Guide for Canadian Small Businesses

Transcription

1 Guide for Caadia Small Busiesses 5&(5HY

2

3 T he success of small busiess is a essetial part of Caada s ecoomic growth. At the Caada Customs ad Reveue Agecy (CCRA), our goal is to provide all the support we ca. We work i partership with small busiesses to improve services, reduce the burde of compliace, ad maitai cofidece i Caada s tax system. We created this publicatio i co-operatio with the members of the Small Busiess Advisory Committee. This committee provides advice ad commets o admiistrative cocers ad iitiatives to CCRA officials from the perspective of small busiess. The committee members are small busiess owers from all parts of Caada, from diverse backgrouds, ad represet all sectors of the Caadia ecoomy. Visually impaired persos ca order publicatios i braille or large prit, or o audio cassette or computer diskette, by callig weekdays from 8:15 a.m. to 5:00 p.m. (Easter Time). This guide uses plai laguage to explai the most commo situatios. We regularly revise our publicatios to take ito accout chages i the law. La versio fraçaise de cette publicatio est ititulée Guide pour les petites etreprises caadiees.

4

5 7DEOHRI&RQWHQWV Page How This Guide Ca Help You Iteret access... 5 About the CCRA... 5 Chapter 1: Settig Up Your Busiess Sole proprietorship... 6 How does a sole proprietor pay taxes?... 6 Partership... 7 How does a partership pay taxes?... 7 Corporatio... 7 How does a corporatio pay taxes?... 7 Are you resposible for your corporatio s debts?... 7 Keepig records... 8 Five reasos why keepig records ca beefit you... 8 Legal requiremets for keepig records... 8 Retaiig ad destroyig records... 9 Brigig assets ito a busiess... 9 Fair market value... 9 Buyig a existig busiess The Busiess Number (BN) Your first step to doig busiess with the CCRA Are you doig busiess i Quebec? Do you eed a BN? Why it pays to pla ahead Chapter 2: The Goods ad Services Tax (GST) ad Harmoized Sales Tax (HST) What is the GST/HST? O which goods ad services do you charge GST/HST? Which goods ad services are tax-exempt? Who registers for the GST/HST? Small supplier Volutary registratio How to register for the GST/HST Reportig periods How to collect GST/HST o the taxable goods ad services you provide Provicial sales tax Iformig your customers What to put o your ivoices Iput tax credits How to claim a iput tax credit Simplified accoutig methods Page The Quick Method The simplified iput tax credit method How to calculate the GST/HST you owe ad file your retur Chapter 3: Excise Taxes ad Excise Duties What are excise taxes ad excise duties? Excise taxes Excise duties Chapter 4: Payroll Deductios What to deduct from your employees paycheques Caada Pesio Pla (CPP)/Quebec Pesio Pla (QPP) Employmet Isurace Icome tax Workers Compesatio How to report payroll deductios The T Quarterly remittaces Do you have a computer? Chapter 5: Importig/Exportig Before you import commercial goods Are the goods admissible to Caada? What will it cost to import the goods to Caada? How will you accout for the goods ad pay the duties ad taxes? Must the goods be marked? What are the tariff classificatio, value for duty, ad origi of the imported goods? Should you get a Natioal Customs Rulig before importig? Itroductio to importig Form B3, Caada Customs Codig Form Commercial Cash Etry Processig System (CCEPS) Import permits, health certificates, ad other forms that govermet departmets require Settig up your import/export accout Examiig your goods Release, accoutig, ad paymet: your optios... 25

6 Page Accoutig for goods Tariff classificatio Value for duty Origi Certificates of origi Trade icetives how to reduce or elimiate the duty Duty deferral program Duties relief program Drawback program Boded warehouse program Remissios Refuds Review, assessmet, ad appeals Our review of your accoutig package Your reassessmet rights Your appeal rights Exportig Chapter 6: Icome Tax Accoutig for your earigs The accrual method The cash method How to keep sales ad expese jourals How to record your busiess expeses Fiscal period Icome Types of icome Ivetory ad cost of goods sold Expeses What are busiess expeses? Ruig a busiess from your home Types of operatig expeses Chapter 7: Audits What is a audit? How we select files to audit Page How we coduct audits Delays i the audit, ad how to avoid them Fializig a audit Chapter 8: Objectios ad Appeals What to do if you disagree with a tax assessmet Extraordiary circumstaces Problem Resolutio Program The objectio process Chapter 9: How To Get Iformatio From the CCRA Tax services offices Tax cetres The Iteratioal Tax Services Office Customs iformatio Customs offices Small busiess iformatio semiars New employer visit program Tax cliics Govermet of Caada Ifo Cetres Caada Busiess Service Cetres Busiess widows Publicatios Importat Dates for Icome Tax Glossary of Terms... 45

7 +RZ7KLV*XLGH&DQ+HOS<RX A re you startig a ew small busiess i Caada? Are you operatig oe already? The this guide is for you. It will itroduce you to the Caada Customs ad Reveue Agecy (CCRA) programs you eed to kow about, ad give a overview of your obligatios ad etitlemets uder the laws that we admiister. May activities of a small busiess are subject to differet forms of taxatio. This guide will help you with each of these, ad will explai how to pla for taxes, keep records, ad make ad report paymets. It will also explai the differet kids of busiess structures, icome tax reportig ad paymet, payroll deductios, importig ad exportig, ad how to prepare for ad hadle a audit. Taxes ca sometimes be difficult ad complex. I such cases, we will refer you to more detailed publicatios all free of charge. If you are t familiar with some of the terms used i this guide, refer to the Glossary of Terms which starts o page 45.,QWHUQHWDFFHVV May of our publicatios are available o the Iteret. Our Web address is: You ca also get copies of the guides ad forms metioed i this publicatio by callig us at If, after readig this guide, you eed more iformatio about busiesses or professioal activities, call our Busiess Equiries lie at $ERXWWKH&&5$ The CCRA is the federal govermet agecy resposible for admiisterig Caadia tax, border, ad trade policy, ad we play a fudametal role i supportig Caada s social ad ecoomic progress. We oversee various tax credit programs, ad collect federal ad provicial idividual icome taxes (except i Quebec). We also admiister federal ad provicial corporate icome taxes for all provices except Alberta, Otario, ad Quebec, ad collect the goods ad services tax/harmoized sales tax (GST/HST) (except i Quebec), Caada Pesio Pla cotributios, Employmet Isurace premiums, customs ad excise duties, tariffs, ad excise taxes o gasolie ad tobacco products. The CCRA also admiisters the North America Free Trade Agreemet (NAFTA), Caada s trade laws, ad Caada s iteratioal tax agreemets with other coutries. We therefore have a key role i helpig Caadia busiess ad idustry compete i world markets by esurig they have a fair eviromet i which to trade. Fially, we are resposible for protectig Caadia society agaist the illegal movemet of goods ad people across Caada s borders. We are committed to helpig small busiesses i Caada. We recogize that, as etrepreeurs, you are very busy makig your busiess profitable. You may ot always have the time, expertise, or icliatio to do it all yourself. I some circumstaces, you probably cosult with professioals, such as lawyers, accoutats, or customs brokers to help you with your busiess. While these idividuals are professioals ad will help you, you are the oe who is ultimately resposible for the actios of your busiess. You eed to keep iformed so that you ca work i partership with the professioals you hire ad with the CCRA.

8 &KDSWHU6HWWLQJ8S<RXU%XVLQHVV A busiess is a activity that you coduct for profit or with a reasoable expectatio of profit. There are three types of busiesses: sole proprietorships, parterships, ad corporatios. The way your busiess is taxed has a lot to do with the way your busiess is set up. 6ROHSURSULHWRUVKLS A sole proprietorship is a uicorporated busiess that is owed by oe perso. It s the simplest kid of busiess structure. The ower of a sole proprietorship has sole resposibility for makig decisios, receives all the profits, claims all losses, ad does ot have separate legal status from the busiess. If you re a sole proprietor, you pay persoal icome tax o all reveue geerated by your busiess. You also assume all the risk of the busiess. This risk exteds eve to your persoal property ad assets. As a sole proprietor, you have to register for the goods ad services tax/harmoized sales tax (GST/HST) if your worldwide aual taxable reveues are more tha $30,000. It s easy to set up a sole proprietorship. Simply operate as a idividual or as a registered, uicorporated busiess. If you operate as a idividual, just bill your customers or cliets i your ow ame. If you operate uder a registered busiess ame, bill your cliets ad customers i the busiess s ame. If your busiess has a ame other tha your ow, you ll eed a separate bak accout to process cheques payable to your busiess. +RZGRHVDVROHSURSULHWRU SD\WD[HV" A sole proprietor pays taxes by reportig icome (or loss) o a persoal icome tax ad beefit retur (T1). The icome (or loss) forms part of the sole proprietor s overall icome for the year. If you re a sole proprietor, you must file a persoal icome tax ad beefit retur if you: have to pay tax for the year; disposed of a capital property or had a taxable capital gai i the year; are required to make Caada Pesio Pla/Quebec Pesio Pla (CPP/QPP) paymets o self-employed earigs or pesioable earigs for the year; or received a demad from us to file a retur. The list above does ot iclude every situatio where you may be required to file. If you re usure, call us at As a sole proprietor, your icome tax ad beefit retur must iclude fiacial statemets or oe or more of the followig forms, as applicable: Form T2124, Statemet of Busiess Activities; Form T2032, Statemet of Professioal Activities; Form T2042, Statemet of Farmig Activities; Form T1163, Statemet A NISA Accout Iformatio ad Statemet of Farmig Activities for Idividuals, ad Form T1164, Statemet B NISA Accout Iformatio ad Statemet of Farmig Activities for Additioal Farmig Operatios; or Form T2121, Statemet of Fishig Activities. We will also accept a computer-geerated versio of the applicable form. Note As a sole proprietor, you may have to pay your icome tax by istalmets. You may also eed to make istalmet paymets for Caada Pesio Pla cotributios o your ow icome. Remember to budget for these paymets. For more iformatio, see our publicatio called Payig Your Icome Tax by Istalmets. For GST/HST, sole proprietors have reportig periods for which they have to file a retur. For more iformatio, see the sectio Reportig periods o page 15.

9 3DUWQHUVKLS A partership is a associatio or relatioship betwee two or more idividuals, corporatios, trusts, or parterships who joi together to carry o a trade or busiess. Each parter cotributes moey, labour, property, or skills to the partership. I retur, each parter is etitled to a share of the profits or losses i the busiess. The busiess profits or losses are usually divided amog the parters based o the partership agreemet. Like a sole proprietorship, a partership is easy to form. I fact, a simple verbal agreemet is eough to form a partership. But if moey ad property are at stake, you should have a writte agreemet. The partership is boud by the actios of ay member of the partership, as log as these are withi the usual scope of the operatios. +RZGRHVDSDUWQHUVKLSSD\WD[HV" A partership by itself does ot pay icome tax o its operatig results ad does ot file a aual icome tax retur. Istead, each parter icludes a share of the partership icome or loss o a persoal, corporate, or trust icome tax retur. Each parter also has to file either fiacial statemets or oe of the forms referred to i the sectio o sole proprietorship (or a computer-geerated versio of oe of these forms). You do this whether or ot you actually received your share i moey or i credit to your partership s capital accout. A partership has to file a partership iformatio retur if, throughout the fiscal period, it has six or more members or if oe of its members is a member of aother partership. Our publicatios called Guide for the Partership Iformatio Retur ad Iformatio Circular 89-5, Partership Iformatio Retur, ad its Special Release, have more details. For GST/HST purposes, a partership is cosidered to be a separate perso ad must file a GST/HST retur ad remit tax where applicable. &RUSRUDWLRQ A corporatio is a separate legal etity. It ca eter ito cotracts ad ow property i its ow ame, separately ad distictly from its owers. Sice a corporatio has a separate legal existece, it has to pay tax o its icome, ad therefore must file its ow icome tax retur. It must also register for the GST/HST if its taxable worldwide aual reveues (icludig those of associates) are more tha $30,000. You set up a corporatio by fillig out a article of icorporatio, ad filig it with the appropriate provicial, territorial, or federal authorities. +RZGRHVDFRUSRUDWLRQSD\WD[HV" A corporatio must file a corporatio icome tax retur (T2) withi six moths of the ed of every taxatio year, eve if it does t owe taxes. It also has to attach complete fiacial statemets ad the ecessary schedules to the T2 retur. A corporatio pays its taxes i mothly istalmets. Our publicatio called T2 Corporatio Icome Tax Guide has more details o istalmet paymets ad the filig requiremets for corporatios. For GST/HST, corporatios have reportig periods for which they have to file a retur. For more iformatio o reportig periods, see the sectio Reportig periods o page 15. The taxatio year for a corporatio is its fiscal period. For more iformatio o fiscal periods, see the sectio Fiscal period o page 29. For more details, visit our Web site at: $UH\RXUHVSRQVLEOHIRU\RXU FRUSRUDWLRQ VGHEWV" As a shareholder of your corporatio, you have limited liability. I the strict sese, this meas you ad the other shareholders are ot resposible for the corporatio s debts. However, limited liability may ot always protect you from creditors. For example, if a

10 smaller, more closely held corporatio wats to borrow moey from a bak or other creditor, the creditor may ask for the shareholder s guaratee that the debt will be repaid. If you agree to this coditio, you ll be persoally liable for that debt if the corporatio does ot pay it back. This applies to taxes owig as well. If your corporatio owes taxes, ad you have persoally guarateed ay loa o behalf of your corporatio, we will claim the amout of the taxes owig up to the limit of the loa guaratee..hhslqjuhfrugv )LYHUHDVRQVZK\NHHSLQJUHFRUGV FDQEHQHILW\RX *RRGUHFRUGVFDQKHOS\RXLGHQWLI\WKH VRXUFHVRI\RXULQFRPH You may receive cash or property from may differet places. If you do t have records showig your icome sources, you may ot be able to prove that some sources are o-busiess or o-taxable. :HOONHSWUHFRUGVFDQPHDQWD[ VDYLQJV Good records serve as a remider of deductible expeses ad iput tax credits. If you do t record your trasactios, you may forget some of your expeses or iput tax credits whe you prepare your icome tax or GST/HST returs. For more iformatio o iput tax credits, see page 16. :HOONHSWUHFRUGVFDQSUHYHQWPRVWRI WKHSUREOHPV\RXPLJKWHQFRXQWHULIZH DXGLW\RXULQFRPHWD[RU*67+67 UHWXUQV If your records are so icomplete that auditors caot determie your icome from them, the auditors will have to use other methods to establish your icome. This will cost you time. If your records do ot support your claims, they could be disallowed. <RXUUHFRUGVZLOONHHS\RXEHWWHU LQIRUPHGDERXWWKHILQDQFLDOSRVLWLRQRI \RXUEXVLQHVV You eed good records to establish your profit or loss, ad the value of your busiess. Iformatio from good records ca also tell you what is happeig i your busiess ad why. The successful use of records ca show you treds i your busiess, let you compare performace i differet years, ad help you prepare budgets ad forecasts. 3URSHUERRNVDQGUHFRUGVPD\KHOS \RXJHWORDQVIURPEDQNVDQGRWKHU FUHGLWRUV Creditors eed accurate iformatio about your curret fiacial positio before they give you a loa. You ca t give them this iformatio if you do t keep orgaized records. Also, good records show potetial creditors that you kow what s goig o with your busiess. /HJDOUHTXLUHPHQWVIRUNHHSLQJ UHFRUGV All records such as paper documets, as well as those stored i a electroic medium (e.g., o computer disk), must be kept i Caada or made available i Caada at our request. You ca keep these documets outside Caada if you get writte permissio from us. :KDWUHFRUGVVKRXOG\RXNHHS" Make sure you keep orderly records of all icome you receive. Also, keep all receipts, ivoices, vouchers, ad cacelled cheques idicatig outlays of moey. Such outlays iclude: salaries ad wages; operatig expeses such as ret ad advertisig, ad capital expeditures; ad miscellaeous items, such as charitable doatios. If you import goods ito Caada, your records must substatiate the price you paid for imported goods, ad list their origi ad descriptio. They must also iclude ay documetatio about the reportig, release,

