Introduction
Startups need to comply with Canadian tax laws. However, understanding taxes, when to pay, and what information to include when paying taxes to the Canada Revenue Agency (CRA) can be confusing. The tech industry in Canada is growing rapidly, making it an ideal environment for startups. However, navigating tech tax in Canada can be challenging. Fortunately, there are tax credits available to support tech startups. Here are some common taxes to consider for tax planning. Please note that this is not an exhaustive list.
Corporate Tax (T2)
Every Canadian company is required to file a corporate income tax (T2) return for each fiscal year. The T2 serves as the obligatory declaration of corporate income for the federal government of Canada. The Canada Revenue Agency offers two types of T2 statements, providing companies with options for completion. Filing a corporation income tax return (T2) is mandatory for all Canadian businesses annually, regardless of whether there is any tax payable. This obligation can be fulfilled conveniently through the Government of Canada’s online portal. Businesses generally have the flexibility to select the end date of their tax year. Upon filing your initial T2, your start date aligns with the date of your incorporation. For subsequent T2 returns, you need to select a start date corresponding to the day following the conclusion of your tax year.
Goods and Services Tax (GST)
Starting from July 1, 2021, Canada has expanded its GST/HST regulations to include digital goods and services provided by foreign vendors, referred to as “cross-border digital products and services.” If your business is expected to generate more than C$30,000 in sales to Canadian consumers within 12 months, you are required to register, collect, and remit Canadian GST/HST.
Presently, the tech tax Canada rates on cross-border sales of digital goods are as follows:
- 5% GST in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
- 13% HST in Ontario
- 15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
Additionally, it’s crucial to consider provincial-level digital sales tax regulations.
Payroll Deductions
Startups must register a payroll account with the CRA when paying salaries. The remitting frequency for payroll deductions is based on the average monthly remittances made in the second preceding year. Salaries and deducted amounts are reported on a T4 form and filed with the CRA by February 28 of the following year.
- If deductions are under $15,000, remittance is due on the 15th day of the month following the deduction month.
- For deductions between $15,000 and $49,999, remittance is required on the 10th and 25th day of each month.
- For deductions of $50,000 and over, remittance is due on the 3rd, 10th, 17th, and 24th of each month.
Businesses with average monthly deductions of $3,000 or less have the option to remit quarterly.
Provincial Tech Tax
Businesses registered in certain provinces in Canada, such as Saskatchewan, Manitoba, and British Columbia, may be required to pay the Provincial Sales Tax (PST) in addition to other taxes..
Tax Credits
Startups can benefit significantly from leveraging tax credits to manage various taxes. The Canadian government provides various tax credits tailored to tech startups, alleviating the financial burden of conducting business.
Technology companies can optimize their tax plans, but complying with tax regulations can feel overwhelming at first. However, with a solid understanding of the tax system, it can become manageable. Seeking guidance from a tax advisor who is familiar with the tech industry can help simplify the process.
VN Accounting Solutions can help connect you with tax preparation services in Mississauga, Brampton and Bowmanville. Entrusting your finances to experts is crucial in allowing your startup to focus on core priorities, and we have the expertise to help you achieve precisely that.
