Bookkeeping involves recording daily financial transactions, such as sales, expenses, and payroll.

Accounting takes this data further by analyzing, summarizing, and interpreting it to prepare financial statements and strategic insights that guide business decisions. Both are essential for maintaining accurate records and ensuring compliance with tax regulations.

An accounting firm can optimize your tax strategy through:

• Claiming all eligible deductions and credits
• Structuring your business for tax efficiency (e.g., incorporation or partnership structures).
• Ensuring compliance with Canadian tax laws to avoid penalties.
• Proactive tax planning to minimize liabilities in future years.

You should consider incorporation if:

• Your business profits exceed your personal income needs, allowing for tax deferral.
• You want to limit personal liability.
• You wish to access small business tax rates in Canada (currently 9% federal on active business income up to $500,000).
• In Ontario, the combined federal and provincial tax rate for eligible small businesses is 12.2% (as of 2024). Rates in other provinces may vary.
• You plan to sell your business in the future and benefit from the Lifetime Capital Gains Exemption.

Consulting an accountant can help determine the best timing for incorporation based on your unique situation.

The Canada Revenue Agency (CRA) requires you to maintain:

• Sales and expense records.
• Bank statements and canceled cheques.
• Payroll and tax records.
• Copies of invoices, receipts, and contracts.

These records must be kept for at least six years from the end of the tax year they relate to. Digital records are acceptable as long as they are accessible and secure.

Businesses with over $30,000 in revenue in four consecutive quarters must register for GST/HST. Once registered, you:

• Charge GST/HST on taxable goods and services.
• Collect it from customers and remit it to the CRA.
• Claim Input Tax Credits (ITCs) on GST/HST paid on business expenses.

An accountant can help you set up and manage your GST/HST filings.

While accounting software like QuickBooks and Xero simplifies bookkeeping tasks, a professional accountant:

• Provides strategic insights tailored to your business.
• Ensures compliance with complex tax laws.
• Identifies opportunities to save on taxes and improve cash flow.
• Handles CRA audits and correspondence.

Software is a tool, but an accountant offers expertise and personalized advice.

Canadian SMBs must:

• Deduct and remit income tax, CPP, and EI from employee wages.
• Pay employer contributions to CPP and EI.
• Issue T4 slips to employees annually.
• Comply with provincial employment standards (e.g., minimum wage, vacation pay).

Using payroll software or outsourcing to an accountant ensures accuracy and compliance.

At a minimum, SMBs should review their financial statements quarterly to:

• Monitor cash flow.
• Evaluate profitability.
• Identify trends and address issues early.

Monthly reviews provide even greater control, particularly during periods of growth or economic uncertainty. An accountant can help interpret these statements for better decision-making.

The small business deduction in Canada provides eligible Canadian-controlled private corporations (CCPCs) with a reduced federal tax rate of 9% on the first $500,000 of active business income. Provincial and territorial tax rates vary, ranging from 0% to around 8%, further lowering the overall tax burden. This deduction is designed to help small businesses retain more capital for reinvestment and growth. Eligibility criteria include limits on passive income and ensuring the income qualifies as active business income.

To prepare for a CRA audit:

• Ensure all records are accurate, complete, and up-to-date.
• Separate personal and business expenses.
• Retain supporting documentation for income and expenses (e.g., receipts, invoices).
• Work with an accountant to review your records and address potential red flags.

An accountant can also represent you during the audit process, ensuring your rights are protected.