11 ad accoutig of the goods, as well as the paymet of duties ad taxes. For more iformatio, see the chapter called Importig/Exportig o page 23. You should keep these records at your place of busiess or residece i Caada (uless you get writte permissio from us to keep them elsewhere). You have to make them available to us if you re asked to do so. <RXUUHFRUGVPXVWEHSHUPDQHQW Whichever accoutig or record-keepig method you use, your records must be permaet. They must cotai a systematic accout of your icome, deductios, credits, ad other iformatio you eed to report o your icome tax ad GST/HST returs. :KDWLQIRUPDWLRQVKRXOG\RXUUHFRUGV FRQWDLQ" It s ot hard to keep records that meet the requiremets of the law. However, sketchy or icomplete records that use approximate istead of exact amouts, are ot acceptable. Your books ad records must: allow you to determie how much tax you owe, or the tax, duties, or other amouts to be collected, withheld, or deducted, or ay refud or rebate you may claim; ad be supported by vouchers or other ecessary source documets. If you do ot keep your receipts or other vouchers to support your expeses or claims, ad there is o other evidece available, we may reduce the expeses or claims you have made. 5HWDLQLQJDQGGHVWUR\LQJUHFRUGV 7KHVL[\HDUUHTXLUHPHQW You must retai books ad records (other tha certai documets for which there are special rules) for six years after the goods are imported or exported, for six years from the ed of the last taxatio year to which they relate for icome tax, or for six years from the ed of the year to which they relate for GST/HST purposes. If you filed your icome tax retur late, keep your records ad supportig documets for six years from the date you filed the late retur. The miimum period for keepig books ad records is usually measured from the last year you used the records, ot the year the trasactio occurred or the record was created. For example, let s say you bought some restaurat equipmet i 1999 ad sold it i I this case, eve though the records relatig to the purchase of the equipmet were created i 1999, you eed them to calculate the gai or loss o the sale i Therefore, you must keep the records util You have to keep every book ad supportig record ecessary for dealig with a objectio or appeal util it is resolved ad the time for filig ay further appeal has expired, or util the six-year period metioed above has expired, whichever is later. 5HTXHVWIRUHDUO\GHVWUXFWLRQ If you wat to destroy your books or records before the six years are up, you must apply i writig to the director of the tax services office i your area to obtai writte permissio from the Miister of Natioal Reveue. To do this, either use Form T137, Request for Destructio of Books ad Records, or prepare your ow writte request. I additio to our requiremets, there are other federal, provicial, ad muicipal laws that require you to keep books ad records. We have o authority to approve destructio of books ad records that these other laws require you to keep. For more iformatio o keepig books ad records for icome tax purposes, refer to Iformatio Circular 78-10, Books ad Records Retetio/Destructio. For GST/HST, refer to Chapter 15, Books ad Records, of the GST/HST Memorada series. %ULQJLQJDVVHWVLQWRDEXVLQHVV )DLUPDUNHWYDOXH You may fid yourself i a situatio where you would like to take assets that belog to you persoally ad trasfer them to your busiess.

12 If you are operatig a sole proprietorship, this is a reasoably simple process. The Icome Tax Act requires that you trasfer these assets to the busiess at their fair market value (FMV). This meas that we cosider you to have sold these assets at a price equal to their FMV at that time. If the FMV at the time of the trasfer to the busiess is greater tha your origial purchase price, you must report the differece as a capital gai o your icome tax ad beefit retur. You ca claim a GST/HST iput tax credit based o the basic tax cotet of the assets you trasfer to your busiess. For more iformatio o basic tax cotet, call us at Your busiess will show a purchase of these assets, with a cost equal to the FMV at the time of the trasfer. This is the value that you will add to the capital cost allowace schedule for icome tax purposes. For icome tax purposes, whe you trasfer the property to a Caadia partership or a Caadia corporatio, you may trasfer the property to the partership or the corporatio for a elected amout. This amout may be differet from the FMV, as log as you meet certai coditios. The elected amout the becomes your proceeds for the property trasferred, as well as the cost of the property to the corporatio or partership. The rules regardig these trasfers of property are techical i ature. For more detailed iformatio, please refer to Iterpretatio Bulleti IT-291, Trasfer of Property to a Corporatio uder Subsectio 85(1), Iformatio Circular 76-19, Trasfer of Property to a Corporatio uder Sectio 85, ad Iterpretatio Bulleti IT-413, Electio by Members of a Partership uder Subsectio 97(2). %X\LQJDQH[LVWLQJEXVLQHVV Whe you are cosiderig becomig a busiess ower, you will fid that you have the optio of either buyig a existig busiess or startig up a ew busiess. The optio you choose will have a sigificat effect o how you accout for the purchase of the busiess assets for icome tax purposes. Whe you buy a existig busiess, you geerally pay a set amout for the etire busiess. I some cases, the sale agreemet sets out a price for each asset, a value for the ivetory of the compay ad, if applicable, a amout that you ca attribute to goodwill. If the idividual asset prices are set out i the sale agreemet, ad the prices are reasoable, the you should use these prices to claim capital cost allowace. If the idividual asset prices are ot set out i the cotract, you have to determie how much of the purchase price you should attribute to each asset, how much to ivetory, ad how much, if ay, to goodwill. These amouts should coicide with the amouts the vedor determied whe reportig the sale. The amout you allocate to each asset should be the fair market value (FMV) of the asset. You should allocate to goodwill the balace of the purchase price that remais after you allocate the FMV to each asset ad to ivetory. Example You purchase a busiess for a total purchase price of $120,000. The FMV of the et idetifiable assets of the busiess is as follows: Accouts receivable... $120,000 Ivetory... 10,000 Lad... 30,000 Buildig... 50,000 Total et idetifiable assets... $110,000 You ca determie the value of the goodwill by subtractig the total value of the et idetifiable assets from the purchase price: Purchase price... $120,000 Mius et idetifiable assets ,000 Amout attributed to goodwill... $110,000 Oce you have determied the values for the assets ad the goodwill, add the fixed assets (e.g., buildigs ad equipmet) ito the appropriate classes for the purpose of claimig the capital cost allowace. The goodwill is cosidered to be a eligible capital expediture, which is treated i a maer similar to assets eligible for capital cost allowace.

13 Treat the value of the ivetory as a purchase of goods for resale, ad iclude it i the cost of goods sold i your icome statemet at the ed of the year. For GST/HST purposes, if you buy a busiess or part of a busiess ad acquire all or substatially all of the property that ca reasoably be regarded as ecessary to carry o the busiess, you ad the vedor may be able to joitly elect to have o GST/HST payable o the sale by completig Form GST44, Electio Cocerig the Acquisitio of a Busiess or Part of a Busiess. You must be GST/HST registrats, ad you both have to agree that the sale will ot be subject to GST/HST. I additio, you must buy all or substatially all of the property, ad ot oly idividual assets. Usually, for the electio to apply to the sale, you have to be able to cotiue to operate the busiess with the property acquired uder the sale agreemet. You have to file Form GST44, o or before the day you have to file the GST/HST retur for the first reportig period i which you would have otherwise had to pay GST/HST o the purchase. Aother way of buyig a existig busiess is to buy the shares of a icorporated busiess. This does ot affect the cost base of the assets of the busiess. As explaied previously, a corporatio is a separate legal etity ad ca ow property i its ow ame. A chage i the owership of the shares will ot affect the tax values of the assets the corporatio ows. 7KH%XVLQHVV1XPEHU%1 <RXUILUVWVWHSWRGRLQJEXVLQHVVZLWK WKH&&5$ The BN is a umberig system that simplifies ad streamlies the way busiesses deal with us. It is based o the idea of oe busiess, oe umber. This helps busiesses reduce costs ad be more competitive. It also icreases govermet efficiecy. You get your BN the first time you register to do busiess with us. Evetually, busiesses will be able to use their BN for other govermet programs. The BN cosists of two parts the registratio umber ad the accout idetifier. The four major CCRA busiess accouts ad the accout idetifiers are as follows: corporate icome tax (RC); import/export (RM); payroll deductios (RP); ad GST/HST (RT). Busiesses that register for the BN will get oe-stop busiess services from us, icludig itegrated ew busiess registratio, a cosolidated approach for updatig accout iformatio, ad itegrated busiess accout equiries. Your BN, ad all iformatio relatig to it, are cofidetial. Note There are other types of CCRA accouts that the BN does ot yet iclude. For example, some maufacturers ad wholesalers eed a excise tax licece for excise tax purposes, ad some busiesses eed a filer idetificatio umber for filig iformatio returs. Cotact us at if you wat to fid out about these other accouts ad register for them. $UH\RXGRLQJEXVLQHVVLQ4XHEHF" For busiesses i Quebec, the BN does ot iclude GST/HST accouts. The miistère du Reveu du Québec admiisters the GST/HST o behalf of the CCRA. If you pla to register for the GST/HST i Quebec, please cotact the miistère du Reveu du Québec for more iformatio at this address: Miistère du Reveu du Québec 3800 de Marly Street Ste-Foy QC G1X 4A5 Telephoe: Outside Caada: (514) 'R\RXQHHGD%1" If you eed at least oe of the four CCRA busiess accouts listed before, you will eed a BN. However, before you register for the BN, you eed to kow a few thigs about the busiess you pla to operate. For istace, you should kow the ame of the busiess, its locatio, its legal structure (sole proprietorship,

14 partership, or corporatio), ad its fiscal period ed. You should also have some idea of what the sales of your busiess will be. Without this iformatio, you wo t be able to complete the BN registratio form. Note If you are a sole proprietor or a parter i a partership, you will cotiue to use your social isurace umber (SIN) to file your idividual icome tax ad beefit retur, eve though you may have a BN for your GST/HST, payroll deductios, ad import/export accouts. For more iformatio o the BN, please see our publicatio called The Busiess Number ad Your Caada Customs ad Reveue Agecy Accouts, or call us at :K\LWSD\VWRSODQDKHDG I cosiderig whe to register for your BN, keep several thigs i mid. Remember your legal obligatios. For example, you become a registrat who must register for GST/HST whe your taxable worldwide reveues (icludig those of your associates) exceed $30,000 over four cosecutive caledar quarters, or i oe caledar quarter. This threshold is $50,000 if you are a public service body. If you thik your sales will exceed $30,000 (or $50,000 if you are a public service body), it s probably wise to register for the GST/HST sooer rather tha later. Remember, registerig for the GST/HST is the same as registerig for the BN. Registerig early gives you certai advatages, such as the right to claim the GST/HST you pay o your busiess s start-up expeses from the time you register. For more iformatio, see the sectio Iput tax credits o page 16 i the chapter o GST/HST. Also see the sectio Ca you deduct busiess start-up costs? o page 35. If you ited to import goods ito Caada, you should ope a import/export accout before you import the goods. This will avoid delays at the port of etry. You should ope a payroll deductios accout as soo as you kow whe you will have employees. This accout will allow you to make regular payroll deductios for your employees ad make remittaces o time. For iformatio o how to make payroll deductios, see the chapter called Payroll Deductios o page 20. If you decide to icorporate, you will eed a BN to pay your corporate icome taxes ad to make istalmet paymets to your corporate accout. For more iformatio Guide for Partership Iformatio Retur T2 Corporatio Icome Tax Guide Iformatio Circular 78-10, Books ad Records Retetio/Destructio Iterpretatio Bulleti IT-291, Trasfer of Property to a Corporatio uder Subsectio 85(1) Iformatio Circular 76-19, Trasfer of Property to a Corporatio uder Sectio 85 Iterpretatio Bulleti IT-413, Electio by Members of a Partership uder Subsectio 97(2) Form GST44, Electio Cocerig the Acquisitio of a Busiess or Part of a Busiess The Busiess Number ad Your Caada Customs ad Reveue Agecy Accouts Form RC1, Request for a Busiess Number (BN) Web sites:

15 &KDSWHU7KH*RRGVDQG6HUYLFHV7D[*67 DQG+DUPRQL]HG6DOHV7D[+67 :KDWLVWKH*67+67" The GST is a tax that applies at a rate of 7% to the supply of most goods ad services i Caada. Three provices (Nova Scotia, New Bruswick, ad Newfoudlad) harmoized their provicial sales tax with the GST to create the harmoized sales tax (HST). The HST applies to the same base of goods ad services as the GST, but at a rate of 15%. Of this, 7% is the federal part ad 8% is the provicial part. Although the cosumer ultimately pays the GST/HST, geerally busiesses are resposible for collectig ad remittig it to the govermet. Busiesses that must register or that register volutarily for the GST/HST are called registrats. Registrats collect the GST/HST o most of their sales, ad pay the GST/HST o most purchases they make to operate the busiess. Registrats ca claim a credit, called a iput tax credit (ITC), to recover the GST/HST they paid or owe o the purchases they will use i their commercial activities. They do this by deductig the amout of the credit from the GST/HST they collected. If they pay more tha they collect, they ca claim a refud. 2QZKLFKJRRGVDQGVHUYLFHVGR\RX FKDUJH*67+67" As a GST/HST registrat, you charge 7% GST or 15% HST o the taxable goods ad services (other tha zero-rated) you sell, lease, trasfer, or provide i some other way. You ca claim a iput tax credit to recover the GST/HST you paid or owe o purchases ad expeses you use, cosume, or supply i your commercial activities. Examples of goods ad services taxable at 7% or 15% iclude: commercial real property ad ewly costructed residetial property; retals of commercial real property; car repairs; ad hotel accommodatio. Certai goods ad services are subject to GST/HST, but at a rate of 0%. These goods ad services are referred to as zero-rated supplies. You do ot charge tax o these supplies, but you are still able to claim a ITC to recover the GST/HST you paid or owe o purchases made to provide them. Examples of zero-rated goods ad services iclude: basic groceries such as milk, bread, ad vegetables; most farm livestock; medical devices such as hearig aids ad artificial teeth; prescriptio drugs ad drug dispesig fees; ad exports (most goods ad services taxable at 7% or 15% i Caada are zero-rated whe exported). :KLFKJRRGVDQGVHUYLFHVDUH WD[H[HPSW" Some goods ad services are exempt from the GST/HST. You do ot collect GST/HST o these goods or services. You caot claim a ITC to recover the GST/HST you pay or owe o purchases ad expeses relatig to such supplies. You caot register for the GST/HST if you re sellig or providig oly tax-exempt goods ad services. Tax-exempt goods ad services iclude: sales of previously owed residetial housig; residetial rets of oe moth or more ad residetial codomiium fees; clothig ad footwear;

