Taxes affect almost every financial decision, and businesses face the same reality. They must follow several tax compliance rules under Canadian law.
Whether you're launching a startup or running an established enterprise, tax compliance should be a priority. In this article, we'll discuss how your business can comply with these laws.
For more information on these laws and rules, you can always consult a Lexpert-ranked corporate tax lawyer.
What are Canada's tax compliance rules for businesses?
Tax compliance rules differ for individuals and businesses. For businesses, some of the crucial rules are those governing income taxes and filing, recordkeeping, and disclosure requirements.
Key steps for business tax compliance include:
- seeing what your business needs to register for to comply with tax laws
- understanding the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) regime
- learning about how the Canada Revenue Agency (CRA) collects taxes
- confirming applicable taxes with a corporate tax lawyer
We'll discuss some of these rules below. For anything we have not covered here, you can also talk to a corporate tax lawyer in your area.
Registration with the tax system
New businesses and startups must first register with the Canada Revenue Agency (CRA) to get a business number (BN). This applies whether or not the business is incorporated; a BN is also issued upon federal or provincial incorporation.
You can register online to get a BN using CRA's Business Registration Online (BRO). Aside from this, you can also use CRA's BRO to register for any of the following program accounts:
- GST/HST (RT): if you need to collect GST/HST when you sell your business's goods or services
- Payroll deductions (RP): given that you're an employer who pays salaries and wages to your employees
- Corporation income tax (RC): if your business is incorporated in Canada, either federally or provincially
Your BN is required when dealing with government agencies and for tax compliance. Watch this video to learn the steps for registering your business through the BRO:
If you need help with your business's tax compliance, reach out to the best corporate tax lawyers in Canada as ranked by Lexpert.
Filing of tax returns and deadlines
Understanding CRA filing and payment due dates is essential for tax compliance. Note that these dates differ for individuals and businesses.
The deadlines for the filing of tax returns are the following:
- individuals: April 30 of the following year (e.g., a person's 2024 return must be filed on or before April 30, 2025)
- self-employed: June 15 of the following year (taxes still due April 30); different rules may apply for tax shelter investments
- corporations: the applicable returns must be filed electronically within six months of the end of each tax year or the corporation's fiscal period
Currently, corporations must file their returns with the CRA through electronic means. This is now mandatory and violating this will also incur you some penalties.
Returns to be filed by corporations
The following are the returns that your business must file, as the case may be:
- T2 Corporation Income Tax Return (T2 return): corporate income taxes must be electronically filed by all corporations in Canada; corporations in Québec or Alberta must also file a separate provincial corporate return
- Schedule 38, Part VI Tax on Capital of Financial Institutions: you must also file a Schedule 38 return if you're considered a large corporation, in addition to the T2 return; a corporation is considered large if its total taxable capital at the end of the tax year (including its related corporations) is over $10 million
Here's a video showing how the CRA can help your business comply with tax obligations:
Consult with the Lexpert-ranked best corporate tax law firms in Canada for legal assistance in complying with your tax obligations.
Preventing CRA audits
Consistently meeting filing and payment deadlines can reduce audit risk. Accurate, timely filings support a smoother audit process.
Cross-border tax compliance
Canadian businesses operating abroad and foreign businesses operating in Canada face cross‑border tax rules. Some of the important things that these businesses must look out for are how to prevent double taxation and the laws on customs tax.
Dealing with double taxation
Double taxation happens when a business or its income is taxed twice by two different countries. For instance, US businesses doing business in Canada may pay corporate taxes twice:
- first by the US, since it levies taxes based on the entity's worldwide income
- second by Canada, as it taxes entities that generate income from Canadian sources
There are several ways to minimize the impact of cross-border tax on businesses and deal with double taxation, including:
- tax planning
- jurisdiction-specific tax team
- use of tax treaties
Consult a Canadian cross-border lawyer to learn more about these methods and determine which one applies best to your business.
Complying with customs tax laws
If your business imports goods into Canada, customs laws and CBSA processes apply. Here are some of the legal considerations related to custom duties:
- getting a BN from the CRA, which is also used to pay customs taxes
- accurate declarations for imports and exports
- CBSA release processes
What are the penalties for non‑compliance with Canadian tax laws?
Below are the penalties if your business fails to file its corporate tax return or has not paid corporate taxes:
- late filing of a tax return: 5 percent of the unpaid tax due during the deadline, plus 1 percent of the unpaid tax for each month that the return is late, up to 12 months maximum
- penalty after a demand: if the CRA issued a demand to file the return and it was assessed that the corporation was penalized in the last three tax years for the late filing of returns, the penalty would rise to 10 percent of the unpaid tax, plus 2 percent of the unpaid tax for each month that the return is late, up to 20 months maximum
- failure to file a tax return (for large corporations): 0.0005 percent of the corporation's taxable capital, plus 0.25 percent of the Part VI tax payable, which are charged for each month that the return is late
- repeated failure to report income: 10 percent of the unreported amount in the return, or 50 percent of the difference of the understated tax payable and the withheld tax
These are just a few of the penalties that your business may incur for non-compliance with Canada's tax laws. A corporate tax lawyer can help you maintain compliance and avoid penalties.
Tax evasion against businesses
These penalties are in addition to possible prosecution for tax evasion in worse cases. Tax evasion involves deliberate non‑payment or fraudulent schemes to avoid tax.
When criminally convicted for tax evasion, the penalties include imprisonment, plus civil liabilities and interest. Not to mention that you must still pay the taxes owed to the government, on top of these penalties.
Read next: Tax evasion vs. tax avoidance: How CRA draws the line
How can lawyers help businesses comply with tax laws?
Tax obligations can be complex, especially for growing businesses. To simplify this problem, corporate tax lawyers can help in the following ways:
- tax planning: use legal strategies to reduce taxes and manage cash flow
- tax compliance systems: build processes for accurate filings and timely payments
- business structuring: advise on structures for cross‑border operations to avoid double taxation
- regulatory matters: represent you in CRA audits and address issues to mitigate penalties
Tax compliance: A must for Canadian businesses
Laws surrounding tax compliance are important when doing business in Canada, whatever the size of your operations and wherever your company is located. In any case, consulting with a corporate tax lawyer is vital, so that you can run your business free from tax-related headaches.
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