but if the business is incorporated then a T2 Corporate tax return is required. The Corporate (T2) Tax filing deadline is 6 months after the business’s fiscal year end. There is also the requirement to pay off any taxes owed from the previous taxation year by April 30th.

The deadline for Self- Employed Individuals or Individuals with Small Businesses that are not incorporated is June 15, 2023, and then any payment that is required for CRA is due on May 2, 2023. If the business is incorporated, then any taxes that are owed are due two months after the corporate fiscal year-end. There is a one-month extension rule applied for specific corporations.

A T2125 Tax Form is divided into multiple sections to cover specific parts of the business. Key aspects include: the General Business Identification which includes the basic information for the tax filer and business as well as the fiscal period for which you (the tax filer) are filing the tax return. This is usually the same as a calendar year for sole proprietorships and partnerships, but a small business owner can elect to have a different period. The Business Income section outlines the different forms of income the business can earn (gross sales, commissions, fees) minus GST collected, returns, discounts and Cost of Goods Sold. The final number gives the gross profit or loss for the business, which business expenses are then deducted from to calculate the net profit for tax purposes.

Expenses incurred under a Sole Proprietorship can be deducted from the business income for a small business owner. Business Expenses include – advertising, meals and entertainment, office supplies, insurance, vehicle expenses, home office expenses and any business expenses occurred for the purpose of earning business income.

Rental Income can also be earned when the sole proprietor rents out space in their property and provides basic services such as heat, light or parking. But if further services are provided, such as cleaning or security this could then be considered Business Income.

Even if the business makes no income filling a tax return it is very beneficial because you can claim tax benefits and tax refunds for installments it also creates a contribution room for the RRSP (Registered Retirement Savings Plan).