16 most health, medical, ad detal services that are performed by licesed physicias or detists for medical reasos; day-care services provided for less tha 24 hours per day primarily to childre 14 years of age ad youger; bridge, road, ad ferry tolls; legal aid services; may educatioal services such as those courses supplied by a vocatioal school that lead to a certificate or diploma ad allow the practice of a trade or a vocatio, or tutorig services made to a idividual i a course that follows a curriculum desigated by a school authority; most services provided by fiacial istitutios (e.g., arragemets for a loa or mortgage); arragig for ad issuig isurace policies by isurace compaies, agets, ad brokers; most goods ad services provided by charities; ad certai goods ad services provided by o-profit orgaizatios, govermets, ad other public-sector orgaizatios such as muicipal trasit services ad stadard residetial services such as water. :KRUHJLVWHUVIRUWKH*67+67" You have to register for ad charge GST/HST if: you provide taxable goods ad services i Caada; ad you are ot a small supplier. You do ot have to register if your oly commercial activity is the sale of real property otherwise tha i the course of a busiess or if you are a o-residet who does ot carry o busiess i Caada. If you are a o-residet, see our guide called Doig Busiess i Caada GST/HST Iformatio for No-Residets. 6PDOOVXSSOLHU You are a small supplier if you meet oe of the followig coditios: if you are a sole proprietor, your total taxable reveues (before expeses) from all your busiesses are $30,000 or less i the last four cosecutive caledar quarters ad i a sigle caledar quarter; if you are a partership or a corporatio, the total taxable reveues of the partership or corporatio are $30,000 or less i the last four cosecutive caledar quarters ad i a sigle caledar quarter; or if you are a public service body (charity, o-profit orgaizatio, muicipality, uiversity, public college, school authority, or hospital authority), the total taxable reveues from all the activities of your orgaizatio are $50,000 or less i the last four cosecutive caledar quarters ad i a sigle caledar quarter. A gross reveue threshold also applies to charities ad public istitutios. For more iformatio, see the guide GST/HST Iformatio for Charities. I all cases, total taxable reveues meas your worldwide reveues from your sales of goods ad services subject to GST/HST at a rate of 7% ad 15% respectively, ad your zero-rated sales. However, it does ot iclude goodwill, fiacial services, ad sales of capital property. You also have to iclude the total taxable reveues of all your associates i this calculatio. Cotact us if you eed help to determie if you are associated to aother perso. If your total taxable reveues exceed $30,000 ($50,000 for public service bodies) i a sigle caledar quarter or i four cosecutive caledar quarters, you will o loger be cosidered a small supplier ad you have to register for the GST/HST. Cotact us if this occurs. Exceptio Taxi ad limousie operators, for their taxi operatios, ad o-residet performers sellig admissios to semiars ad other evets must register for the GST/HST, eve if they are small suppliers.

17 9ROXQWDU\UHJLVWUDWLRQ Although you do ot have to register for the GST/HST if your taxable worldwide reveues are less tha $30,000 (or $50,000 if you are a public service body), you ca register volutarily. +RZWRUHJLVWHUIRUWKH*67+67 If you have to register, or if you are a small supplier ad wish to do so, call us or visit your earest tax services office. You may provide the ecessary iformatio to us over the telephoe or by facsimile trasmissio. Alteratively, you ca complete Form RC1, Request for a Busiess Number (BN) ad retur it to us. For more iformatio, call us at Remember that if your busiess is i Quebec, you should cotact the miistère du Reveu du Québec at Their address is o page 11. 5HSRUWLQJSHULRGV We will assig you a reportig period for filig your GST/HST returs whe you register for the GST/HST. For each reportig period, you must file a GST/HST retur. The GST/HST reportig period is based o your estimated total aual taxable reveues i Caada as well as the aual taxable reveues of all your associates, if applicable. The followig chart shows the assiged GST/HST reportig periods based o your aual taxable reveues. $QQXDO7D[DEOH 5HYHQXHV RUOHVV PRUHWKDQ WR PRUHWKDQ 5HSRUWLQJ)LOLQJ 3HULRG DQQXDOO\ TXDUWHUO\ PRQWKO\ If your aual taxable reveues are $500,000 or less, you may elect to file your GST/HST retur quarterly or mothly. If your aual taxable reveues are more tha $500,000, but less tha $6,000,000, you may elect to file your GST/HST retur mothly. For more iformatio, refer to our publicatio called Geeral Iformatio for GST/HST Registrats. +RZWRFROOHFW*67+67RQWKH WD[DEOHJRRGVDQGVHUYLFHV\RX SURYLGH As a GST/HST registrat, you geerally charge 7% GST or 15% HST o the taxable supplies you make (other tha zero-rated supplies). Note If you make taxable supplies (other tha zero-rated) to customers i Nova Scotia, New Bruswick, or Newfoudlad, icludig supplies shipped or mailed to recipiets i these provices, you are required to collect ad remit the 15% HST. 3URYLQFLDOVDOHVWD[ Whe you have to charge both GST ad the provicial sales tax (PST), calculate GST o the price before you calculate the PST. For more iformatio o how to calculate PST i relatio to GST, cotact your provicial tax office. You ll fid the phoe umbers of the provicial tax offices i the govermet sectio of your telephoe book.,qiruplqj\rxufxvwrphuv As a GST/HST registrat, you must show your customers the total tax payable or let them kow that the amout payable icludes the tax. You ca show this to your customers o the ivoice, receipt, or cotract, or by displayig acceptable sigs. If you show the tax o your ivoice, receipt, or cotract, you must show the total tax or the total of the tax rate, that is, 7% or 15%. :KDWWRSXWRQ\RXULQYRLFHV At the request of your customers who are GST/HST registrats, you must provide them with specific iformatio that will allow them to support their iput tax credit claim. The followig chart shows what iformatio you should put o your ivoices, sales receipts, or other documetatio.

18 ,QIRUPDWLRQUHTXLUHG 7RWDOVDOH XQGHU 7RWDOVDOHRI WR 7RWDOVDOHRI RUPRUH <RXUEXVLQHVVRUWUDGLQJQDPH á á á á á á,qyrlfhgdwhruli\rxgrqrwlvvxhdqlqyrlfhwkhgdwhrqzklfk WKH*67+67LVSDLGRUSD\DEOH 7RWDODPRXQWSDLGRUSD\DEOH á á á á á $QLQGLFDWLRQRILWHPVVXEMHFWWR*67DWRU+67DWRUWKDW WKHLWHPVDUHH[HPSW$OVRDQLQGLFDWLRQRIHLWKHUWKHWRWDODPRXQW RI*67+67FKDUJHGRUDVWDWHPHQWWKDWWKH*67+67LVLQFOXGHG DQGWKHWRWDOUDWHRIWD[ <RXU%XVLQHVV1XPEHU á á 7KHSXUFKDVHU VQDPHRUWUDGLQJQDPH á 7HUPVRISD\PHQW á $EULHIGHVFULSWLRQRIWKHJRRGVRUVHUYLFHV á,qsxwwd[fuhglwv As a GST/HST registrat, you ca get back the GST/HST you paid or that you owe o purchases ad expeses related to your commercial activities. You do this by claimig a iput tax credit. You ca recover the GST/HST you pay or owe o goods ad services such as: merchadise to resell; advertisig services; real property ad capital property, such as office furiture, vehicles, ad other equipmet; ad geeral operatig expeses such as office ret, utilities, office supplies, ad the ret of equipmet such as computers, vehicles, photocopy machies, ad other office appliaces. Where goods or services are used partly for persoal use or for makig exempt supplies, you are etitled to a partial iput tax credit to the extet that they are for use i commercial activities. I additio, you ca claim iput tax credits for purchases of lad ad purchases eligible for capital cost allowace uder the Icome Tax Act, such as buildigs, computers, vehicles, ad other large machiery ad equipmet. Expeses for which you caot claim a iput tax credit iclude the followig: employee wages; iterest ad divided paymets; most federal, provicial, ad muicipal taxes; most fees, fies, ad levies; tax-exempt goods ad services; items for your persoal use or ejoymet; capital property that is ot primarily for use i your commercial activities; ad membership fees or dues to ay club that provides recreatioal, diig, or sportig facilities (e.g., fitess clubs, golf clubs, hutig ad fishig clubs), uless you acquire the memberships to resell i the course of your busiess. +RZWRFODLPDQLQSXWWD[FUHGLW To fid out the total iput tax credits you re etitled to claim for a reportig period, simply add up the GST/HST that you paid or owe o your busiess purchases made durig the reportig period. Most registrats claim their iput tax credits whe they file their GST/HST retur for the reportig period i which the related purchases were made. However, you ca geerally claim your iput tax credit i ay retur filed by the due date of the retur for the last reportig period that eds withi four years after the ed of the reportig period i which the tax became payable o the purchase that qualifies for the credit.

19 6LPSOLILHGDFFRXQWLQJPHWKRGV There are two simplified accoutig methods available for small busiesses to calculate the GST/HST they owe. They are the Quick Method ad the simplified iput tax credit method. 7KH4XLFN0HWKRG The Quick Method is a easy way to calculate the amout of GST/HST you owe. Geerally, if your worldwide taxable aual sales (icludig zero-rated sales ad sales of associates) are $200,000 or less (icludig GST/HST), you ca use the Quick Method. Certai persos, such as accoutats, bookkeepers, ad fiacial cosultats, caot use the Quick Method. +RZGR\RXXVHWKH4XLFN0HWKRG" You collect GST at 7% or HST at 15% o taxable supplies to your customers i the usual maer. To fid out how much GST/HST to remit to us, multiply your total GST/HST-icluded sales for the reportig period by the Quick Method remittace rate that applies to those sales. The remittace rate will deped o whether you provide services or goods for resale, where your busiess is located, ad whether you charged GST at 7% or HST at 15% o your taxable sales. Whe usig the Quick Method, you do ot have to separately track the GST/HST you paid or owe o most of your busiess purchases. The remittace rates take ito accout the tax payable o geeral operatig expeses. Therefore, you do ot claim a iput tax credit o your operatig expeses (such as utilities, ret, ad telephoe), meal ad etertaimet expeses, ad ivetory purchases. If you are usig the Quick Method at the begiig of a fiscal year or o the day you become a registrat, you are etitled to a credit equal to 1% of your first $30,000 of supplies that are taxable at 7% or 15%. For more iformatio, see the booklet called Quick Method of Accoutig for GST/HST. 7KHVLPSOLILHGLQSXWWD[FUHGLW PHWKRG The simplified iput tax credit (ITC) method is a alterative way of determiig the iput tax credit part of your GST/HST retur. You ca use this method if you are registered for GST/HST ad you ad your associates have worldwide aual taxable sales totalig $500,000 or less i your immediately precedig fiscal year. You do ot iclude supplies of fiacial services or sales of capital real property i the calculatio of total sales. To use the simplified ITC method, your taxable purchases (excludig zero-rated purchases) i Caada must also ot exceed $2 millio i the immediately precedig fiscal year. If you qualify, you ca begi usig the simplified ITC method at the begiig of ay reportig period i a fiscal year. You do ot have to file a separate form with us to use the simplified ITC method. With the simplified ITC method, you do ot have to separate the amout of GST/HST payable o each ivoice. Istead, you oly eed to track the total amout of your taxable purchases. You will, however, eed to separate your purchases that are taxable at 7% from those that are taxable at 15%. To calculate your ITC, you simply multiply your total taxable purchases by 7/107 for GST purchases ad 15/115 for HST purchases. For audit purposes, you will also have to keep the usual documets to support your iput tax credit claims. For more iformatio o the simplified ITC method refer to our publicatio Geeral Iformatio for GST/HST Registrats. +RZWRFDOFXODWHWKH*67+67 \RXRZHDQGILOH\RXUUHWXUQ For each reportig period, you calculate: the GST/HST collected or collectible o your taxable supplies durig the reportig period; ad the GST/HST paid or payable o your purchases for which you ca claim a iput tax credit.

