Accounting and bookkeeping process start up for new Canadian corporation:
How to setup financial records, HST and Payroll right from the start of the business?
After the Corporation has been registered, Accounting and Tax reporting process should be planned right from the start. Take few simple steps to have it work for your business:
1. Find your CRA Business No.
Corporation's BN can be usually found in CRA BN registration letter that is sent shortly after incorporation.
For the Federal corporation the BN is included in one of the registration messages sent by email. It is a 9 digit number that will be used as:
Corporation's Income Tax No: 33333 3333 RC0001
Corporation's GST / HST No: 33333 3333 RT0001
Corporation's Payroll Tax No: 33333 3333 RP0001
Corporation's Income Tax No, ending with RC0001 is being registered by CRA as soon as the corporation is opened.
The other tax No's such as Payroll (RP 0001) and GST/HST (RT 0001) can be registered by making a request to CRA.
The initial BN is needed to apply, or to file any returns.
2. Register GST/HST account.
A good chance your business will need that, especially if some construction, equipment or other costs are paid at startup, and an HST refund is to be claimed on these costs.
Most businesses that make 30k annually have to register for GST/HST.
If the annual sales are below 500k, GST/HST filing can be done annually, 500k to 1,500k - quarterly, and businesses with sales above 1.5 million have to file monthly GST/HST returns.
The return contains information about Sales, GST/HST Collected on Sales, GST/HST Paid (ITC), and the difference between GST/HST collected and paid is the Net Tax.
If you are an Incorporated Professional, such as Engineer or IT Project Manager, be sure to check if using Quick Method for HST reporting will save tax.
Quick Method can be beneficial for any business that claims small amount of HST Paid (ITC). There are certain eligibility criteria that must be met in order to use the method.
Please refer to CRA HST Guide for more details, or contact Ontariotaxmen, we can guide you through!
3. Register Payroll account.
This account should be registered by businesses having employees on payroll with all accompanying deductions such as CPP, EI and Federal Tax.
The deductions can be calculated by using CRA Payroll Deductions Online Calculator.
Note that company on its part covers additional CPP (same as employee part) and EI (1.4 x employee part).
After the account is opened, it becomes an obligation of the business to remit all source deductions and file monthly or quarterly reports to CRA.
It also brings an obligation to file T4 payroll return for the calendar year, by February 28 of the following year.
If the workers receive self-employed commissions or contract payments, registration of payroll account is not necessary.
In some cases filing of T4A or T5018 can be required.
For an Incorporated IT Professional or Engineer it may be beneficial to have payroll for themself as a partial protection from
Personal Services Business
classification by CRA.
In case of
, the CRA Tax Account No. ending with RZ 0001 is used.
No registration ahead of dividends payment or filing the T5 Summary return is necessary.
Feel free to consult Ontariotaxmen on whether you need to register payroll or HST accounts.
4. Know when you should file the Corporate Tax Return, and how much tax you will owe.
Set up a list of due dates for your tax payments and return filings. For example, if the corporation was registered on April 15 2022:
- T4 and T5 returns are due on February 28, 2023
- GST/HST return is due March 31, if a typical calendar year reporting period was assigned.
- Corporation Tax Return will be due by October 14, 2023.
If the bookkeeping process is up to date, it will give you some idea how much profit and tax you are looking at. That will also let you determine if any tax installments need to be paid.
The business can set up the tax payments in online business banking, or you can reach CRA at 1-800-959-5525 to request payment vouchers for the specific tax account that will allow paying tax at the branch.
CRA usually provides extra payment vouchers in the mail after accounts such as HST or Payroll are registered.
5. Start a bookkeeping process.
Easy way: Spreadsheet Accounting
The idea is to download bank transactions from online banking in a spreadsheet format, such as *.csv, *.xls or other. You then have to indicate each transaction's classification in a separate field beside.
If data volume is large, the transactions can be sorted in the spreadsheet before classification.
Categories of transactions can be:
Assets (when assets are purchased or sold)
Liabilities (when the loan is taken or paid)
Equity (when owners invest or withdraw funds)
Revenues (when goods or services are sold)
Expenses (there are numerous categories of expenses, such as rent, office, materials and others)
After each transaction has been categorized, the spreadsheet can be sorted by these categories, and you have the important totals for financial reports.
Professional Accounting software: QBO, Sage 50, Account Edge and others
If you have basic knowledge of accounting or are willing to educate yourself through online tutorials, it would be an advantage to use one of the accounting programs.
Payroll, invoicing and product tracking are easily done there, however it can be a commitment for a startup.
Depending on the number of transactions the business can make an informed choice between many options, to produce cost and time efficient result.
Please refer to our article on organizing simple bookkeeping process, or contact Ontariotaxmen for a free initial consultation on how to set up your own bookkeeping.
If accounting process works, the business has a look ahead to:
Know how the enterprise is performing
- To make business decisions right, the owner needs to know if the business makes profit and how much, whenever those decisions are made.
Plan to pay yourself and your workers
- If the business owner plans to withdraw funds, the transfer must be reported on business and personal tax returns.
Generally reported as:
- Salary (in that case payroll account needs to be registered with CRA)
- Dividends (the business must report enough of tax-paid income)
- Self-employed services fees
- Loan return, if there was investment before
Stay on top of HST filings
- If the annual sales reach 30k, HST account has to be registered with CRA and HST returns be filed by their due dates. CRA can freeze bank accounts for not filing HST and Payroll returns.
When the business starts with investment of significant amounts in equipment, renovation, construction or other assets, HST account needs to be registered ahead of time. That will allow the business to claim full HST refund on its project costs.
Chose the fiscal year to make future reporting convenient
- Fiscal year for Corporation Tax Return can be chosen during the first year. By filing the first T2 Tax Return, the corporation sets the fiscal year end for all following periods.
Know when the tax returns and payments are due
- Within three months after the fiscal year end, the balance of corporation income tax needs to be paid.
- Within six months after the fiscal year end, the Corporation Tax Return needs to be filed.
- HST Returns come due one month for quarterly reporters, and three months for companies with annual reporting period.
- In case HST payable to CRA for the year exceeds 6k, or income tax is over 3k, advance installment payments need to be made during the tax year.
- Payroll source deductions should be paid before 15th of the month after the payroll is paid. CRA is known for having strict policy and imposing high penalties on late payroll deductions payments.
- If Payroll or Dividends were paid, T4 and T5 returns need to be filed with CRA by February 28, regardless of fiscal year end.
- Other accounts, such as WSIB require workers/contractors earnings to be reported regularly.
For the above and many other reasons the accounting process must be set right from the start.
Ontariotaxmen is on your side to make your business successful!
Please use the above information as reference only, as every taxpayer's situation is unique and
offers various opportunities for tax savings and right tax strategy.
for no obligation evaluation and free of charge initial consultation.
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