Tax season can be a stressful time for business owners. While you’re already moving forward in the next season of your business, you must still comply with all tax laws and filings after year-end. Many new and seasoned business owners find taxes to be intimidating. Working ahead with your tax accountant can be a great way to mitigate any surprises when it is time to file your corporate taxes.
Corporate Tax Deadlines in Canada
Generally, for corporations based in Canada, any taxes owed must be paid either two or three months after year-end. Corporate tax filings are due six months after year-end. Your accountant can help you file your taxes before the deadline and be in compliance with tax laws and regulations.
However, as the business owner, you will be signing off on your tax return at the end of the day. Your tax accountant can be a trusted partner in your business. They help you better understand how taxes affect your business and where there might be future tax planning and optimization opportunities. Asking them a few key questions can give you a big picture of how taxes affect your business.
Ready to review your corporate tax return?
As you approach the tax filing season, you can sit down with your accountant and understand what is going on with your tax return. Here are six questions you might ask your tax accountant.
These questions help guide your conversation with your tax accountant before signing off on your corporate income tax filings.
What are the items with differences between tax income and accounting income?
Most businesses will have two different calculations for income – one is your net income based on your accounting records, and the other will be your taxable income, which will be the basis for your corporate tax payable. Typically, your tax accountant will start with your corporate net income and adjust based on tax regulations to calculate your taxable income. Your net income may be different as a result of several line items. Typically, these differences result from the difference in tax and accounting rules.
A few common items include:
- depreciation and amortization schedules
- scientific research expenses
- inventory balances
- expenses related to automobiles and meals, and entertainment.
Depending on your industry and the expenses incurred, there may be other items identified by your accountant that need to be adjusted. Asking your tax accountant about the differences between taxable income and accounting net income will help you understand your business taxes.
Review carryforward and rollover balances
The CRA maintains several notional accounts for you, which may have balances. These balances have rules around how to use and apply them to corporate income. For example, capital losses are typically capital gains to reduce taxable income in future years. Some other types of carryforward balances include:
- Capital loss account
- Refundable dividend tax on hand (ERDOTH and NERDOTH)
Were there any new tax credits or deductions we used?
In any given year, the CRA introduces new credits or other tax rule changes that can impact your tax situation. Or if your business incurred new expenses or took on new income streams, new tax rules may apply to your situation. As a result, you can utilize credits or deductions that were unavailable in past years. A good place to understand the big picture of your corporate tax return is to ask if your accountant included any new credits or deductions. Or if there are tax deductions, you took the previous year that no longer apply this year. Your accountant will be able to walk you through the differences to help you better understand your taxable income.
Review dividends paid and related party transactions
Compensation to shareholders and owner-managers can be an area of risk in taxation. It is essential to pay close attention to how these are reflected in your tax return. These can have an impact on your personal taxes as well. For example, do any shareholder loans need to be included in personal income? Are payments categorized as salary or dividends consistent with your records?
What can we do differently to optimize our corporate taxes?
Once you are happy with your corporate tax return, this meeting can be an opportunity to learn. Some elections or rules could have been made during the calendar year to optimize your tax situation. A conversation with your accountant can help you optimize your tax return for future years.
Are there opportunities for tax planning?
When you file your taxes, you’re already partway through the year. You likely have a handle on how your business has been doing. Whether you plan to sell a part of your business, start a new revenue stream, or change your compensation structure as an owner, all types of transactions can impact your taxes. If you are looking at strategic deals, this might be a good time to start a conversation with your tax accountant. They can guide you if any tax planning opportunities can affect your business decisions. Also, they can offer suggestions when structuring the deal when possible.
Are there any upcoming tax law changes?
Understanding the changes in the law goes hand in hand with tax planning. Some changes may require you to make elections or file additional forms by specific deadlines. For example, new regulations may trigger reporting requirements for transactions between related entities. Your accountant should know about these and can help guide you to ensure that you always comply with all your obligations to the CRA.
Find a trusted partner for your taxes.
Your accountant can do more than file your taxes. They can help you manage your finances, find tax planning strategies, and identify red flags that could indicate financial trouble. In addition, they can help you develop a business forecast to help you plan for the future. Asking the right questions annually can help you get the most out of your relationship and keep your business on track.
CONSULT EDELKOORT SMETHURST CPAS LLP IN BURLINGTON FOR RELIABLE TAX ADVICE
Dealing with taxes is essential for business owners. At Edelkoort Smethurst CPAs LLP, our highly skilled team of tax experts will prepare your business’ taxes to meet all tax obligations while seeking out every opportunity for deductions. Let our trusted accountants give you the peace of mind of knowing that your taxes will be filed accurately and on time. Don’t hesitate to contact us online or by telephone at 905-517-2297.