20 The differece betwee these two amouts, plus or mius ay adjustmets, is your GST/HST paymet or your refud. If you charge more GST/HST tha you paid or owe, you pay us the differece. Make cheques payable to the Receiver Geeral. If you paid or owe more GST/HST tha you charged, you ca claim a refud. For more iformatio Geeral Iformatio for GST/HST Registrats Quick Method of Accoutig for GST/HST Form T1124, GST ad Icome Tax Recociliatio Form Web site:

21 &KDSWHU([FLVH7D[HVDQG([FLVH'XWLHV :KDWDUHH[FLVHWD[HVDQG H[FLVHGXWLHV" They are two types of federal levies o products maufactured or produced i Caada. These levies are applied to a limited rage of goods at differet rates ad i differet ways, depedig o the product. Excise tax ad excise duty apply to the goods before the GST/HST is added o. ([FLVHWD[HV Excise taxes are charged o goods such as: tobacco; wie; jewellery; some heavy automobiles; automobile air coditioers; ad gasolie, diesel fuel, aviatio gasolie ad aviatio fuel. The Excise Tax Act sets out the rates of tax for each of these goods. Whe goods are maufactured i Caada, excise tax is payable at the time the goods are delivered to the purchaser. Whe goods are imported, excise tax is payable by the importer, at the time the goods are imported. Uder certai circumstaces, you may be able to claim a refud of the excise taxes you paid. Maufacturers eed a excise tax licece ( E licece) uless they qualify as a small maufacturer. You qualify as a small maufacturer if your total aual sales are ot more tha $50,000. A wholesaler licece ( W licece) allows you to buy goods for resale without payig excise taxes. You may qualify for a W licece uder certai limited circumstaces, thereby eablig you to buy goods exempt of excise tax ad to collect ad remit the excise tax at the time you sell the goods. For iformatio o licesig, returs, ad refuds, cotact us ad explai your situatio. ([FLVHGXWLHV Excise duties are charged o spirits, beer, ad tobacco products maufactured i Caada. The Excise Act sets out the rates of duty for these goods. Duty is charged o goods at the poit of maufacture rather tha sale. It is based o the quatity of goods you produce. All maufacturers of these goods must be liceced ad are subject to the bodig provisios set out i the Excise Act ad Regulatios. For more iformatio, cotact us. You will be referred to the excise duty maager i your area. For more iformatio Excise Taxes ad Special Levies Memorada Excise Taxes ad Special Levies Iformatio Program (1.1) Defiitios (1.4) Liceces (2.1) Small Maufacturers (2.2) Bods Give as Security by Liceced Wholesalers (2.3) Web site:

22 &KDSWHU3D\UROO'HGXFWLRQV I f you are a employer, you must make regular deductios from your employees paycheques. You are a employer if: you pay salaries, wages (icludig advaces), bouses, vacatio pay, or tips to the people workig for you; or you provide certai taxable beefits or allowaces such as board ad lodgig to the people workig for you. Payroll deductios ca be complicated. If you re havig trouble with them, give us a call. Oe of our represetatives will come to your busiess ad help you get started. Just call the earest tax services office. :KDWWRGHGXFWIURP\RXU HPSOR\HHV SD\FKHTXHV You re resposible for deductig icome tax, Caada Pesio Pla (CPP) or Quebec Pesio Pla (QPP) cotributios, ad Employmet Isurace (EI) premiums from your employees paycheques. You are also resposible for remittig this moey to us at regular itervals, usually o or before the 15th day of the moth followig the moth i which you deducted it. For example, if you make your deductios from a employee s paycheque o the 10th of May, you the have to remit the moey to us o or before the 15th of Jue. If the 15th of Jue falls o a Saturday, Suday, or holiday, the remittace is due o the ext busiess day after the 15th. It s a good idea to remit payroll deductios o time. If your paymet is late, you will have to pay a pealty. &DQDGD3HQVLRQ3ODQ&334XHEHF 3HQVLRQ3ODQ433 The Caada Pesio Pla (CPP) came ito effect as a way to provide fiacial assistace to Caadias whe they retire from the workforce. Every perso who works i Caada is eligible to get beefits whe he or she retires. If you ru a busiess i Quebec, you deduct Quebec Pesio Pla (QPP) cotributios istead of CPP. You remit the paymets to the miistère du Reveu du Québec istead of to the Receiver Geeral for Caada. Both employees ad employers cotribute to the CPP or the QPP. But you, as a employer, are resposible both for deductig CPP/QPP cotributios from your employees paycheques ad for matchig those cotributios yourself. Employees fall ito may differet categories, which determie how ad whe you should deduct CPP/QPP. To lear more about this, see our guide called Payroll Deductios (Basic Iformatio) ad the Payroll Deductios Tables for your provice or territory. +RZWRGHGXFW&33433FRQWULEXWLRQV To deduct CPP/QPP cotributios, you cosult the payroll deductios publicatios metioed above. These publicatios idicate how much CPP/QPP to deduct from your employees paycheques, depedig o their salaries ad pay periods. The rates for CPP/QPP deductios may vary from year to year. Each editio of the payroll deductios publicatios gives iformatio o curret rates. Make sure you have a up-to-date editio. Remember you must match each employee s cotributio. This meas that if you deduct $100 from a employee s paycheque, you must also cotribute $100. You must the sed us $200 for that employee. To fid out whe you should deduct CPP/QPP cotributios from your employees paycheques ad remit them to us, see our guide Payroll Deductios (Basic Iformatio) ad the Payroll Deductios Tables for your provice or territory.

23 (PSOR\PHQW,QVXUDQFH Employmet isurace (EI) is a federally admiistered isurace program that gives fiacial assistace to people who are uemployed. It also helps people get traiig for jobs. +RZWRGHGXFW(,SUHPLXPV As a employer, you are resposible for deductig EI premiums from your employees paycheques. To deduct EI premiums, cosult the payroll deductios publicatios. These publicatios idicate how much EI to deduct from your employees paycheques, depedig o their salaries. The rates for EI premiums may vary from year to year. Each editio of the payroll deductios publicatios gives iformatio o curret rates. Make sure you have a up-to-date editio. Remember you must also make your ow cotributios to EI o behalf of your employee. Geerally, the employer s cotributio will be slightly more tha the employee s. To fid out whe you should deduct EI premiums from your employees paycheques ad remit them to us, see our guide called Payroll Deductios (Basic Iformatio) ad the Payroll Deductios Tables for your provice or territory. 7\SHVRIHPSOR\PHQWIRUZKLFK\RXGRQRW GHGXFW(,SUHPLXPV There are certai types of employmet which are ot cosidered isurable ad for which you do ot deduct EI premiums. For example, you do ot deduct EI premiums whe you ad your employee do ot deal with each other at arm s legth. This icludes idividuals coected by blood relatioship, marriage, or adoptio. However, a employee who does ot deal with you at arm s legth ca be i isurable employmet if you would have egotiated a similar cotract with a perso that you deal with at arm s legth. This decisio is based o the terms ad coditios of employmet, ad the remueratio paid for the work doe. For more iformatio, see our publicatio called Payroll Deductios (Basic Iformatio).,QFRPHWD[ As a employer, you re resposible for deductig icome tax from the salaries, wages, or other remueratio you pay your employees. Sice employees fall ito various categories, you eed various forms, such as federal ad provicial TD1 forms, to help you decide what to deduct from their paycheques. For more iformatio o these forms, please see our guide called Payroll Deductios (Basic Iformatio). +RZWRPDNHLQFRPHWD[GHGXFWLRQV To deduct icome tax from your employees paycheques, cosult the payroll deductios publicatios for your provice or territory. These publicatios idicate you how much icome tax to deduct from your employees paycheques, depedig o their salaries ad pay periods. :RUNHUV &RPSHQVDWLRQ As a employer, you may be required to make paymets, ad be subject to certai regulatios uder Workers Compesatio legislatio. For more iformatio, see the guide called Payroll Deductios (Basic Iformatio). +RZWRUHSRUWSD\UROO GHGXFWLRQV 7KH7 You report your employees salary, wages, ad taxable beefits, as well as ay deductios, o the T4 form. You ca get this form from your earest tax services office. You have to fill out ad give your employees their copies of the T4 o later tha the ed of February followig the caledar year to which the form relates. 4XDUWHUO\UHPLWWDQFHV Most employers are required to remit withholdig amouts o a mothly basis; large employers remit more frequetly. As a small busiess employer, you may be able to make quarterly remittaces of taxes ad payroll deductios. We will automatically otify you if

24 you qualify for this program. No applicatio is required. You ca cotiue to remit mothly if you prefer. 'R\RXKDYHDFRPSXWHU" If you have a computer, you ca use it istead of the paper tables to calculate your employees payroll deductios. We provide a computerized versio of the Payroll Deductios Tables (T4032) ad Payroll Deductios Supplemetary Tables (T4008) called Tables o Diskette (TOD) (T4143). This diskette cotais the iformatio you eed to calculate deductios from your employees pay for all pay periods. Tables o Diskette (T4143) are available o the Iteret. For more iformatio, see the Payroll Deductios Tables (T4032) or call us at If you d like to create your ow payroll deductio calculatios, a publicatio cotaiig the formulas you eed (except for Quebec provicial tax ad QPP), is available. You ca get the publicatio called Payroll Deductios Formulas for Computer Programs (T4127) from us, or dowload the publicatio from our Web site. A prited versio is also available. You ca use ay versio of the tables to calculate your employees payroll deductios for CPP, EI, ad federal/provicial (except Quebec) icome tax. The Payroll Deductios Tables (T4032) ad Payroll Deductios Supplemetary Tables (T4008) are available for each provice ad territory, ad also for employees workig outside Caada. I summary, your resposibilities as a employer are to: deduct CPP/QPP cotributios, EI premiums, ad icome tax from amouts you pay to your employees; remit these deductios alog with your share of CPP/QPP cotributios ad EI premiums that you have to pay throughout the year o your employees behalf; ad report the employees icome ad deductios o the appropriate iformatio retur ad give iformatio slips to your employees by the last day of February followig the caledar year to which the iformatio retur applies. For more iformatio Form TD1, Persoal Tax Credits Retur Payroll Deductios (Basic Iformatio) Payroll Deductios Tables (T4032) Payroll Deductios Supplemetary Tables (T4008) Tables o Diskette (TOD) (T4143) Payroll Deductios Formulas for Computer Programs (T4127) Web sites:

25 &KDSWHU,PSRUWLQJ([SRUWLQJ %HIRUH\RXLPSRUWFRPPHUFLDO JRRGV Before you import commercial goods ito Caada, you eed to kow the aswers to the followig questios: Are the goods admissible to Caada? What will it cost to import the goods to Caada? How will you accout for the goods ad pay the duties ad taxes? Must the goods be marked? What are the tariff classificatio, value for duty, ad origi of the goods? Should you get a Natioal Customs Rulig or a Advace Rulig before importig? Importig ad exportig ca sometimes be complicated. Some busiesses use customs brokers to help them. $UHWKHJRRGVDGPLVVLEOHWR &DQDGD" Before you import aythig to Caada, make sure it is admissible. For iformatio, cotact your earest customs office, listed i the govermet sectio of your telephoe book. :KDWZLOOLWFRVWWRLPSRUWWKHJRRGV WR&DQDGD" There are three differet costs that go alog with importig. First, there is the purchase cost what you pay for the goods i their coutry of origi, coverted to Caadia dollars. Secod, there are duties, which are taxes that may be associated with importig. The taxes could iclude customs duty, excise tax, excise duty, ad the goods ad services tax (GST) or the harmoized sales tax (HST). To fid out what duties ad taxes apply to what you re importig, cotact your customs office, listed i the govermet sectio of your telephoe book. Third, there are the costs of other services, such as trasportatio, brokerage, ad isurace. Also, you may icur additioal costs, such as examiatio charges, to have the goods you import loaded or uloaded so that we may examie them. +RZZLOO\RXDFFRXQWIRUWKHJRRGV DQGSD\WKHGXWLHVDQGWD[HV" I most cases, you ll eed to fill out Form B3, Caada Customs Codig Form. You will eed to provide iformatio such as your importer ame, your Busiess Number, a descriptio of the goods, shipmet dates, tariff treatmet, coutry of origi, tariff classificatio, value for duty, ad the duty ad taxes owig. You ca t accout for or pay duties ad taxes o your goods uless you kow their tariff classificatio, the coutry of origi, ad their value for duty. Value for duty is usually the amout of moey, coverted to Caadia dollars, that you pay for the goods you import. I cases where there is o purchase price, you ca cotact your customs office for help i determiig the value for duty. 0XVWWKHJRRGVEHPDUNHG" There are a umber of categories of goods that must be marked with their coutry of origi before they will be permitted etry ito Caada. We require coutry of origi markigs such as Made i.... You ca fid more iformatio o the markig program i the D11-3 series of departmetal Memorada. :KDWDUHWKHWDULIIFODVVLILFDWLRQ YDOXHIRUGXW\DQGRULJLQRIWKH LPSRUWHGJRRGV" The tariff classificatio, value for duty, ad origi determie the duty you pay o the imported goods. That s why it s ecessary to kow the classificatio, value for duty, ad origi before you calculate ay costs. A icorrect tariff classificatio, value for duty, ad origi will result i a icorrect duty.

26 6KRXOG\RXJHWD1DWLRQDO&XVWRPV 5XOLQJEHIRUHLPSRUWLQJ" You ca make sure you are workig with the correct iformatio if you obtai a Natioal Customs Rulig (NCR) from us that verifies the tariff classificatio, coutry of origi, ad value for duty o imported goods. Gettig a NCR is ot required, but might save you time ad paperwork i the future. For more iformatio o Natioal Customs Ruligs, see Memoradum D , Natioal Customs Ruligs. You ca also make sure you are workig with correct free trade iformatio if you obtai a advace rulig from the customs admiistratio of a free trade coutry. For more iformatio o advace ruligs, see Memoradum D , Advace Ruligs.,QWURGXFWLRQWRLPSRUWLQJ )RUP%&DQDGD&XVWRPV &RGLQJ)RUP I most cases, you have to documet the importatio of commercial goods o Form B3, Caada Customs Codig Form. If you are a ew importer, you may eed help completig Form B3. For more iformatio or clarificatio, cotact your customs office before you import the goods. Also see the brochure called Importig Commercial Goods ito Caada, or Memoradum D , Codig of Customs Accoutig Documets. &RPPHUFLDO&DVK(QWU\3URFHVVLQJ 6\VWHP&&(36 The Commercial Cash Etry Processig System (CCEPS) is used by small commercial importers to geerate Form B3, Caada Customs Codig Forms. Usig a persoal computer located at the frot couter, cliets eter customs importatio data (e.g., vedor ame, value for currecy coversio, ad date of direct shipmet) ito CCEPS. CCEPS automatically calculates the duties ad taxes owig. Form B3 is the etered ito the Customs Commercial System (CCS) for validatio ad cash collectio. CCEPS has bee implemeted at 33 locatios across Caada. For more iformatio o CCEPS, cotact your local customs office.,psruwshuplwvkhdowkfhuwlilfdwhv DQGRWKHUIRUPVWKDWJRYHUQPHQW GHSDUWPHQWVUHTXLUH Some goods are subject to the requiremets of other federal govermet departmets. I these cases, you may eed permits, certificates, ad examiatios to import the goodswe admiister the import portios of some legislatio o behalf of these departmets. You should kow that we refer may importatios to the appropriate departmet for processig before we release them. For more details o the import/export documets you eed for other govermet departmets, see the Memorada D10-18 ad D19 series. 6HWWLQJXS\RXULPSRUWH[SRUW DFFRXQW To set up your import/export accout, you eed a copy of Form RC1, Request for a Busiess Number (BN), which is available from ay CCRA officeyou ll receive a accout as soo as we process your applicatio. If you already have a BN for GST/HST, payroll deductios, or corporate icome tax, call us at We will update the BN system with your import/export accout. Use your BN o release documets ad fial accoutig packages for most shipmets that eter Caada. You will eed a exporter umber for shipmets valued at more tha $2,000, if they are destied to a coutry other tha the Uited States. You ca report shipmets i two ways: by usig a approved cargo cotrol documet (CCD), or by trasmittig the cargo data via electroic data iterchage (EDI)The CCD cotrols the shipmets util we release them. Cargo reportig ad completio of the CCD are geerally the resposibilities of the carrier or freight forwarder. You do ot eed to use a CCD whe you persoally trasport the shipmet ad you obtai its release by accoutig for the goods ad payig ay duties at the customs office where they eter Caada.

