Taxes for Canadian Small Businesses

Friday, December 23, 2011   //   Business Taxes  //  1 Comment

Small business owners are a courageous breed. Their adventure in business is filled with many different challenges and surprises. One surprise for most of those just starting out as entrepreneurs is the mountain of taxes that they will have to deal with in their new positions.

The different taxes that the business owners have to manage are:

Source Deductions – when you begin paying employees, this money is withheld by the business owners from their employee’s wages for submission to the Government of Canada.

GST – when you begin selling your products and services, you will need to charge this tax on each sale transaction. This is money that is collected from your customers for submission to the Government of Canada.

Business Taxes – money submitted from the revenues of a business to the local municipal government. This is similar to property taxes on your home.

Provincial Taxes – the tax that is charged by the provincial government based on the profit of a corporation.

Federal Taxes – the tax that is charged by the federal government based on the profit of a corporation.

Personal Taxes – the tax that is charged by the federal and provincial governments on the income of the business owners.

While all of these taxes are important to pay, small business owners often have the challenge of trying to apply limited funds to unlimited taxes. This is especially true for companies that are struggling to become profitable.

The main rule to remember is this. Source Deductions and GST have to be paid first. In the case of these two taxes, the government considers the small business owner to be an agent for the government. The money that is collected is being held in trust by the business owner for the government. Ignoring this can lead to serious trouble.

To put it another way, consider how you would feel if you found out that the GST taxes collected by a business was being used to purchase a bigger car for the business owner. Or maybe the tax withheld on your salary was being used as a down payment on a summer home. It becomes pretty clear when one considers this that paying these amounts to the government is very important.

Once the Source Deductions and GST have been paid, then the other taxes have to be paid in no particular order. When presented with limited funds and unlimited taxes, I have written post dated cheques to all of these different tax departments with pretty good success. By doing this, the business owner shows that they are trying their best to deal with the outstanding amount that is owed. Although this is not a perfect solution, it is better than not paying at all.

So in short, there are a lot of different levels of taxes that the Canadian small business owner has to deal with. Ignoring the payment of source deductions and GST is foolish. When faced with limited cash, try paying the taxes using post dated cheques.
By Gerald E Hunt


Gerald Hunt B.Sc. MBA is a small business accountant. He is the owner of the Padgett Business Services® franchise in Southeast Calgary and Okotoks. Padgett Business Services® provides bookkeeping, accounting and tax services to small owner operated businesses. Sign up for the Small Biz Builder Newsletter for informative tax and accounting tips at

1 Comment

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