GET YOUR STARTUP SETUP:
Launching a startup can be both exciting and terrifying. Starting a company means making a host of decisions that could affect your business for years to come. If you’re confused about registering for GST, setting up payroll, or how to find the best bookkeeper, we’ve got you covered. To make your venture a little easier, we’ve compiled a forum with commonly asked questions about setting up your startup.
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DO YOU HAVE A QUESTION?
What is a federal business number and how do I get one?
A business number (BN) is a 9-digit account number issued by the Canada Revenue Agency that identifies your charity, sole proprietorship, partnership or corporation to all levels of government. A business entity is assigned one business number, regardless of the number of locations or companies owned. You need a BN if you incorporate or require a CRA program account including GST/HST, payroll deductions, import-export, corporate income tax or registered charity program accounts. Program account numbers are made up of your business number, the program’s two-letter identifier and a final four-digit reference number.
In many instances, a BN is issued automatically when you register or incorporate your business, or sign up for a CRA program account. You can register or view your business number through the CRA My Business Account. A step-by-step how-to video from the CRA is available here (UPDATE LINK).
My business is incorporating, do I need to register to remit GST/HST?
If your business has worldwide, taxable sales of more than $30,000 during any four consecutive calendar quarters, you must register for a CRA GST/HST program account and collect GST/HST from your customers. Because it can be challenging to constantly monitor when your business has hit the benchmark while still ensuring you have the funds available to pay the taxes owed, we will likely recommend that you collect sales tax right from the start. An additional benefit is that once registered, you can claim Input Tax Credits - meaning if the HST collected on your sales is less than the HST paid on expenses, you can claim a refund.
Before registering with the CRA, you’ll need to have the following information ready: effective date of registration, fiscal year, total annual revenue and basic corporate information. You can register with CRA Business Registration Online here and watch a tutorial here.
How do I set up a payroll account?
If you pay salary or wages to a worker, you have to withhold and remit source deductions from that amount to the CRA. Source deductions can include Canada Pension Plan contributions, employment insurance premiums, and income tax. For businesses in Quebec, payroll ductions are Quebec Pension Plan Contributions and Quebec Parental Insurance Plan premiums and are remitted to Revenu Québec.
Like other CRA program accounts, you can set up your payroll account via CRA Business Registration Online, but be aware of what information you will need to provide. You must register for a payroll program account before the first remittance due date, which generally is the 15th day of the month following the month you started withholding deductions from your employee’s pay.
Is it okay to run my business using my personal bank account?
Some people say they find it easier to deposit cheques to their personal bank account or charge business expenses to their personal credit card, but this puts them at risk. We recommend that you have a separate bank account and credit card for your business. Never combine personal and corporate banking.
A dedicated business account helps you keep accurate records (which are required by law) and separates expenses, which vastly simplifies tax preparation and prevents you from accidentally deducting an ineligible expense - like your kid’s soccer program or weekly grocery run or worse yet you may forget to deduct an eligible business expense.
Just like your personal credit score, your business credit score must be slowly built up over time. A small business bank account will help you establish a credit profile so you can apply for business credit cards, loans, or mortgages in your business’ name in the future. The better your credit score, the better the terms your bank will offer when it comes time to borrow money. Lenders also usually require borrowers to have a business bank account when applying for business loans. Depositing loaned funds into a personal account is viewed as a massive red flag.
Do I need compiled financial statements?
Compiled financial statements don't have the same degree of authority as audited financial statements.
This is because unaudited financial statements prepared by an accountant are entirely based on information provided by management. The finished report does not express an opinion or assurance on the accuracy of the information. Even so, for a small business or private company that doesn’t need to meet generally accepted accounting principles, a compilation engagement can be the most cost-effective and efficient option for a review or audit.
Compiled financial statements are often requested by lenders and banks when businesses apply for mortgages, credit cards or loans. A new accounting standard came into effect in 2021 to ensure compilation engagements provide useful and consistent financial information for third parties, so be prepared for more engagement with your CPA in your next financial statement compilation process.