27 For complete details o cargo reportig, see the Memorada D3 series. ([DPLQLQJ\RXUJRRGV To verify that shipmets are acceptable, we occasioally select shipmets for examiatio Some shipmets are selected o a radom basis ad some are selected o the basis of compliace risk. The frequecy of examiatios will deped o your compliace record ad the type of goods you are importig. Examiatios may be doe at the poit of arrival or where the goods are released, depedig o the circumstaces. 5HOHDVHDFFRXQWLQJDQGSD\PHQW \RXURSWLRQV There are several ways to obtai release of your goods. You ca get: release with full accoutig ad paymet (cash optio); release o miimum documetatio; release of goods imported by mail; or release of goods imported by courier. $FFRXQWLQJIRUJRRGV The followig sectios describe several elemets of the accoutig process, may of which appear o Form B3, Caada Customs Codig Form. Value for duty, tariff classificatio, origi of goods, ad applicability of other duties are subject to strict legal iterpretatio. If you eed help, cotact the earest regioal customs cliet services office listed i the govermet sectio of your telephoe book, or check the sectio called How To Get Iformatio From the CCRA o page 41. 7DULIIFODVVLILFDWLRQ Each good has a uique tariff classificatio umber. The tariff classificatio umber determies the duty rate you pay whe you import the goods ito Caada. As you ca see, it s importat for you to have the correct classificatio. You do t wat to pay ay more duty tha is ecessary. You ca obtai a Natioal Customs Rulig (NCR) o the tariff classificatio of the goods by requestig oe i writig from your regioal customs cliet services office. These ruligs are bidig o both parties. For more iformatio, cotact the earest customs cliet services office, listed i the govermet sectio of your telephoe book. 9DOXHIRUGXW\ You as a importer are resposible for determiig ad reportig a accurate value for duty. The value for duty is the amout o which percetage duties are calculated. There are six methods provided i the value for duty sectios of the Customs Act (Sectios 44 to 53). However, the primary method, ad the method that is most ofte applicable, bases the value for duty o the price you pay for the goods (your purchase price). Certai additios or deductios to this price may be required to arrive at the value for duty you report. You must report the value for duty i Caadia fuds, so you may eed to covert the amout from foreig currecy. Oly oe valuatio method will be used for a importatio ad each has requiremets ad rules for its use. The methods must be applied i the proper order. Further iformatio is provided i the D13 series Memorada. Also, for more detailed iformatio o how to determie the value for duty for your shipmets, cotact your earest customs office. 2ULJLQ The coutry of origi of your goods also affects the duty payable. Depedig o the coutry of origi ad whether it has siged a trade agreemet with Caada, some goods may receive a lower rate of customs duty. If certai coditios are met, we do give preferetial rates of duty to goods origiatig i developig coutries. For more iformatio o the rules of origi ad tariff treatmets, see the Memorada D11-4 ad D11-5 series. &HUWLILFDWHVRIRULJLQ As a importer, you ca beefit from lower rates of customs duty uder several trade

28 agreemets, such as the North America Free Trade Agreemet (NAFTA), Caada-Israel Free Trade Agreemet (CIFTA), ad the Caada- Chile Free Trade Agreemet (CCFTA). You should get a certificate of origi from the America or Mexica maufacturer or vedor of ay goods you import from the U.S. or Mexico. For more details o the origi of goods ad the certificate of origi, see the Memorada D11 series. 7UDGHLQFHQWLYHV²KRZWR UHGXFHRUHOLPLQDWHWKHGXW\ You ca reduce or elimiate customs duty o qualifyig goods through duties relief icetives. The followig programs are examples of these icetives. 'XW\GHIHUUDOSURJUDP The duty deferral program icludes three compoets eablig compaies to defer or be relieved of the paymet of customs duties: the duties relief program, the drawback program, ad the boded warehouse program. 'XWLHVUHOLHISURJUDP The duties relief program eables eligible compaies to import goods without havig to pay customs duties, as log as they evetually export the goods. These compaies ca further maufacture the goods before exportig them or export them i their ualtered state without havig to pay customs duties. The North America Free Trade Agreemet (NAFTA) regulates the amout of relief where the goods are exported to NAFTA-participatig compaies. For more iformatio, please refer to Memorada i the D7 series. 'UDZEDFNSURJUDP With the drawback program, customs duties are refuded o imported goods whe these goods have bee exported. You may export these goods i the same coditio as they were at the time of import, or you may further their maufacture before exportig them, without affectig the amout of the refud. NAFTA regulates the amout of relief where goods are exported to NAFTA participatig compaies. For more iformatio, please refer to memorada i the D7 series. Note Most goods are subject to the GST/HST at the time of importatio. While the GST/HST is cosidered a duty payable uder the Customs Act, it caot be exempted uder the duties relief program or the drawback program. %RQGHGZDUHKRXVHSURJUDP A customs boded warehouse is a facility operated by the private sector ad regulated by the Customs Brach of the CCRA. I this warehouse, you may store imported goods without havig to pay duties ad taxes. Duties ad taxes will oly become payable if the goods eter the Caadia domestic market. If imported goods are to be exported, you ca avoid havig to pay duties or taxes by placig them i a boded warehouse o their arrival i Caada. Also, if you are a exporter ad wish to claim a drawback for customs duties you paid whe you imported goods, you may stock the goods i a customs boded warehouse while waitig to export them. As soo as they eter the warehouse, the goods are cosidered exported ad you may therefore claim a drawback. For more iformatio, please refer to Memorada i the D4 ad D7 series. Memoradum D4-1-2, Customs Boded Warehouse Regulatios Memoradum D7-4-1, Duty Deferral Program Memoradum D7-4-2, Duty Drawback Program Memoradum D7-4-3, NAFTA Requiremets for Drawback ad Duty Deferral 5HPLVVLRQV Uder remissios programs, some goods ca eter Caada duty-free. For more iformatio o remissios, see the Memorada D8 series, or cotact your earest customs office.

29 5HIXQGV We ca grat refuds of full or partial duties you paid o exported or destroyed goods, defective goods, shortages, or equipmet you removed from the goods ad retured to the maufacturer for credit. You ca also use the refud process to claim the beefit of relief programs you did t kow about at the time of importatio, or i other situatios where you may have overpaid duties i error. For more iformatio o refuds, see the Memorada i the D6 series. 5HYLHZDVVHVVPHQWDQG DSSHDOV 2XUUHYLHZRI\RXUDFFRXQWLQJ SDFNDJH We review your fial accoutig package o later tha 30 days after you give it to us. If your fial accoutig package is foud to be icorrect, a refud or reassessmet ca be issued, or we may ask you to provide more iformatio or documetatio to substatiate your claims. <RXUUHDVVHVVPHQWULJKWV As the importer, you have the right to a review of the value for duty, tariff classificatio, or origi of imported goods (subject to some exceptios) either because you wish to make chages, or because you do t agree with the chages we made. You may request a review at ay customs office i the regio where the goods were released withi oe year of our iitial review. For more iformatio o the redetermiatio ad reappraisal process, see Memoradum D11-6-1, Determiatio/Re-determiatio ad Appraisal/Re-appraisal of Goods. <RXUDSSHDOULJKWV If you do t agree with the CCRA s decisio, you have the right to appeal it to the Caadia Iteratioal Trade Tribual (CITT). To do so, you file a writte appeal otice with the Commissioer of the CCRA ad the Secretary to the CITT o later tha 90 days after we issue our decisio. For more iformatio about your appeal rights, cotact your customs office. 6HL]XUHVDQGIRUIHLWXUHVDSSHDOSURFHVV If you do ot report goods, or report goods falsely to customs, the Customs Act allows us to seize the goods. I most cases where the goods ca t be foud, we ca assess a amout i lieu of seizure. If you disagree with a seizure or a assessmet i lieu of seizure, you ca request a miisterial review. You do this by writig to the CCRA office where the seizure took place, or to the followig address: Adjudicatios Divisio Appeals Brach Caada Customs ad Reveue Agecy Ottawa ON K1A 0L5 You must request a CCRA review withi 30 days of the date of the seizure or the date we mailed you the otice of assessmet. We ll review your request ad give you the opportuity to provide us with additioal iformatio. We will let you kow whether we will uphold or overtur the seizure or otice of assessmet, ad whether we will maitai, elimiate, or reduce the amout of the assessmet. If you do t agree with our decisio, you ca appeal to the Federal Court of Caada Trial Divisio, withi 90 days of the date we mail our decisio. ([SRUWLQJ You have to file a export declaratio whe exportig goods that are: valued at CAN $2,000 or more; ad the fial destiatio of the goods is a coutry other tha the Uited States, Puerto Rico, or U.S. Virgi Islads. This icludes goods travellig through the Uited States (U.S.) to a foreig destiatio or directly to a o-u.s. destiatio.

30 You do ot eed to file a export declaratio for : goods you are exportig for domestic cosumptio i the U.S.; or ay foreig, i-bod goods that are i trasit through Caada for export to a foreig destiatio. If you are exportig goods that are cotrolled, prohibited, or regulated, you have to submit the appropriate permit, certificate, or licece before you export them, regardless of the goods destiatio or value. To obtai more iformatio o cotrolled exports, cotact the Export Cotrols Divisio of Foreig Affairs ad Iteratioal Trade at (613) or by fax at (613) Exporters may use oe of the followig three methods to provide export declaratios: The Caadia Automated Export Declaratio program (CAED); Form B13A, Export Declaratio; or Summary reportig. Exporters are required to keep records i Caada i paper or electroic format for six years after the goods have bee exported. For more iformatio o export requiremets ad records maiteace, refer to the brochure called Exportig Goods from Caada. For more iformatio Importig Commercial Goods ito Caada Guide to Importig Commercial Goods Memorada D , Codig of Customs Accoutig Documets Memoradum D4-1-2, Customs Boded Warehouse Regulatios Memoradum D11-6-1, Determiatio/Re-determiatio ad Appraisal/Re-appraisal of Goods The D Series Memorada cotais more specific techical iformatio o each part of the importig ad exportig process. Referece copies are available from all customs offices. Form B3, Caada Customs Codig Form Form B13A, Export Declaratio Form RC1, Request for a Busiess Number (BN) Web site:

31 &KDSWHU,QFRPH7D[ T his chapter itroduces you to the process of reportig earigs ad payig icome tax o your busiess s profits. It will explai how to accout for what your busiess ears, ad what kids of icome you have to report. It also tells you what expeses you re allowed to deduct. $FFRXQWLQJIRU\RXUHDUQLQJV Geerally, you have to report busiess icome (other tha farmig or fishig icome) usig the accrual method of accoutig. Farmers or fishers may use the cash method or the accrual method, but ot a combiatio of both. 7KHDFFUXDOPHWKRG Uder the accrual method, you have to report icome i the fiscal period you ear it, regardless of whe you receive paymet. Similarly, you deduct allowable expeses i the fiscal period i which you icur them, whether or ot you pay for them i that period. 7KHFDVKPHWKRG Uder the cash method, you report icome as it is received ad you deduct allowable expeses as they are paid. If you are a farmer, fisher, or self-employed commissioed sales aget, you ca use the cash method. For more iformatio about the cash method, see the tax guides called Farmig Icome, Fishig Icome, or Busiess ad Professioal Icome. +RZWRNHHSVDOHVDQGH[SHQVH MRXUQDOV You should keep a day-to-day record of your receipts ad expeses. A book with colums ad separate pages for icome ad expeses is good for this. Keep this record alog with your duplicate deposit slips, bak statemets, cacelled cheques, ad receipts. This will support your expediture claims. +RZWRUHFRUG\RXUEXVLQHVV H[SHQVHV You ca geerally deduct busiess expeses if you icur them for the sole purpose of producig icome. If you claim expeses, you have to be able to back up your claim. You do this by keepig all your busiess-related vouchers ad receipts, ad recordig all your expeses i a joural. The simplest method of recordig these expeses is a basic sheet with colums that list the commo categories of expeses. At the ed of each moth, total each colum, ad the start a ew sheet for the ext moth. )LVFDOSHULRG You have to report your busiess icome o a aual basis. For sole proprietorships, professioal corporatios that are members of a partership, ad parterships i which at least oe member is a idividual, professioal corporatio, or aother affected partership, your busiess icome is geerally reported o a caledar-year basis. If you are a sole proprietorship or i a partership i which all the members are idividuals, you ca elect to have a o-caledar year fiscal period. To do this, use Form T1139, Recociliatio of Busiess Icome for Tax Purposes (revised aually) to file your electio. You eed to file this form by a certai date. For more iformatio, see the guide called Recociliatio of Busiess Icome for Tax Purposes. A corporatio ca choose a fiscal period that eds o ay date. The corporatio has to file its icome tax retur withi six moths of the ed of its fiscal period. The rules goverig fiscal periods are complicated. It s a good idea to get familiar with them before you get ito busiess. For more iformatio, see our icome tax guide called Busiess ad Professioal Icome. Note If you are a GST/HST registrat, your decisio about your fiscal period ed for icome tax purposes may affect your

32 GST/HST reportig periods, as well as your filig ad remittig due dates. For more iformatio, call us at or see our publicatio called Geeral Iformatio for GST/HST Registrats.,QFRPH This part gives you a overview of the busiess icome that you should accout for i your records for icome tax purposes. 7\SHVRILQFRPH Durig the year, you may receive icome from your busiess ad from sources other tha your actual sales. If they relate to your busiess, you have to iclude them i your busiess icome. :KDWLVEXVLQHVVLQFRPH" Busiess icome icludes moey you ear from a professio, a trade, a maufacture or udertakig of ay kid, a adveture or cocer i the ature of trade, or ay other activity you carry o for profit or with a reasoable expectatio of profit. For example, icome from a service busiess is busiess icome. However, busiess icome does ot iclude employmet icome, i.e., wages or salaries received from a employer. +RZWRDFFRXQWIRU\RXUEXVLQHVVLQFRPH Busiess owers have to provide iformatio about their busiess icome ad expeses. Although we accept other types of fiacial statemets, we ecourage you to use the followig forms if they apply to you: Form T2124, Statemet of Busiess Activities; Form T2032, Statemet of Professioal Activities; Form T2042, Statemet of Farmig Activities; ad Form T2121, Statemet of Fishig Activities. While they are ot meat to be stadard fiacial statemets, these forms iclude optioal balacig fields so that you ca use them as fiacial statemets. You ll fid istructios o completig them i the appropriate icome tax guides available at your tax services office or o our Web site. We have desiged these forms to accommodate the most commo types of icome ad expese categories used i busiess, so it should be easy for you to set up your records of accout. You may use the categories icluded o these forms whe you establish your records of accout. You must support all icome etries i your records with origial documets sales ivoices, cash register tapes, receipts, fee statemets, ad cotracts. Keep the supportig documets i chroological or umerical order ad make them available if we ask to see them. You should also keep a separate record of your icome from all other sources, such as professioal fees, icome from property, ivestmets, taxable capital gais, estates, trusts, employmet, ad pesios. %DGGHEWV If you received ay amout durig the year that you wrote off as a bad debt i a previous year, you have to iclude the amout i your icome for the curret year. There may be GST/HST implicatios o the recovery of bad debts. For more iformatio, see the GST/HST guide called Geeral Iformatio for GST/HST Registrats. 5HVHUYHV You have to brig ay reserve you claimed i a give year back ito icome i the followig year. The Icome Tax Act allows you to take a ew reserve based o your circumstaces at that time. 9DFDWLRQWULSVDQGDZDUGV If you received vacatio trips or other awards of ay kid (e.g., jewellery, or furiture) as a result of your busiess activities, you must iclude the value of these awards i your busiess icome. Vacatio trips ad awards may have GST/HST implicatios. For more iformatio, see the GST/HST guide called Geeral Iformatio for GST/HST Registrats.

