Tax season is fast approaching, and it’s better to start preparing now rather than later. Although you could have filed your return as early as February 21, 2022, you still have some time before you must submit your taxes.

Tax Filing and Payment Deadlines Vary

For most entrepreneurs, sole proprietors, self-employed professionals, and small business owners, you must file your return by June 15, 2022. However, if you owe money to the government, you must pay it by May 2. The deadline is typically the last day in April but is later this year because April 30 falls on a Saturday. The deadline for personal returns is also May 2 but it is June 15 if you have a side hustle that provides self-employment income despite having a full-time role. 

If your business is incorporated, your tax-filing deadline is six months after the corporation’s fiscal year-end. For example, if the corporation’s fiscal year-end is Jan. 31, your tax return is due on July 31. Any payments owed are due two months after the end of your corporation’s fiscal year.

A businesswoman calculating taxes

There’s an exception to this rule if you have a Canadian-controlled private corporation with less than $500,000 in annual income. If that’s the case, the deadline for payments is three months after the end of the corporation’s fiscal year.

Documents Required for Filing

You need to file a T1, a standard tax return, and a T2125 (statement of professional or business activities). If you have multiple companies, you need to file a separate T2125 for each. On your T2125, you will have to enter all your business income and any expenses, such as business insurance.

For those who work full time and operate a business as a side hustle, you’ll need to enter the information from your T4 on your return and submit a T2125.

If you received government assistance in 2021 — such as the Canada Recovery Benefit (CRB), Canada Emergency Response Benefit (CERB), and provincial or territorial COVID-19 financial assistance payments — you should receive a T4A. These amounts must be reported on your return.

Incorporated businesses must file a T2, which is a corporation income tax return.

What Happens if You’re Audited

There’s always the possibility of being audited. The Canada Revenue Agency (CRA) may choose you at random or if there appears to be non-compliance with tax obligations. Thus, you shouldn’t throw out any recent tax returns or related documents. The government says: “you must keep all required records and supporting documents for a period of six years from the end of the last tax year they relate to.”

If you have hired an expert to help you or file your taxes, they can represent you. If you did your taxes on your own, you can represent yourself or hire someone to work on your behalf. Hiring someone may be costly depending on the amount of work required, but it can save you some time and peace of mind.

To reduce your chances of being audited, you should be aware of what can raise a red flag at the CRA:

  • Having large deductions. While you’re allowed to deduct many expenses for business purposes (such as meals, entertainment, and travel), you shouldn’t claim those that you can’t remember, whether they were for business or pleasure.
  • Reporting recurring losses. Some businesses aren’t always profitable, but having a loss year after year will look suspicious, especially since you’re in business to make money.
  • Owning a cash-intensive business. Restaurants, bars, salons, and variety stores are just a few examples of a cash-intensive business. There’s an opportunity here not to report all your income if a large portion of sales is cash, which is why the CRA will be more likely to scrutinize your books.
  • Employing family members. There’s no law against having your spouse or other family members working for you, but make sure you follow the rules.

You needn’t worry about an audit if you keep detailed records and don’t have anything to hide from the CRA.

Getting Help

While filing a return as a business owner on your own is free, it may be in your best interest to get professional advice from a tax expert or an accountant. They can advise you on what deductions and credits are available to you and fill out all the forms required on your behalf. Of course, there will be a cost involved, but leaving it to an expert will give you more time to focus on your business.

The Bottom Line

Even though your taxes might not be due for a few more months, the time to start planning is now. And if you’re going to need help with filing a return, you should reach out to an expert as soon as possible.


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