Understanding the Different Tax Accounts That Apply to Your Business in Canada
As a business owner, understanding the different tax accounts that apply to your business is crucial for staying compliant with tax laws and regulations. With various types of taxes and accounts to keep track of, it can be overwhelming at times. But fear not! In this blog post, we will break down the different tax accounts that apply to your business and provide you with a clear understanding so you can focus on growing your business without any worries about missing important deadlines or facing penalties. Let's dive in!
There are a few different types of tax accounts that may be applicable to businesses in Canada. The most common ones are:
· Goods and Services Tax (GST) / Harmonized Sales Tax (HST) Account
· Provincial Sales Tax (PST) / Retail Sales Tax (RST) / Quebec Sales Tax (QST) Account
· Payroll Account
· Corporate Income Tax Account
· Worker’s Compensation Board (WCB) Account
Goods and Services Tax (GST/HST) Account – GST/HST is a value-added tax imposed on most goods and services sold in Canada. The GST/HST is levied at a rate of 5%, and HST is 13% or 15% (Ontario); depending on the province, is collected & remitted by businesses to the Canada Revenue Agency (CRA). This tax is applied to almost all goods and services sold in Canada. If your business is registered for the GST/HST, you will need to file regular returns and make payments to the CRA.
Businesses must register for the GST/HST if they meet ALL criteria below:
· Are engaged in a commercial activity with annual gross revenues of $30,000 or more - (optional registration is available for businesses with annual gross revenues of less than $30,000).
· Are in the business of providing taxable supplies of goods and services.
Once registered, businesses are responsible to charge the required GST/HST on the supplies of goods and services sold or provided in Canada that falls under the umbrella of “taxable goods and services”, and remit GST/HST collected to the CRA. Businesses can also claim GST/HST Input Tax Credits (ITC) for any GST/HST paid on purchases made during their business activities.
Please visit the resource link for more information on GST/HST accounts and taxes: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses.html
Provincial Sales Tax (PST/RST/QST) Account - The Provincial Sales Tax (PST/RST/QST) is a tax that applies to the purchase of “taxable” goods and services in each province. The PST/RST/QST is collected by the province and administered by the Ministry of Finance. In Canada, the current PST/RST/QST rate varies between 6% - 9.975%. Most goods and services are subject to PST/RST/QST, with some exceptions such as groceries, prescription drugs, childcare services, etc. Businesses that are required to register for PST/RST/QST must charge, collect, and remit the tax on behalf of their customers to the provincial Ministry of Finance. Businesses that fail to comply with these requirements may be subject to penalties and interest charges. Please ensure to contact the Ministry of Finance department, for each province your business will be providing goods and services, to confirm your business’ responsibility in meeting PST/RST/QST account registration, filing, and remittance requirements.
Please visit the resource link for more information on PST/RST/QST accounts and taxes: https://www.retailcouncil.org/resources/quick-facts/sales-tax-rates-by-province/
Payroll Account - The payroll account is used to remit payroll deductions, such as income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. You will need to register for a payroll account prior to paying your employees. If you are an employer in Canada, you are required to withhold taxes from your employees' paycheques and remit them to the government. The amount of tax withheld is based on the employee's income and the personal tax credit they claim. As an employer, you are also responsible for periodic reporting & remittance of payroll deductions: income tax withholdings, employee, and employer portion of Employment Insurance (EI), and Canada Pension Plan (CPP) contributions, to the CRA prior to the required remittance deadline to avoid late filing & remittance penalties and interest.
Please visit the resource link for more information on payroll accounts and taxes: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll.html
Corporate Income Tax Account - is used by corporations to remit their federal and provincial/territorial income taxes. If your business is a corporation, you will need to register for a corporate income tax account and file regular returns with the CRA by the prescribed filing and corporation tax payment deadlines.
Please visit the resource link for more information on corporate income tax: https://www.canada.ca/en/services/taxes/income-tax/corporation-income-tax.html
Worker’s Compensation Board (WCB) Account - Even though the Worker's Compensation Board (WCB) is not regulated by CRA, WCB insurance coverage is a mandatory provincial requirement for most employers and workers, making it an important task to contact your provincial WCB department to determine if account registration is required. The Worker’s Compensation Board (WCB) is a government-run organization that provides insurance to employers in the event that their employees are injured on the job. In order to be eligible for coverage, employers must pay premiums into the system. If an employee is injured while working, they can then file a claim with the WCB and receive benefits to help cover their medical expenses and lost wages. The WCB is an important safety net for employees, as it helps ensure that they will still be able to support themselves and their families even if they are injured on the job. For employers, the WCB can provide peace of mind knowing that they will not be liable for any workplace injuries.
The Canada Revenue Agency (CRA) offers several resources to help employers understand and comply with their payroll obligations. These include online tools, publications, and webinars.
Understanding the different tax accounts that apply to your business in Canada is important for any business owner. Having a thorough understanding of these accounts and their filing and payment requirements can help you manage your finances and taxes more effectively. Additionally, understanding how each account affects your business’s bottom line can also be useful when it comes time to make decisions about investments or expenditures. With proper knowledge of the various tax accounts available in Canada, businesses will be able to maximize their profits and minimize their liability. Should you have any additional questions, please contact our specialists at K Liu Accounting Services Inc.
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