33 *RYHUQPHQWJUDQWVDQGVXEVLGLHV If you get a grat or subsidy from a govermet or govermet agecy, you ll have to report it either as icome or as a reductio of a expese. Geerally, a grat or subsidy: icreases your icome or reduces your expeses; relates to a icome deficiecy; or relates to specific expeses. For example, if you are a farmer ad you received a paymet to subsidize your icome i a drought year, you would add the paymet to your icome. However, if you are a busiess which receives a govermet employmet grat to let you hire more studets, you would geerally deduct it from the wage expese you are claimig. Govermet assistace that eables you to acquire capital property does ot icrease your et icome. However, i the case of depreciable property, you reduce the capital cost of the property by the amout of the assistace you received. I the case of other capital property, reduce the adjusted cost base accordigly. For more iformatio, see Iterpretatio Bulleti IT-273, Govermet Assistace Geeral Commets. 6XUIDFHUHQWDOVIRUSHWUROHXPRUQDWXUDOJDV H[SORUDWLRQ If you have lad that you usually use i your farmig or busiess operatio, ad you are leasig it out for petroleum or atural gas exploratio, you may have to iclude the leasig proceeds i your icome either as a capital receipt or as a icome receipt. For more detailed iformatio, see Iterpretatio Bulleti IT-200, Surface Retals ad Farmig Operatios. 5HQWDOLQFRPH Retal icome ca be either icome from property or icome from busiess. Icome from retal operatios is usually icome from property. To determie the type of retal icome you have, ad how to report it, refer to our guide called Retal Icome. %DUWHUWUDQVDFWLRQV A barter trasactio takes place whe ay two persos agree to a exchage of goods or services, ad carry out that exchage without usig moey. If you are ivolved i a barter trasactio, the goods or services you received could be cosidered proceeds from a busiess operatio. If you are i a busiess or professio that provides goods or services, ad you offer these goods or services i a barter trasactio i exchage for other goods or services, you have to iclude the value of the goods or services you provided i your icome. Barter trasactios may also have GST/HST implicatios. For more iformatio, call us at HOOLQJDSURSHUW\ If you sell a capital property, you may have to iclude certai amouts i your icome, such as: a recovery of capital cost allowace, kow as recapture; ad part of ay capital gai you realize o the sale. Geerally, you have a capital gai or a capital loss whe you dispose of capital property. For example, if you sell a piece of lad for more tha it cost, you have a capital gai as a result. Similarly, if you sell the lad for less tha it cost, you have a capital loss. For more iformatio o capital gais ad capital losses, see the icome tax guide called Capital Gais. For special rules relatig to farmers, see the icome tax guide called Farmig Icome. Also, there may be GST/HST implicatios whe you sell a property. For more iformatio, see the guide called Geeral Iformatio for GST/HST Registrats.

34 ,QYHQWRU\DQGFRVWRIJRRGVVROG To match expeses with icome, you eed to prepare a aual ivetory. This is usually a list of goods held for sale. If you are a maufacturer, this icludes raw materials as well as packagig material ad supplies, work-i-progress, ad fiished goods that you have o had. However, if you have a professioal practice ad you are a accoutat, detist, lawyer, medical doctor, otary, veteriaria, or chiropractor, you may elect to exclude your work-i-progress whe you determie ivetory. +RZWRYDOXH\RXULQYHQWRU\ The value you place o the items i your year-ed ivetory is importat i determiig your icome. For icome tax purposes, the two acceptable methods of valuig your ivetory are by determiig: the fair market value of your etire ivetory (use either the price you would pay to replace a item, or the amout you would get if you sold a item); or the value of idividual items (or classes of items, if specific items are ot readily distiguishable) i the ivetory, at either their cost or their fair market value, whichever is lower. Oce you choose a method of ivetory valuatio, you must cotiue to use this method i subsequet years. For more iformatio about valuig ivetory, see Iterpretatio Bulleti IT-473, Ivetory Valuatio, ad its Special Release. ([SHQVHV This sectio gives you a overview of the busiess expeses that you ca claim for icome tax purposes. :KDWDUHEXVLQHVVH[SHQVHV" A busiess expese is a cost you icur for the sole purpose of earig busiess icome. You must back up busiess expese claims with a sales ivoice, a agreemet of purchase ad sale, a receipt, or some other voucher that supports the expediture. If you pay cash for ay busiess expeses, be sure to get receipts or other vouchers. Receipts should iclude the vedor s ame ad the date. Remember to keep your cacelled cheques if you receive them from the bak. This is part of your proof that the bill was paid or the asset purchased. Keep the cacelled cheques i a orderly maer so we ca easily review them. 5XQQLQJDEXVLQHVVIURP\RXUKRPH You ca deduct expeses for the busiess use of a work space i your home, if the work space is either: your pricipal place of busiess; or you use the space oly to ear your busiess icome, ad you use it o a regular ad ogoig basis to meet your cliets or customers. You ca deduct a portio of your maiteace costs, such as heatig, home isurace, electricity, ad cleaig materials. You ca also deduct a portio of your property taxes, mortgage iterest, ad capital cost allowace (CCA). To calculate the portio you ca deduct, use a reasoable basis, such as the area of the work space divided by the total area of your home. For more iformatio, see the icome tax guide called Busiess ad Professioal Icome. 7\SHVRIRSHUDWLQJH[SHQVHV 3HUVRQDORUOLYLQJH[SHQVHV I most cases, you caot deduct persoal ad livig expeses, except for travellig expeses you icur i the course of carryig o a busiess while away from home. The geeral rule is that you caot deduct outlays or expeses that are t related to earig busiess icome. 3UHSDLGH[SHQVHV A prepaid expese is a expese you pay ahead of time. If you use the accrual method of accoutig, claim ay expese you prepay i the year or years i which you receive the related beefit.

35 For more iformatio, see Iterpretatio Bulleti IT-417, Prepaid Expeses ad Deferred Charges. $FFRXQWLQJDQGOHJDOIHHV You ca deduct the fees you icurred for exteral professioal advice or services, icludig cosultig fees. You ca deduct accoutig ad legal fees you icur to get advice ad help i keepig your books ad records. You ca also deduct fees you icur for preparig ad filig your icome tax ad GST/HST returs. $GYHUWLVLQJH[SHQVHV You ca deduct expeses for advertisig. This icludes prited materials, as well as ads i Caadia ewspapers ad o televisio or radio. However, you caot deduct expeses for advertisig directed maily to a market i Caada whe you advertise: with a foreig broadcaster; or i a issue of a o-caadia ewspaper or periodical. This secod restrictio does ot apply to ads i a special issue of a ewspaper published twice a year or less, ad devoted to ews or features maily about Caada. %XVLQHVVWD[IHHVOLFHQFHVDQGGXHV You ca deduct ay aual licece fees ad busiess taxes you icur to ru your busiess. You ca also deduct aual dues or fees to keep your membership i a trade or commercial associatio. You caot deduct club membership dues (icludig iitiatio fees) where the mai purpose of the club is to provide diig, recreatioal, or sportig facilities for its members.,qvxudqfhh[shqvhv You ca deduct all regular commercial isurace premiums you icur o ay buildigs, machiery, ad equipmet that you use for your busiess.,qwhuhvwdqgedqnfkdujhv You ca deduct the iterest you icur o moey you borrow to ru your busiess. However, there are some limits. There is a limit o the iterest you ca deduct o moey you borrow to buy a passeger vehicle. For more detailed iformatio, see the sectio Motor vehicle expeses i the icome tax guide called Busiess ad Professioal Icome. There is also a limit o the amout of iterest you ca deduct for vacat lad. See the sectio Iterest i the icome tax guide called Busiess ad Professioal Icome. If you eed more iformatio, call us at You ca choose to capitalize the iterest you pay o the moey you borrow for the followig purposes: to buy depreciable property; to buy a resource property; or for exploratio ad developmet. I the case of exploratio ad developmet, whe you choose to capitalize iterest, you add the iterest to either the cost of the property or the exploratio ad developmet costs. Do ot deduct the capitalized iterest as a curret expese. For more detailed iformatio about capitalizig iterest, see Iterpretatio Bulleti IT-121, Electio to Capitalize Cost of Borrowed Moey. 0DLQWHQDQFHDQGUHSDLUV You ca deduct the cost of labour ad materials for ay mior repairs or maiteace doe to property you use to ear icome. You caot deduct the value of your ow labour. You caot deduct costs you icur for repairs that are capital i ature. However, you may be able to claim capital cost allowace o the repaired property. For more iformatio about capital cost allowace, see the icome tax guide called Busiess ad Professioal Icome.

36 0HDOVDQGHQWHUWDLQPHQW You ca deduct up to 50% of the cost of meals ad etertaimet that you icur to ear icome i your busiess. The 50% limit also applies to the cost of your meals whe you travel or go to a covetio, coferece, or similar evet. However, special rules ca affect your claim for meals i these cases. For more details, see the sectios Meals ad Etertaimet, Covetio expeses, ad Travel i the icome tax guide called Busiess ad Professioal Icome. For more iformatio, see Iterpretatio Bulleti IT-518, Food, Beverages, ad Etertaimet Expeses. 0RWRUYHKLFOHH[SHQVHV You ca deduct expeses you icur to ru a motor vehicle that you use to ear busiess icome. However, several thigs ca affect your deductio. What kid of vehicle do you ow? The kid of vehicle you ow ca affect the expeses you deduct. For icome tax purposes, there are three types of vehicles. 1. Motor vehicle Ay automotive vehicle desiged or adapted for use o highways ad streets. 2. Automobile A motor vehicle desiged or adapted primarily to carry people o highways ad streets. It seats a driver ad o more tha eight passegers. 3. Passeger vehicle A automobile you bought after Jue 17, A passeger vehicle is also a automobile that you leased uder a lease you etered ito, exteded, or reewed after Jue 17, With certai exceptios, most cars, statio wagos, vas, ad some pick-up trucks are cosidered passeger vehicles. If you ow or lease a passeger vehicle, there may be a limit o the amouts you ca deduct for capital cost allowace, iterest, ad leasig costs. For defiitios ad more detailed iformatio about capital cost allowace limits, iterest limits, ad leasig costs, see the icome tax guide called Busiess ad Professioal Icome. How to record motor vehicle expeses You ca deduct motor vehicle expeses oly whe they are reasoable ad you have receipts to support them. To get the full beefit of your claim for each vehicle, keep a record of the total kilometres you drove, ad the kilometres you drove to ear busiess icome. For each busiess trip, list the date, destiatio, purpose, ad the umber of kilometres you drove. Be sure to write dow the odometer readig of each vehicle at the start ad ed of the year. If you chage motor vehicles durig the year, write dow the odometer readig at the time you buy, sell, or trade the vehicle. Record the dates of these readigs. What kid of vehicle expeses ca you deduct? The types of expeses you ca deduct iclude: fuel ad oil; maiteace ad repairs; isurace; licece ad registratio fees; capital cost allowace; iterest you pay o a loa used to buy the motor vehicle; ad leasig costs. Joit owership If you ad aother perso ow or lease a passeger vehicle together, the limits o capital cost allowace, iterest, ad leasig still apply. Busiess use of a motor vehicle If you use a motor vehicle for both busiess ad persoal use, you ca deduct oly the portio of the expeses that relates to earig icome. To support the amout you deduct, keep a record of both the total kilometres you drove, ad the kilometres you drove to ear icome.

37 The followig chart shows you how to keep this type of record. -D\RZQVDVWHUHRUHWDLOEXVLQHVVDQGKDVDYDQWKDW KHXVHVIRUWKHEXVLQHVV,QNHHSLQJKLVUHFRUGV-D\ ZURWHGRZQWKHIROORZLQJLQIRUPDWLRQIRUWKHFXUUHQW \HDU.LORPHWUHVGULYHQWRHDUQ EXVLQHVVLQFRPH 7RWDONLORPHWUHVGULYHQ *DVDQGRLO &DSLWDOFRVWDOORZDQFH,QVXUDQFH /LFHQFHDQGUHJLVWUDWLRQIHHV 0DLQWHQDQFHDQGUHSDLUV 7RWDOH[SHQVHVIRUWKHYDQ -D\FDOFXODWHVWKHH[SHQVHVKHFDQGHGXFW IRUKLVYDQLQWKHFXUUHQW\HDUDVIROORZV EXVLQHVVNLORPHWUHV[ WRWDONLORPHWUHV Note Whe you use more tha oe motor vehicle to ear icome, calculate the expeses for each vehicle separately. Iterest expeses o vehicle loas You ca deduct iterest o moey you borrow to buy a motor vehicle, automobile, or passeger vehicle that you use to ear icome. Iclude the iterest as a expese whe you calculate your allowable motor vehicle expeses. However, whe you use a passeger vehicle to ear icome, there s a limit o the amout of iterest you ca deduct. The icome tax guide called Busiess ad Professioal Icome has more iformatio o claimig this kid of expese. Vehicle leasig expeses You ca deduct the leasig costs of a motor vehicle that you use to ear icome. Iclude the leasig costs whe you calculate your allowable motor vehicle expeses. However, whe you use a passeger vehicle to ear icome, there is a limit o the amout of leasig costs you ca deduct. To calculate your eligible leasig costs, see the icome tax guide called Busiess ad Professioal Icome. 2IILFHH[SHQVHV You ca deduct the cost of office expeses, i.e., small items such as pes, pecils, paper clips, statioery, ad stamps. Office expeses do ot iclude items such as calculators, filig cabiets, chairs, ad desks, which are capital items. For more iformatio, see the icome tax guide called Busiess ad Professioal Icome. 6DODULHVLQFOXGLQJHPSOR\HU VFRQWULEXWLRQV You ca deduct salaries you pay to employees. You report these salaries by the ed of February o a T4 or T4A slip. For more details o how to complete these forms, see the chapter Payroll Deductios i this guide, or the publicatio called Payroll Deductios (Basic Iformatio). &DQ\RXGHGXFWEXVLQHVVVWDUWXSFRVWV" To be able to deduct a busiess expese, you had to have carried o a busiess i the fiscal period i which the expese was icurred. Because of this, you have to be very clear about the date your busiess started. Determiig exactly what you ca claim as a start-up expese ca be difficult. For more iformatio, see Iterpretatio Bulleti IT-364, Commecemet of Busiess Operatios.