When would I need a review engagement instead?
The next step up on the financial reporting ladder from a compilation engagement is a review engagement. Its sophistication makes it a better fit for mid-sized and complex businesses. For maturing companies, it’s a preparatory step in the transition to audited financial statements. It’s also required by third parties looking to get a reliable and more detailed view of your company’s financial performance when obtaining financing, updating investors, or selling the business.
This kind of statement includes some validation by the accountant and could include reviewing your accounting practices, management controls, or fraud detection. The review financial statements need to comply with applicable accounting standards and must include detailed disclosure information.
What accounting software should I be using?
Depending on which “Best Of” list you’re looking at, the same players pop up consistently: FreshBooks, Intuit QuickBooks Online, Sage, Wave, Xero and Zoho Books are all popular options. Usually, your accounting advisors are agnostic to the accounting software that you may choose. You should pick a software package which best suits your operational needs.
Do I need to hire a professional bookkeeper?
A good rule of thumb is that if your company has less than 30 employees and $1 million in annual revenue, using part-time professional bookkeeping services should be adequate. There are lots of cost-effective options available, such as hiring part-time in-house services, going with a freelance bookkeeper, or outsourcing with Zeifmans to combine your accounting and bookkeeping services into one.
The key though is to use professional bookkeepers who have financial and legal expertise. Doing so will increase the accuracy of financial reports, ensure the proper recording of all your financial transactions, simplify your life at tax time, and improve cash flow management.
What tax returns should I be filing?
Filing your first corporate income tax return
All Canadian corporations (except registered charities) must file a corporation income tax (T2) return every tax year, even if nothing is owed. Unlike personal taxes, you have the ability to choose your corporate year-end date in your first year of business. It can be any date within the first 53 weeks after your incorporation date.
For most startups, the deadlines can be a bit backward - taxes must be paid before the return is officially due. Your tax return is due six months after the year-end date, while any taxes payable are due three months after your year-end. We, therefore, recommend filing your tax return early so you know exactly how much is owed.
Filing GST/HST returns
If your business has worldwide, taxable sales of more than $30,000 during any four consecutive calendar quarters, you are required to be registered and file a GST/HST return. You can file it using CRA NETFILE service. This tax return reports your gross revenues, the GST/HST you collected and the GST/HST you paid, or income tax credits (ITCs) to the CRA.
Filing payroll deductions
Source deductions must be reported and remitted to the CRA on a tight schedule, which is set depending on the amount payable (see Frequency, below). Come tax time, employers must provide a payroll slip (T4) to all workers that records their salary and amounts deducted for the calendar year. Payroll returns must be filed with the CRA by the last day of February of the following year.
How frequently should I be filing or remitting taxes?
Corporate filing frequency
For your first year of operation, you will have to pay corporate income tax three months after your selected year-end date. During the second year of operation, if your federal taxes are more than $3,000, you will have to begin making quarterly or monthly instalment payments. Businesses are treated similarly to taxpayers under the Income Tax Act and are required to pay regular partial payments of their payable tax, just like workers have tax deducted from their wages or salary every pay cheque. Your instalment amount is based on how much you paid the previous year in taxes.
GST/HST filing frequency
Depending on the size of your business, you may need to file a GST/HST return monthly, quarterly or annually.
Sales over $6 million
Tax return and payment due one month after each month
Sales between $1.5 billion – $6 million
Tax return and payment due one month after each quarter
Sales under $1.5 million
Tax return and payment due three months after the year-end. You will need to pay quarterly installments if your net remittance is greater than $3,000.
Payroll filing frequency
Are permitted to remit quarterly
15th day of the month, following the month when the deductions were made
10th and 25th day of each month
$50,000 and over
3rd, 10th, 17th and 24th of each month
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Should you need more in-depth advice, don’t hesitate to reach out to Zeifmans for a free 1:1 consultation. Our team of experienced business advisors is here to help guide your growth.