As a Canadian business owner, you must file your T2 tax return even if your business is not active. If you skip this step, your business will start facing consequences with the CRA. You must start filing your T2 tax return within six months after the end of the financial year, even if you have no tax payment to be made. If you fail to file the return, you’ll be penalized even if no tax is payable.
The tax obligations depend on many factors. These include corporate structure and whether you are eligible for a small business tax rate. A tax accountant for tech companies Canada will help you understand these requirements, and you’ll know which tax rules apply to your business. You must understand these factors if you don’t want to pay penalties.
What are the Tax Incentives for Tech Companies?
If your tech company invests in R&D, you may be entitled to claim “Scientific Research and Development (SR&ED)” tax incentives. Your business can benefit from this, as you will be able to claim a deduction against the income. You’ll also be able to earn an investment tax credit. To be eligible for these incentives, your business must fulfill these requirements:
- Your research must contribute to advancing the technological landscape of the US; the results of the research must overcome a complex scientific problem or give a fresh perspective to reach a solution.
- It must follow a scientific methodology through a systematic analysis, and not by trial and error.
This is useful for tech companies that are actively involved in developing new software or are trying to solve a technological problem.
GST/CST for Digital Products and Services
If your technology company sells digital products and services in Canada, you must also look out for GST/CST obligations. If your business sells software, online subscriptions, or streaming services, this applies to you as well!
The CRA requires businesses to collect and pay GST/HST on taxable supplies when they meet the registration requirements. But that does not mean that every company will follow the same GST/CST process. Registration requirements depend on what and to whom you’re selling to. Some non-resident businesses may have to register under GST/HST registration rules. You can check the GST/CST registration requirements for digital economy businesses to understand which rules apply.
This is one area where an accountant can save you from making some silly and costly mistakes. You will know whether you need to register for GST/CST, which registration process you need to follow, and how much tax you need to pay. It is necessary when your business starts to grow and you acquire customers across Canada.
Records to be Kept While Running a Technology Business
Proper record-keeping is very important while running a technology business in Canada. Your records will help you track your income and expenses, and give the CRA the information that is needed to calculate how much tax you need to pay. The CPA for technology companies Canada advises businesses to maintain a record of their transactions for a period of at least six years.
Technology companies need to provide records for their sales invoice, purchase receipts, payroll records, and other documents related to the business. If you use any software for accounting, you must have the required records. All your records must be organized so that they support your transactions when you file your tax return.
Keep Track of Your Income and Expenses
Your business must have a clear record of where its income comes from and where it is spent. It can include revenue from software sales, consulting services, or other tech-related services.
The same applies to expenses. You must have receipts for the software subscription you took, equipment bought, and other costs related to the business. Bank statements support these payments that you made. The CRA guides keeping business records that support your income and expenses.
If you maintain the records in time, it becomes easy to collect everything at the time of filing your tax return. Your accountant also gets a clear picture of your income and expenses.
Keep Your R&D and Business Work Separate
Technology companies have to work on many different projects at a time. Some of that might qualify for Scientific Research and Development, while the rest might just be a part of a commercial project.
Your records must help differentiate between the two easily. Your employees might be working on some time working on Scientific Research and Development and the rest on some product development project. You must have the records that show the time spent and the total costs involved in those projects.
The CRA’s guide on SR&ED explains in detail the records that support the SR&ED claim. Good record keeping is not just about making the tax filing process easy. It is much more than that. It will support your tax claims when any finger is raised on your business transactions. An accountant for IT companies Canada will help you organize your financial records make proper documents that will support your tax claims that you can present when asked.
