When making the transition to working for yourself, you will find that you must worry about a lot of tax obligations that weren’t your problem when you worked for someone else.
New Small Business Owners learn that they’re responsible for twice as much CPP as they paid when they were employees. And they must make quarterly instalments to Canada Revenue Agency on the estimate profits that they are making in their business.
They also learn that they are responsible for an equal amount payment of CPP (Canada Pension Plan) and one and half times the EI (Employment Insurance) amount of the statutory deductions that they must withhold from any employees paycheques. Both the employer and employee portions must be paid to the Canada Revenue Agency by the 15th of the following month. It is worth checking into any subsidy or percentage deductions that your business may qualify for under special government programs that may be available.
Ouch! That can hurt the cash flow
Employees have their taxes withheld from their paychecks and don’t need to worry about paying the government. Paying those taxes to the government is the responsibility of the business owner. Many owners find it hard to set aside that money for taxes owing and it is easy to spend the tax money when it is just sitting in the business checking account. One solution is to create a separate government tax account and transfer those amounts to the separate account until it is need to pay the remittance to Canada Revenue. Remember that Revenue Canada will charge penalties and interest when payments are not made on time, putting an additional load on your cash strapped business.
Keeping good records
Business owners no longer have the convenience of receiving a pay stub and a T4 slip at the end of the year that neatly reports their income and taxes paid. Record-keeping is essential. A profit and loss statement will provide the information needed to estimate the taxes that are owed on your profits and you can then remit quarterly instalments. Accurate employee payroll records are essential to provide pay stubs and T4 slips to your employees. A Small Business Software Program will make the record keeping fast, accurate and reliable. For over 20 years Simply Accounting has be designed by Canadians for Canadians and adheres to Canada Revenue Agency requirement.
Dianne Mueller, CPB