Ke Wang CPA - When Do Newly Established Small Companies in Canada Need to Pay Taxes? What

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When Do Newly Established Small Companies in Canada Need to Pay Taxes?

What Are the Differences in Payment Methods Between Corporate and Personal Taxes?

Can Companies Apply for Installment Payments if They Face Financial Difficulties When Filing Taxes?

Key Points Summary：

🛑 Small companies need to file taxes within 6 months after the fiscal year ends, but they must pay all taxes within 2 to 3 months to avoid interest or penalties for late payment.

🛑 The payment methods for corporate taxes include installment prepayments and annual filings, while personal taxes are typically withheld by employers or self-declared.

Tax Payment Time for Small Companies：

👉 Tax Filing and Payment Deadlines：

🔺Corporate Income Tax Filing: Generally, small companies need to complete tax filing and payment within 6 months after the end of the fiscal year. The specific payment time depends on the company's fiscal year-end date.

🔺Prepaid Taxes: In some cases, based on the company's estimated tax amount, it may be necessary to prepay taxes in installments during the year.

Differences in Payment Methods Between Corporate and Personal Taxes:

👉 Corporate Taxes:

🔺Prepaid Taxes: Companies usually need to prepay taxes in installments based on estimated tax amounts during the fiscal year. This helps to distribute the tax burden.

🔺Annual Filing: After the fiscal year ends, the company must submit an annual tax return (e.g., T2 return) and pay any remaining tax due.

🔺Electronic Payment: Companies can make electronic payments through the CRA's online services (e.g., My Business Account) or other electronic payment methods (e.g., through financial institutions).

👉 Personal Taxes:

🔺Withheld Taxes: Most personal taxes are withheld by employers when paying wages and reflected in the annual T4 slip.

🔺Self-Declared Taxes: Freelancers and individuals with other income sources not subject to withholding must self-declare and pay taxes, usually by April 30 each year.

🔺Installment Prepayments: Individuals who are expected to owe substantial taxes may need to prepay taxes in installments during the year (e.g., self-employed individuals).

Applying for Installment Payments If the Company Faces Financial Difficulties:

If a company faces financial difficulties when filing taxes and cannot pay the full amount at once, it can apply to the Canada Revenue Agency (CRA) for installment payments.

Detailed Explanation:

👉 Applying for Installment Payments:

When a company faces financial difficulties when filing taxes, it can contact the CRA to apply for installment payments. The company needs to explain its financial difficulties and submit an installment payment application.

👉 Providing Financial Information:

The CRA will require the company to provide detailed financial information to assess its repayment capacity. This information may include:
Recent financial statements (e.g., balance sheet, income statement).
Cash flow forecasts.
Company bank statements.
Other documents supporting the company's financial condition.

👉Interest and Penalties:

Even if the CRA approves an installment payment plan, the company still needs to pay interest and may face penalties. These charges are calculated from the original payment due date until all outstanding amounts are paid. Therefore, contacting the CRA early and developing a repayment plan can reduce additional costs.

Application Process

✅ Contacting the CRA:

Contact the CRA through the business hotline (1-800-959-5525), explain the company's financial difficulties, and request an installment payment plan.

✅ Submitting Necessary Documents:

Submit relevant financial documents and information as required by the CRA to prove that the company is indeed facing financial difficulties and provide repayment plan suggestions.

✅ Negotiating a Repayment Plan:

Negotiate a reasonable installment payment plan with the CRA, including the repayment amount and schedule. Ensure the plan is within the company's financial capacity to avoid further financial stress.

✅ Executing the Repayment Plan:

Follow the agreed installment payment plan and make timely payments. Regularly review the company's financial condition to ensure the ability to meet the payment schedule

💡 Example:

Suppose your small restaurant needs to pay $10,000 in taxes when filing the annual tax return, but you currently have insufficient cash flow. You can contact the CRA and apply to spread this tax payment over 10 months, paying $1,000 each month. You will need to provide financial statements and bank statements to prove your restaurant is facing financial difficulties. The CRA will evaluate and approve your repayment plan, notifying you of the monthly repayment amount and interest.

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