Small businesses make up about 98 per cent of employer businesses in Canada and employ over 7.7 million employees, or almost 70 per cent of the total private labour force. These small business owners, entrepreneurs, and contractors are not taxed automatically at the source of their income and come tax season could end up owing a significant amount to the Canada Revenue Agency if they didn’t plan accordingly throughout the year.
As a result, tax debt has increasingly become a common cause of insolvency among incorporated small businesses and sole proprietorships, namely due to insufficient record keeping, not seeking the advice of an accountant, or they simply don’t have sufficient funds to make the tax payment so they don’t bother filing. However, if left unaddressed, the CRA could start garnishing payments for accounts receivable, or worse, seize their bank account. This could severely cripple a small business or sole proprietorship – or completely prevent it from operating at all.
If you have found yourself in this situation, here are four things to keep in mind as we approach tax season:
File government reporting on time, even if you know you will owe money. Many small businesses don’t want to file taxes because they have not held back sufficient cash to make the tax payment or have not made installments throughout the year, but interest and penalties for late filing can add up fast and the CRA will recognize your effort to remain compliant.
Call CRA directly to discuss payment options. Depending on your situation, CRA may be open to various payment plans to repay the arrears owing. However, be careful with what you agree to pay the CRA and ensure that you can meet the payment requirement until such time as the arrears are paid up the date. While paying off your arrears, you should be making ongoing payments to CRA for the current periods to ensure that you do not fall behind again (usually quarterly installments for sole proprietors).
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