38 For more iformatio Fishig Icome Farmig Icome Busiess ad Professioal Icome Retal Icome Capital Gais Form T2124, Statemet of Busiess Activities Form T2032, Statemet of Professioal Activities Form T2042, Statemet of Farmig Activities Form T2121, Statemet of Fishig Activities Geeral Iformatio for GST/HST Registrats IT-200, Surface Retals ad Farmig Operatios IT-473, Ivetory Valuatio, ad its Special Release IT-417, Prepaid Expeses ad Deferred Charges IT-121, Electio to Capitalize Cost of Borrowed Moey Payroll Deductios (Basic Iformatio) IT-218, Profit, Capital Gais ad Losses from the Sale of Real Estate, Icludig Farmlad ad Iherited Lad ad Coversio of Real Estate from Capital Property to Ivetory ad Vice Versa IT-364, Commecemet of Busiess Operatios Web site:

39 &KDSWHU$XGLWV :KDWLVDQDXGLW" Auditig is a way for the CCRA to moitor ad ispect GST/HST ad icome tax returs, customs import documets, ad payroll records. Although there is a high stadard of compliace with the law i Caada, audits help us maitai public cofidece i the fairess ad itegrity of Caada s tax system. +RZZHVHOHFWILOHVWRDXGLW Your tax retur is recorded i a computer system that eables us to select returs to be audited. The system also lets us sort returs ito various groups to help with our selectio. I some cases, we compare selected fiacial iformatio for curret ad previous years of cliets egaged i similar busiesses or occupatios. From computer-geerated lists of returs for potetial audit, we the choose specific returs. Most returs are selected i this way. But there are three other commo ways of selectig files. $XGLWSURMHFWV I some cases, we test the compliace of a particular group of cliets. If the test results idicate that there is sigificat o-compliace withi the group, we may audit its members o a local, regioal, or atioal basis. /HDGV Leads iclude iformatio from other audits or ivestigatios, as well as iformatio from outside sources. 6HFRQGDU\ILOHV Sometimes we select files for audit because of their associatio with other previously selected files. For example, if you are i partership with aother cliet, ad that perso s file has bee selected for audit, it is usually more coveiet to examie all the records at the same time. +RZZHFRQGXFWDXGLWV If you are selected, a auditor will cotact you to arrage a coveiet date ad time to start the audit. The auditor will the review the followig records: the retur or customs documets selected for audit; fiacial statemets; audit reports from previous audits, if ay; ad ay other iformatio i the file. O arrivig at your place of busiess, the auditor will preset a idetificatio card. Before examiig your books ad records, the auditor may wat to discuss the geeral ature of your busiess, or tour the premises to get a better uderstadig of the trasactios recorded i your books. The audit usually icludes a examiatio of your ledgers, jourals, bak accouts, sales ivoices, purchase vouchers, ad expese accouts. Throughout the process, the auditor may eed to get iformatio ad assistace from your employees, particularly those who do your accoutig. 'HOD\VLQWKHDXGLWDQGKRZ WRDYRLGWKHP Audits usually take oly oe or two weeks, but could be delayed for a umber of reasos. For istace, you may wat to cosult with advisers, or you may be called out of tow o other busiess before the audit is completed. Similarly, the auditor may ask for a iterpretatio from CCRA Headquarters o a particularly complex or cotetious poit of law. Well-kept records will reduce the time required to complete the audit. Refer to the record-keepig guidelies o page 8 of this guide.

40 )LQDOL]LQJDQDXGLW Whe the audit is completed, the auditor may propose certai adjustmets to your retur. He or she will prepare a summary of the proposed adjustmets. Iitially, the auditor will discuss this with you or your represetative. If you request it, or if it is reasoable to expect that you will eed some time to aalyze the proposed adjustmets, the auditor will cofirm the proposal i writig ad allow a reasoable time for your reply. If you provide additioal iformatio withi this period, the auditor will cosider it ad will issue a ew proposal letter, if applicable. If there are o proposed adjustmets to your retur, the auditor will iform you of this whe the audit is completed. Oce the audit assessmet is fialized, you will be issued a Notice of Assessmet or Notice of Reassessmet. Note The auditor s role is to determie the correct amout of duty or tax payable. This may mea that your taxes are adjusted dowward ad you get a refud as a result.

41 &KDSWHU2EMHFWLRQVDQG$SSHDOV :KDWWRGRLI\RXGLVDJUHHZLWK DWD[DVVHVVPHQW If you do ot uderstad or you disagree with a assessmet, call or visit the Cliet Assistace Sectio of your tax services office or write to the tax cetre that processed your retur. We resolve may problems with assessmets i this way. If you employ the services of a tax professioal, you may wish to cosult with that perso. ([WUDRUGLQDU\FLUFXPVWDQFHV We ca waive or cacel iterest or pealties whe they result from thigs that are beyod your cotrol. Such thigs could iclude a illess which prevets you from filig a icome tax or GST/HST retur by the required deadlie. Fairess provisios i the Icome Tax Act ad Excise Tax Act (with respect to GST/HST) help us admiister the legislatio fairly. These provisios apply to idividuals, testametary trusts, small busiess owers, ad corporatios. All requests for relief uder fairess legislatio should be submitted i writig to your tax services office. 3UREOHP5HVROXWLRQ3URJUDP Most questios ad cocers ca be resolved quickly through our geeral equiries service. However, from time to time, some people have cocers that eed special attetio. Our Problem Resolutio Program hadles o a priority basis cases that caot be resolved through regular chaels. The program co-ordiators examie ay cocers brought to their attetio, trace the problem to its source, ad determie whether the case is isolated or part of a larger tred that eeds attetio. 7KHREMHFWLRQSURFHVV Uder icome tax ad GST/HST legislatio, you ca file a objectio if you disagree with your Notice of Assessmet or Notice of Reassessmet ad you thik that the law has bee applied icorrectly. Icome Tax Sed a letter, or complete ad sed Form T400A, Objectio, to the Chief of Appeals at your tax services office or tax cetre. If you are a idividual (other tha a trust) or if you are filig for a testametary trust, you must file your objectio by the later of: oe year after the due date of the retur; or 90 days after the date we mailed your Notice of Assessmet or Notice of Reassessmet. I every other case, you have to file your objectio withi 90 days of the day we mailed the Notice of Assessmet or Notice of Reassessmet. GST/HST You must use form GST159, Notice of Objectio (GST/HST), to file your objectio. Sed it to the Assistat Director of Appeals at your tax services office withi 90 days of the day we mail the Notice of Assessmet or Notice of Reassessmet. Whe we get your objectio, the Appeals Divisio will coduct a idepedet review of the assessmet. If the Assistat Director of Appeals agrees with you i whole or i part, we will adjust your retur ad sed you a Notice of Reassessmet. However, if the Assistat Director of Appeals disagrees, we will sed you a Notice of Cofirmatio cofirmig that the assessmet was correct. If you still do ot agree, you ca appeal our decisio to the Tax Court of Caada. You have 90 days from the date we mail our decisio o your objectio (a Notice of Reassessmet or a Notice of Cofirmatio). You ca also file a appeal to the Tax Court of Caada if we do ot otify you of our decisio withi 90 days of the date you filed your icome tax objectio, or withi 180 days of the date you filed a GST/HST objectio. &ROOHFWLRQRIGLVSXWHGDPRXQWV If you object to or appeal a icome tax assessmet, we usually postpoe collectio actio o amouts i dispute util 90 days after we mail our decisio to you. We will ot postpoe collectio actio o some disputed

42 amouts, such as taxes you had to withhold ad remit. If you lose your appeal to the Tax Court, we will resume collectio actio eve if you appeal the Court s decisio. However, we will accept security for paymet while your appeal is outstadig. If you object to a GST/HST assessmet, collectio actio may be postpoed. However, you may post acceptable security while we are reviewig your objectio. For more iformatio Form T400A, Objectio Form GST159, Notice of Objectio (GST/HST) Your Appeal Rights Uder the Icome Tax Act Iformatio Circular 92-2, Guidelies for the Cacellatio ad Waiver of Iterest ad Pealties Web site:

43 &KDSWHU+RZ7R*HW,QIRUPDWLRQ)URPWKH&&5$ Y ou ca get iformatio ad publicatios, ad coduct other types of busiess, at most CCRA offices across Caada. Some of these publicatios ad services are also available at Govermet of Caada Ifo Cetres. You ca cotact these offices for writte iformatio o icome tax, customs duties ad tariffs, ad GST/HST programs. Staff members at the ITSO process o-residet idividual ad corporate tax returs, respod to writte cliet equiries, process requests for adjustmets, ad provide telephoe ad couter equiry services. The office also maitais the accouts of those idividuals ad istitutios that issue paymets to o-residets of Caada. 7D[VHUYLFHVRIILFHV The tax services offices are your mai poits of cotact with the CCRA. From your tax services office, you ca get the forms ad publicatios you eed to complete your icome tax returs, as well as GST/HST forms, publicatios, ad iformatio. Employees at tax services offices aswer telephoe ad over-the-couter equiries about idividual, employer, ad corporate tax. They ca give you iformatio o refuds, assessmet otices, payig tax i arrears, ad late-filed returs. Tax services offices also provide Busiess Number registratio services. 7D[FHQWUHV Staff members at the tax cetres ot oly process ad store icome tax returs, but also provide a complete rage of cliet services. They sed assessmet otices, arrage for refud cheques, ad provide writte explaatios of tax assessmets. They also process tax paymets. Each tax cetre also has a equiries couter to offer services similar to those offered by the tax services offices. 7KH,QWHUQDWLRQDO7D[ 6HUYLFHV2IILFH Caada s Iteratioal Tax Services Office (ITSO), located i Ottawa, serves the special eeds of cliets whose icome tax returs or iformatio returs ivolve o-residets. &XVWRPVLQIRUPDWLRQ You ca get iformatio o most customs-related matters by cotactig the Automated Customs Iformatio Service (ACIS). This service provides iformatio o may topics, ad also offers you the opportuity to speak with a customs official directly. You ca call ACIS toll free i Caada by dialig for service i Eglish or for service i Frech. &XVWRPVRIILFHV You ca get customs forms, publicatios, ad iformatio o importig ad exportig goods from ay of our customs offices across Caada. Our employees hadle equiries ad offer assistace o tariff classificatio, customs duty rates, accoutig documetatio, assessig the value of imported goods, methods of paymet, import quotas ad permits, customs assessmets, refuds, duties relief, ad appeals of customs seizures. You ca equire i writig, by phoe, or i perso. 6PDOOEXVLQHVVLQIRUPDWLRQ VHPLQDUV The CCRA provides small busiess iformatio semiars to iform ew or prospective busiesses about their rights ad obligatios regardig customs, GST/HST, icome tax, ad about the services we offer to them. These semiars are free of charge ad cover may importat topics, such as keepig adequate books ad records, icome ad expeses, ad busiess filig requiremets.

44 To register for a semiar, simply cotact the Busiess Equiries Sectio of your tax services office. 1HZHPSOR\HUYLVLWSURJUDP If you operate a small busiess, you may be too busy to atted a iformatio semiar. If so, our staff are available o request to visit you at your place of busiess. This will give you a chace to ask questios about recordig, withholdig, or reportig employee earigs, tax, Caada Pesio Pla cotributios, or Employmet Isurace premiums. We do ot charge for this service. If you are iterested, call your tax services office to make arragemets. 7D[FOLQLFV Every year durig the filig seaso, the CCRA sets up tax cliics i various commuities. These cliics are located i coveiet places, such as shoppig malls ad public buildigs, that are easily accessible to people who eed iformatio ad advice about their tax returs. The cliics also have available a variety of forms, guides, ad pamphlets that cliets may eed. For the coveiece of idividual taxfilers i Quebec, whose provicial icome taxes are admiistered by the Quebec govermet, the CCRA operates cliics joitly with the miistère du Reveu du Québec. Govermet of Caada Ifo Cetres may also host tax cliics i some smaller commuities. *RYHUQPHQWRI&DQDGD,QIR &HQWUHV The CCRA is workig with other federal govermet departmets ad agecies to provide improved service to Caadias i smaller commuities, by offerig a variety of govermet services from a sigle locatio. These ew sites are called Govermet of Caada Ifo Cetres ad are usually located i Caada Employmet Cetres. &DQDGD%XVLQHVV6HUYLFH &HQWUHV The CCRA is also a active parter i the Caada Busiess Service Cetre iitiative, desiged to help busiess cliets through a sigle poit of cotact. These cetres offer busiesses access to iformatio about the programs ad services of various federal departmets ad agecies, icludig Idustry Caada, ad the CCRA, ad ecoomic developmet agecies such as the Atlatic Caada Opportuities Agecy, Wester Ecoomic Diversificatio Caada, ad the Federal Office of Regioal Developmet (Quebec). Other parters iclude provicial ad o-govermet agecies. Twelve Caada Busiess Service Cetres operate across the coutry. They are i Charlottetow, Edmoto, Fredericto, Halifax, Motréal, Saskatoo, St. Joh's, Toroto, Vacouver, Whitehorse, Wiipeg, ad Yellowkife. %XVLQHVVZLQGRZV Busiess widows are sigle-widow service sites for our busiess cliets ad are located i 45 tax services offices across the coutry. They are the iitial poit of cotact for busiess cliets who are lookig for geeral iformatio o programs ad services or who would like to get a Busiess Number. 3XEOLFDWLRQV I additio to the services metioed above, we offer umerous tax guides, pamphlets, bulletis, ad circulars. You ca get iformatio o ay tax-related matter from these publicatios. May of them are available o our Web site at: You ca also order copies of these publicatios by callig us at

45 The followig publicatios may also be of iterest: Our Programs ad Services A excellet way to fid out about other CCRA services that meet your eeds. This publicatio is available from the CCRA. Your Guide to Govermet of Caada Services ad Support for Small Busiess This publicatio lists every govermet resource for small busiesses. If you re goig to deal with govermet, you ll wat to get this guide from Idustry Caada. Strategis Provides you with easy, direct access to Idustry Caada s extesive expertise ad iformatio resources. You will fid Strategis at:

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t is importat that you file ay required returs ad remit paymets o time. Pealties apply if you do t, ad iterest is charged o upaid taxes ad pealties.

