You’re in business and things are good, then comes tax reporting time and your stress level goes through the roof! But it doesn’t have to be that way. You can have success with peace of mind. It’s all about record keeping.
Keeping good records that are accurate and complete is easy once you decide to stay focused. If you are just starting your business, becoming informed, setting up good procedures and making this a habit from day one is simply a matter of including it in your daily To-Do list. If you have been around a while, you may need an extra reminder.
BusinessDictionary.com defines bank reconciliation as:
Analysis and adjustment of differences between the cash balance shown on a bank statement, and the amount shown in the account holder’s records. This matching process involves making allowances for cheques issued but not yet presented, and for cheques deposited but not yet cleared or credited. And, if discrepancies persist, finding the cause and bringing the records into alignment.
If books are reconciled on a regular basis at a frequency that is right for a business, it is easily manageable. Depending on the size and type of establishment and number of transactions, this could vary anywhere from daily to quarterly.
It is recommended that retail establishments reconcile their Z (or register) and Batch (merchant account) tapes with their sales on a daily basis.
Businesses that maintain a double-entry accounting program such as QuickBooks to keep track of their records find that reconciling the books is a breeze.
- Keep hard copy of all records (receipts for income, expenses, vehicle mileage logs, assets and liabilities) relating to the business along with your bank and credit card statements for a period of 7 years neatly filed for easy access Note: CRA doesn’t accept bank and credit card statements by themselves as proof in an audit.
- Keep copies of any online transactions in a file on your computer in accurately named folders (for example. “Jan 2012 bank”, “Dec 2011 income”, etc.) ready to be printed.
- Always back up your computer files regularly, using online programs, flash drives or removable disk storage devices, and check the backups occasionally to be certain they can be accessed.
Develop a filing system that works for you, and then whatever form your files take, keep them consistent so that you can find something several years later. The goal is to be able to lay your hands on a specific receipt(s) in a short amount of time for an auditor.
Corporations need to maintain files (journal records) that will allow for the creation of both a Profit and Loss Statement as well as a Balance Sheet in order to show income and retained earnings. These tools also help businesses improve their performance.
A Sole Proprietorship operating out of a home needs to keep records, in order to be able to claim business use-of- home expenses based on both the pro-rated area and time (hours per day/days per year) that it is being used for business purposes. This includes mortgage interest, heat, hydro, property taxes, and insurance.
Closing the Books on Another Year
Just like you turn off the lights each day when you leave the office, closing the books is the last thing you do at year end. Once everything is reconciled and all your entries are made and checked, you can close up your accounting records and get ready to work on the returns.
Returns are often the most daunting of documents during tax season. But if you’ve kept your financial record keeping disciplined throughout the year, reconciling your books and journal entries each month, this will be as simple as entering the right numbers into the right spots and you will be done for another year!
The return documents themselves are as follows:
- T4’s & T4 Summaries (which are due Feb 28th)
- HST (or Harmonized Sales tax) are usually due annually, or quarterly (on the last day of the month following the period-end)
- WSIB (Workplace Safety Insurance Board) documents – reconciliation guides, registration, reports, subsequent reports, premium payments and more – can be found on the WSIB website, and should be filed (see WSIB schedule) on the last day of the month following period-end.
- T5018 (Statement of Contract Payment, used by Construction industries that subcontract) is due 6 months after payment for subcontractors making greater than $500
Tax return deadlines
- Sole Proprietor/Partnership return deadline is June 15th for the businesses owners and their spouses. However, any taxes owing are due to CRA by April 30.
- Corporations must file no later than 6 months after the end of each tax year. By the same day of the 6th month after the end of the year. (For example, tax for the year ending March 31st, your filing due date is Sept 30 – for August 31, it is due Feb 28 – and for September 23, the due date is March 23).
- When a due date falls on a Saturday, Sunday or Public Holiday, CRA considers the return is filed on time if they receive it on the first business day after the filing deadline. Otherwise penalties may be imposed.
- Returns must be filed no later than 3 years after the end of a tax year to receive a refund.
- New Corporations can declare their tax year on the 1st T2 return, but no later than 53 weeks, after incorporation. For all subsequent years, the tax year start will be the day after your tax year-end.
- A professional corporation that conducts business in Canada and is a member of a partnership has a December 31 year-end date.
- To receive credit for HST ITC’s, they must be filed within four years in most cases.
- A Sole Proprietorship, with a 3k Threshold, (that is, if the net tax owing in 2012 and either 2011 or 2010 (except Farming and fishing) is greater than $3,000), has installment payments that are due quarterly on March 15, June 15, Sept 15 and December 15.
- A Corporation’s payment is usually due monthly or quarterly. There are several methods for payment schedules. (One example is one-quarter of the tax payable from the previous tax year is due each quarter of the current tax year – and the balance of tax is paid 2-3 months after the end of the tax year.)
If you stay diligent year round and maintain accurate, well-structured records, you’ll understand your numbers, increasing your chances for a better bottom line, and makes tax time a breeze.
As always, consult the CRA website (www.cra.gc.ca) for further information.
Helping people and businesses succeed with peace of mind.
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