Are you launching a new business? The responsibilities of startup owners can be overwhelming. Most startups focus their hours and energy on making the company a success. As a result, there’s not enough time to keep track of all the rules and regulations of the Canada Revenue Agency (CRA) that administers tax laws and ensures compliance across the country.
In Canada, many business owners make mistakes on their income tax and benefit return, with staggering fines and penalties. It’s no wonder why dealing with high tax rates and a lower bottom line is the most challenging element of running a Canadian business.
As a newly established company, the last thing you want to happen is to spend your hard-earned money on costly yet preventable errors. Thus, learn the following most common tax mistakes you should avoid in your business:
Failure To File the Tax Return
While it’s tempting to avoid filing your tax returns, it can cause high penalties and rates. Many hope that they can get away with late or missing filing. But the CRA has multiple systems in place that can detect if you have unpaid taxes.
And once they discover you haven’t been paying your taxes, you have to pay the amount you owe in full. Add the 5 percent penalty on your unpaid tax and interest of 1 percent for every full month that the return is late. It usually starts on May 1st up to a maximum of 12 months.
Claiming Non-Deductible Expenses
You can deduct eligible expenses incurred to make your business operational and maintain it once it’s already running. However, it’s easy to get confused when making claims. And many business owners often make the mistake of claiming expenses that are not deductible.
The CRA may consider claiming extra expenses as a failure to report income. Note that making false statements or omissions on your tax return or repeatedly failing to report your income can result in interest and penalties.
Not Claiming Tax Credits and Benefits
Another common mistake is not claiming the benefits and deductions businesses are entitled to. This means overlooking the opportunity to reduce your tax obligations, which is essential for every stage of your business. Failing to identify expenses you legally can and claim them as deductions would mean more considerable taxable income and more taxes for you to pay.
Not Fixing Mistakes After Filing a Tax Return
Submitting your tax return can be fulfilling. Whether it’s done intentionally or inadvertently, errors can happen when filing taxes without a plan and rushing to meet the deadline. And not fixing them is a common mistake that many businesses make.
The CRA has a set of procedures you can follow to correct the mistakes made on your tax returns. There are different ways to request a change to your tax return, but waiting for your Notice of Assessment to arrive is the first step you need to take.
If you haven’t complied with your taxes, you can apply for the CRA voluntary disclosure program. It grants relief to non-compliant Canadian taxpayers to come clean and correct or make changes in tax filing for the prior years.
Properly Plan for Your Taxes
Preparation is the key to avoiding the same tax mistakes in the future. That includes keeping track of your reasonable expenses throughout the year. Remember that it’s impossible to deduct what you can’t document. Thus, ensure to plan for your taxes properly. It’s also best to hire a tax professional who understands the CRA rules and regulations and is best equipped to prepare and file your taxes.