Taxes payable due Monday
Q: In March 2006, I left my management’s position with a large company. I always wanted to work for myself and decided this was my most opportune time. I have since hired two employees and hope to hire another by year-end. Also, I purchased a unit for business use and rent part to another unrelated business. Currently, my business is not incorporated. Will my tax filing date also be April 30th if I should incorporate?
A: Many individuals dream of “one day being their own boss.” It may not be as glamorous as one may think. Although, there are many rewards with running your own business it comes with great sacrifice. Many small businesses fail because owners go in with their eyes closed. Self-employment is not for everyone. Before plunging into your business ensure you have at least a good support system and sufficient capital to achieve success.
Tax filing date deadlines are different for salaried employees, self-employed individuals and corporations. Salaried employees must file and pay income taxes owing on or before April 30 following the year being reported. For example, salaried employees must file their 2006 income taxes by the coming April 30th deadline (which is Monday). Individuals that fail to do so will be subject to late filing penalties and interest on taxes owed.
Self-employed individuals and their spouse (including salaried) report their income on a calender year basis and due by June 15. However, taxes payable must be received by Revenue Canada by April 30. Check with your accountant before incorporating and discuss the tax advantages of incorporation.
Incorporating a business offers many tax advantages, particularly in the initial year of incorporation where you have a choice to determine its year-end in the first year of operation but cannot exceed 53 weeks from the date of incorporation. Subsequently, the filing due date is six months after its year-end. Depending upon the nature of the business, taxes owing must be paid two or three months after its year-end.
Q: I own and operate a small business. Can I pay my wife and/or kids a salary and how much can I pay them?
A: Family Income splitting can reduce a family’s overall tax liability. However, to qualify for a business deduction the family member must be paid periodically; there must exist an employee-employer relationship and the remuneration must be reasonable for the work performed.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA (416-590-1728, ext. 304). E-mail questions for Money Matters to firstname.lastname@example.org.