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  • Joshua Sung Min Kim

Navigating Tax Considerations for Small Businesses (Corporations) in Ontario





We understand how daunting taxes can be, especially if you're a small business owner, and that's why we're here to guide you. Let's unravel the primary tax considerations that every small business corporation in Ontario should know.


Federal and Provincial Corporate Tax

If you own a small business corporation in Ontario, you're required to pay both federal and provincial corporate taxes. The federal corporate tax rate for active business income up to $500,000 stands at 9%. Ontario, on the other hand, imposes a 3.2% tax, bringing the combined tax rate to 12.2%.


For corporations with an annual taxable income under $500,000 in the preceding year, the tax balance is typically due three months after the end of the tax year. For instance, if your fiscal year ends on December 31, your tax balance is due by March 31 of the following year. The T2 Corporate Income Tax Return must be filed no later than six months following the end of each tax year.


Payroll Taxes

If your business corporation has employees, you're obligated to withhold and remit payroll taxes. These include income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. Don't forget that the business is also responsible for the employer portion of CPP and EI. Monthly remitters must send these deductions to the Canada Revenue Agency (CRA) by the 15th day of the month following when the deductions were made. The T4 slips and T4 Summary must be filed with the CRA no later than the end of February following the calendar year.


GST/HST

For business corporations selling goods or services, understanding the Goods and Services Tax/Harmonized Sales Tax (GST/HST) rules is essential. These rules include reporting, remitting, and potentially claiming input tax credits (ITCs). ITCs can reduce the total amount of GST/HST you need to remit, as they represent the GST/HST paid or owed on purchases and expenses related to your commercial activities.

If you're an annual filer, the GST/HST returns and any payment due should be submitted within three months after the end of the fiscal year. For a December 31 fiscal year-end, GST/HST returns and payment would be due by March 31 of the following year.


Dividends

Dividends are profit distributions to shareholders and are subject to personal income tax. But the good news is the Dividend Tax Credit can mitigate the effects of double taxation.


Active Business Income vs. Investment Income

It's essential for small business corporations to distinguish between active business income (income from your core business operations) and investment income (income from passive sources like rents, interests, or dividends). They are taxed differently, with active business income typically attracting lower rates.


Keep in mind that these are just some of the tax considerations that business corporations need to be aware of. Each business is unique and will have specific tax considerations based on its operations. And remember, it's always helpful to have a trusted tax advisor guide you through these intricacies to ensure your tax compliance and planning are optimized.


Do you need more detailed information or have questions about the topics we discussed? Please reach out to us. We're excited to help you and support your business corporation on its journey to success.

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