47 *ORVVDU\RI7HUPV Terms appearig i the glossary i upper case letters have their ow listigs elsewhere i the glossary. $FFRXQW A formal record of trasactios ivolvig a particular item or perso. $FFRXQWVSD\DEOH Debts you have as a result of purchasig assets or receivig services o a ope accout or o credit. You have accouts payable whe you have ot yet paid for the assets or services you have received. $FFRXQWVUHFHLYDEOH Amout of moey you are owed. Geerally, you are owed this amout because you sold assets or provided services. $FFUXDOPHWKRGRIDFFRXQWLQJ With this method, icome is reported i the fiscal period it is eared, regardless of whe it is received. The expeses are also deducted i the fiscal period they are icurred, whether they are paid or ot. This method is geerally used by busiesses or professioals. $SSHDO A process by which you ask a Court to review the decisio the Appeals Divisio made o behalf of the Miister of Natioal Reveue. $UWLFOHVRILQFRUSRUDWLRQ Legal documet filed with a provicial or territorial govermet, or the federal govermet, which sets out a CORPORATION s purpose ad regulatios. $VVHVVPHQW A formal determiatio of taxes to be paid or refuded. A assessmet icludes a reassessmet. See NOTICE OF ASSESSMENT. $VVHWV Ay property owed by a perso or busiess. Assets iclude moey, lad, buildigs, ivestmets, ivetory, cars, trucks, boats, or other valuables that belog to a perso or busiess. They also may iclude itagibles such as GOODWILL. %DGGHEW Moey owed to you that you ca t collect. %DODQFH The amout remaiig i a ACCOUNT after recordig all deposits ad withdrawals. %DODQFHVKHHW Statemet of the fiacial positio of a busiess. It states the assets, liabilities, ad owers equity at a particular poit i time. %XGJHW A pla outliig a orgaizatio s fiacial ad operatioal goals. %XVLQHVVH[SHQVHV Certai costs that are reasoable for a particular type of busiess, ad that are icurred for the purpose of earig icome. Busiess expeses ca be deducted for tax purposes. Persoal, livig, or other expeses ot related to the busiess caot be deducted for tax purposes. %XVLQHVV1XPEHU %1 A umber you get whe you register to do ay busiess with us. It is a sigle umber which replaces the umbers that Caadia busiesses previously eeded to deal with the federal govermet. &DOHQGDU\HDU The twelve-moth period begiig Jauary 1 ad edig December 31. Depedig o your busiess circumstaces, you may or may ot use the caledar year as your FISCAL PERIOD. &DQDGD3HQVLRQ3ODQ&33 A isurace program to help Caadias provide icome for their retiremet. It also gives them icome if they become disabled. Cotributios are directly related to aual earigs. &DSLWDOFRVWDOORZDQFH&&$ A yearly deductio or depreciatio o the cost of certai assets. You ca claim CCA for tax purposes o the assets of a busiess such as buildigs or equipmet, as well as o additios or improvemets, if these assets are expected to last for some years. &DSLWDOJDLQV The amout by which PROCEEDS OF DISPOSITION less outlays ad expeses exceed the adjusted cost base of CAPITAL PROPERTY. &DSLWDOORVV The amout by which the adjusted cost base ad outlays ad expeses of CAPITAL PROPERTY exceeds PROCEEDS OF DISPOSITION.

48 &DSLWDOSURSHUW\ Geerally, ay property of value, icludig DEPRECIABLE PROPERTY. Commo types of capital property iclude pricipal resideces, cottages, stocks, bods, lad, buildigs, ad equipmet used i a busiess or retal operatio. &DVKPHWKRGRIDFFRXQWLQJ With this method, you report icome i the year it is actually received. Similarly, expeses are deducted i the year they are actually paid. Farmers, fishers, ad certai salespeople who work o commissio may use the cash method. &RQILGHQWLDOLW\ The privacy of icome tax ad GST/HST returs ad other related tax iformatio. The oly people with access to this iformatio are those who are authorized by law or those to whom the taxpayer has give permissio i writig. &RUSRUDWLRQ A form of busiess authorized by federal, provicial, or territorial law to act as a separate legal etity. Its purpose ad regulatios are set out i its ARTICLE OF INCORPORATION. A corporatio may be owed by oe or more persos. &RVWRIJRRGVVROG The actual cost of the items sold i the ormal course of busiess durig a specific period. &XVWRPVGXWLHV Taxes you pay whe you brig foreig goods ito the coutry. 'HEW A amout which is owed. If you borrow moey or purchase somethig o credit, you have created a debt. 'HHPHG A legal term used whe somethig is cosidered to be somethig else for certai purposes. 'HSUHFLDEOHSURSHUW\ Property that wears out as it is used over the years. For example, cars, farm equipmet, ad busiess machies are depreciable. See CAPITAL COST ALLOWANCE. 'HSUHFLDWLRQ A decrease i the value of a asset through age, use, ad deterioratio. I accoutig termiology, depreciatio is a deductio or expese claimed for this decrease i value. 'LVSRVLWLRQ Geerally, the disposal of property by sale, gift, trasfer, or chage i use. (OHFWLRQ A formal choice amog specific optios o how tax laws are applied to a taxpayer s fiacial affairs. Usually you make a electio o your tax retur. (PSOR\PHQWLQFRPH See SALARY. (PSOR\PHQW,QVXUDQFH (, A federal program that provides fiacial assistace to people who are temporarily out of work. It is a isurace program, with employers ad employees makig paymets ito the Employmet Isurace Fud. (PSOR\PHQW,QVXUDQFHSUHPLXPV Deductios that a employer must make from employees paycheques ad forward to the Receiver Geeral for Caada. Employers must also cotribute Employmet Isurace paymets. ([FLVH Taxes o the maufacture, sale, or use of goods ad items. )LVFDOSHULRG This is the twelve-moth period over which a busiess or professio reports its icome-earig activities. The fiscal period may or may ot coicide with the CALENDAR YEAR. The busiess usually establishes its fiscal period whe it files its first icome tax retur. *RRGZLOO The excess of the purchase price of a busiess over the fair market value of the et assets of the busiess. *URVVSURILW Sales mius COST OF GOODS SOLD. +DOI\HDUUXOH A provisio i the Icome Tax Act that allows you to claim oly half of the capital cost allowace available o a asset i the year you purchased the asset.,qfrph The sum of reveues eared i a specific period of time. It icludes reveues from salaries, wages, beefits, tips, ad commissios, profits from operatig a busiess or professio, ad ivestmets eared.

49 ,QFRPHVWDWHPHQW A fiacial statemet that summarizes the results of busiess activities (icome ad expeses) for a give period of time. Sometimes called a PROFIT AND LOSS STATEMENT.,QFRPHWD[SD\UROOGHGXFWLRQV Employers must deduct icome tax from their employees salaries or wages. They must base these deductios o the icome tax deductios tables, which reflect each provice s rates.,qirupdwlrqflufxoduv Publicatios that we issue to give detailed explaatios o a variety of tax subjects.,qirupdwlrqvolsv Forms that employers, trusts, ad busiesses use to tell taxpayers ad the CCRA how much icome was eared, ad how much tax was deducted.,qsxwwd[fuhglw A credit GST/HST registrats may claim for GST/HST paid or payable o purchases relatig to a commercial activity.,qvwdophqw A partial paymet of a tax debt. The debt is divided ito parts that are paid at differet times withi a certai period.,qwhusuhwdwlrqexoohwlqv Publicatios that give our iterpretatio of parts of the Icome Tax Act.,QYHQWRU\ Geerally, the total value of the goods o had that a busiess iteds to sell, use for maufacture, or use to reder a service. I certai cases, ivetory ca also iclude services.,qyhvwphqw A expediture to acquire property that yields or is expected to yield reveue or services. /HDVH A cotract uder which a property is reted from oe perso or busiess to aother for a fixed period of time at a specified rate. /LDELOLW\ DEBT owed by a perso or busiess. /RVV The amout by which expeses exceed reveues. 1HWLQFRPH Icome subject to taxatio after allowable deductios have bee subtracted from gross or total icome. 1RWLFHRI$VVHVVPHQW A form that we sed to all taxpayers after we process their returs. It tells taxpayers or GST/HST registrats if we made ay correctios to the returs or rebate applicatios ad, if so, what they are. It also iforms taxpayers or registrats if they owe more tax or what the amout of their refud will be. 2EMHFWLRQ A statemet of facts ad reasos detailig why a taxpayer or registrat disagrees with a assessmet. 2SHUDWLQJH[SHQVHV The routie costs of ruig a busiess. They iclude expeses for gasolie, electricity, ad office supplies. They do ot iclude the cost of buildigs or machiery that are expected to last for several years. See CAPITAL COST ALLOWANCE. 3D\UROOGHGXFWLRQV Icome tax deductios, CANADA PENSION PLAN or QUEBEC PENSION PLAN cotributios, ad EMPLOYMENT INSURANCE premiums which are deducted from a employee s wages or SALARY ad set regularly to us. Employers also make their ow cotributios to the Caada Pesio Pla or Quebec Pesio Pla, ad Employmet Isurace. 3HQDOWLHV Amouts taxpayers or registrats must pay if they fail to file returs or remit or pay amouts owig o time, or if they try to evade payig or remittig tax by ot filig returs. Pealties must also be paid by people who kowigly, or uder circumstaces amoutig to gross egligece, participate i or make false statemets or omissios i their returs, ad by those who do ot provide the iformatio required o a prescribed form. 3HUVRQDOWD[FUHGLWUHWXUQ)RUP7' The first icome tax form a perso has to complete whe startig a ew job. It tells a employer how much icome tax to deduct from the employee s pay. 3UHSDLGH[SHQVH A expese you pay for i advace; a expese you icur for goods ad services you will receive i a later FISCAL PERIOD; amouts you pay i iterest, icome taxes, muicipal taxes, ret, dues, or isurace for later fiscal periods. These amouts are icluded as assets o the balace sheet at the ed of a fiscal period. 3URFHHGVRIGLVSRVLWLRQ Usually, the sellig price of property whe it is disposed of.

50 Proceeds of dispositio also iclude compesatio received for property that has bee destroyed, expropriated, stole, or damaged. It is also the fair market value of property whe it is trasferred to aother perso, or whe there is a chage i its use. 3URIHVVLRQDOGXHV Membership fees paid to maitai a professioal status recogized by law, such as lawyers aual law society fees. 3URILWDQGORVVVWDWHPHQW Same as a INCOME STATEMENT. 3URSULHWRUVKLS A o-icorporated busiess etirely owed by oe perso. Same as a SOLE PROPRIETORSHIP. 4XHEHF3HQVLRQ3ODQ433 A pesio pla equivalet to the CANADA PENSION PLAN (CPP) but maitaied by the provice of Quebec. The provicial govermet hadles the cotributios. 5DWHVRIWD[ Percetages of icome that must be paid as tax. The Departmet of Fiace sets the basic icome tax rates, which vary progressively with the amout of icome received. For GST/HST purposes, the GST rate is 7%, while the HST rate is 15%. 5HFRUGV Documets such as accout books, sales ad purchase ivoices, cotracts, bak statemets, ad caceled cheques. You must keep records i a orderly maer at your busiess or residece i Caada for at least six years from the ed of the last taxatio year to which the records relate. You must make these books ad other documets available to our officers for audit purposes. 5HIXQG The overpaymet of icome tax retured to a taxpayer after we assess the retur. 5HJLVWUDQW A perso who is registered or required to be registered uder GST/HST legislatio. 5HPLWWDQFH A paymet of CPP or QPP, EI, icome tax, or GST/HST that is paid to us through a fiacial istitutio, or that a busiess or idividual seds directly to us. It also icludes the employer s share of CPP cotributios ad EI premiums. 5HVHDUFKJUDQWV Amouts of moey give to idividuals to explore areas i various fields of study. The grats cover the cost of research plus the researcher s icome. These amouts are taxable but some of the researcher s expeses may be deductible for tax purposes. For more specific iformatio, refer to Iterpretatio Bulleti IT-75, Scholarships, Fellowships, Bursaries, Prizes, ad Research Grats. 5HVHUYHV Fuds set aside to cover future expeses, losses, or claims. 6DODU\ The amout a employer pays a employee for work doe. Each employer records this type of employmet icome o T4 slips. Same as EMPLOYMENT INCOME ad wages. 6HOIHPSOR\PHQW The operatio of your ow busiess. 6RFLDOLQVXUDQFHQXPEHU6,1 A umber give to each cotributor to the Caada Pesio Pla, Quebec Pesio Pla, ad Employmet Isurace Pla. It helps record the cotributios ad premiums paid ito ad the beefits paid out of the plas. Sice these social isurace programs are coected to the tax system, the SIN is also used as a idetifier for federal icome tax purposes. Everyoe who files a icome tax ad beefit retur must provide a SIN. 6ROHSURSULHWRUVKLS A uicorporated busiess etirely owed by oe perso. Same as a PROPRIETORSHIP. 6SRXVH For purposes of the Icome Tax Act, startig i 2001, the term spouse will mea oly a married parter. The term commo-law parter will iclude parters of the same sex or opposite sex, who meet certai coditios. For more iformatio, see your Geeral Icome Tax ad Beefit guide. 6WDWHPHQWRILQFRPHDQGH[SHQVHV²Form that summarizes reveue, icome, ad expeses for a specific period.

51 6WDWHPHQWRIUHPXQHUDWLRQSDLG7VOLS Iformatio slip that shows the icome that a employer pays to a employee. Taxable allowaces ad beefits, such as paymets made o the employee s behalf to a provicial health care pla, are icluded as icome. A T4 slip also shows how much the employer deducted for icome tax, CPP or QPP cotributios, EMPLOYMENT INSURANCE premiums, ad cotributios to the employer s pesio pla. 6XSSO\²For GST/HST purposes, this geerally meas the provisio of property or a service i ay maer, icludig sale, trasfer, barter, exchage, licece, retal, lease, gift, or dispositio. 7D[FHQWUHV Offices i differet regios of Caada where we process tax returs. 7D[&RXUWRI&DQDGD A court that hears appeals about icome tax ad GST/HST assessmets. I additio, the Court has jurisdictio to hear appeals uder the Caada Pesio Pla, Employmet Isurace Act ad several other acts. The Tax Court maitais four offices (Vacouver, Ottawa, Toroto, ad Motréal) ad regularly coducts hearigs i major cetres across Caada. 7D[SD\DEOH The amout of icome tax that you must pay o taxable icome for the taxatio year. It is also the amout of tax payable o a taxable supply (for GST/HST purposes). 7D[VHUYLFHVRIILFHV Offices across the coutry that provide tax guides ad forms, as well as cosultatio services. 7D[WUHDWLHV Govermet agreemets siged betwee coutries. They help citizes who ear foreig icome avoid double taxatio. 7D[DEOHEHQHILWV Amouts of moey, or the value of goods or services, that a employer pays or provides i additio to salary. For example, the part of a health isurace pla that the employer pays is a taxable beefit. 7D[DEOHLQFRPH The amout of icome left after all allowable deductios have bee subtracted from NET INCOME. This amout is used to calculate the tax payable. 7D[DWLRQ\HDU The CALENDAR YEAR or FISCAL PERIOD for which icome tax is to be paid. :RUNHUV FRPSHQVDWLRQ Moey paid to compesate a perso ijured o the job. It is a isurace pla paid for by employers ad admiistered by the Workers Compesatio Board.

52 <RXURSLQLRQFRXQWV We review our icome tax guides ad pamphlets each year. If you have ay commets or suggestios to help us improve our publicatios, we would like to hear from you! Please sed your commets to: Your Opiio Couts Caada Customs ad Reveue Agecy Place Vaier, Tower A Ottawa ON K1A 0L5

53 1RWHV

54 1RWHV

55 1RWHV

56 1RWHV

57 1RWHV

58 1RWHV

59

60