“I spend almost every waking hour serving my customers and figuring out how to grow my business. How can I find time to fill out government reports and deal with red tape?"
That or a variant is a common lament of most small business owners. Perhaps your business isn’t large enough or prosperous enough to support a staff person to deal with the burden of paperwork which grows exponentially. A recent example is the 2017 introduction of Ontario’s Bill 148, (Fair Workplaces Better Jobs Act) governing employer workplace responsibilities. A complex set of rules, backed by a force of inspectors, along with a minimum wage regimen, was implemented in 2018. After the government changed later in the same year, Bill 47, Making Ontario Open for Business Act, 2018 amended or repealed many of the provisions of the original legislation.
Not only did Bill 148 place a tremendous burden on small business in having to read, learn, interpret and comply with the Act, employers had to repeat the process to comprehend the changes. Social ideology and politics played out in the gritty reality of the small business owner acts as a deterrent to growth without necessarily benefitting employees.
Undoubtedly, there are bad bosses who exploit their employees through low wages, unsafe working conditions and a callous disregard for the human condition. Most small business owners, and that includes my own experience, highly value their employees and consider them as “family”. Part of the business owner’s self-esteem is empathy for employees. It is not uncommon, when times are tight for the business owner to be paid, only after the employees have received their wages. The employees get paid vacation before the boss. In lean times, the business owner will insulate the employees from adversity, because they will be the engine of recovery, when the cycle turns upward. Without burdensome legislation, most small business would operate in an honest, ethical manner, for no other reason than enlightened self-interest. As often happens, the few spoil it for the many and complex, well-meaning legislation simply smothers business growth.
Operating a small business will never become simpler or easier. For some fire-in-the-belly entrepreneurs, it is impossible to kill the drive to excel and to win. It is because of them, the mom-and-pop shops and the small companies with less than 100 employees, our economy will continue to thrive and grow, in spite of regulation, red tape and self-serving politicians who have never signed an employee’s pay cheque, or who have never had to go without one to keep their business afloat.
This environment of increasing competition, marketplace disruption and regulation, is the domain of small business and it’s here to stay. The question is, how do we keep our corporate noses clean and do what we do best – giving our customers exemplary service and turning a profit?
T1 Annual Income Tax Return:
Everyone in Canada who earns an income needs to file a T1 Return. Don’t think about gaming the system. You are what is known as “low-hanging fruit”. You do not have the financial resources to take on the CRA. Declare all of your income. If you have legitimate expenses, directly incurred in earning that income, declare them. Every return is examined initially by computer algorithms based on statistical norms. Deviations are referred to audit. You don’t want that.
T2 Corporation Return:
If you are incorporated, in addition to your personal return, you need to file a T2 Corporation Return, setting out the income and operating expenses of the arms-length corporation.
Friendly Advice about Tax Returns:
Whether you are filing a corporation, an individual return or both, keep meticulous accounting records and keep business and personal transactions separate. The CRA is vigilant in looking for personal purchases claimed as business expense. Avoid using a business credit card for personal purchases. If you must use a personal credit card for business expenses, keep detailed records and keep the business at arm’s-length. Go through the monthly credit card statement, making copies of all receipts for deductible business expenses. Write a company cheque, payable to you for the total and make a separate payment to the credit card account in that exact amount. File the receipts with company paperwork. In doing so, you establish a paper trail and demonstrate that the company is operating at arm’s-length.
If your business has annual gross income of $30,000 or more, you are obliged tocollect and remit Goods and Services Tax and/or Harmonized Sales Tax. Most small businesses are required to make quarterly remittances of tax collected, less the tax paid on purchases of goods and services for the business. A detailed annual return is required, showing gross sales, tax collected, tax paid on purchases of goods and services for the business, adjustments and net remittances. File on time and keep accurate records. In the unthinkable event of an audit, your best friend is detailed, accurate records.
If you have employees, you must keep accurate records of earnings and deductions and you must remit Income Tax deducted, along with the Employer and Employee shares of Canada Pension Plan and Employment Insurance withholdings. If you are a sole proprietor, you must contribute the Employer's share of the Canada Pension Plan deduction, in addition to the Employee's share. As a sole proprietor or employer, you are ineligible for Employment Insurance and therefore exempt from deductions. Remittances are due by the end of the month following the month in which deductions were withheld. Individual statements of earnings and deductions (T4) must be delivered to the employee and an annual summary (T4S) must be received by the CRA by February 28th in the following year. The sum of all withholdings for Income Tax, CPP and EI, along with the corresponding employer’s share must equal the total monthly payments for the payroll year. When in doubt, consult the CRA Guide for Employers.
If you have employees, you must register with the Workplace Safety Insurance Board. Your business will be classified by risk and assessed premiums for coverage for your employees. Coverage is optional for business owners. When in doubt about registration or employer obligations, contact the WSIB.
Getting Set Up or Finding Information:
If you are setting up a new business, contact Service Ontario. They can walk you through the process of registering your business, getting a business number and navigating the various government levels relating to business. If you live in small-town eastern Ontario, the Small Business Advisory Centre in Smiths Falls can help with guidance. Conveniently, a Service Ontario office is in the same building.
All of this is not to say that we enjoy filling out forms, meeting government-imposed deadlines and living under scrutiny. That’s just the reality of doing business. Keeping timely, accurate records and following the rules beats the alternative of facing an audit with poor records and lots of excuses. Take care of the key essentials as you go about growing your business.
One last thought:
If you receive a notice from a government agency, don’t toss it in the basket with day-to-day paperwork, where it may be overlooked. Take the time to read it and note due dates and deadlines. Make a note in your calendar app to review and respond before the due date. The issue won’t go away. Deal with it before the paperwork and the complications accumulate
Your local Chamber of Commerce or the Canadian Federation of Independent Business can be a source of information on government policy and business advocacy. If you believe in the adage, “strength in numbers” business organizations may help you feel you’re not totally alone out there.