At a Glance
A tax return is a filed documentation with a tax authority showing your income, expenses, and other important financial transactions.
In Canada, tax returns are made by the employed, self-employed, and corporations.
Self-employed individuals and professionals in Canada are required to complete the T1 Income Tax Return Form.
A Simple Example
A medical doctor in Vancouver reported an income of $700,000 in 2020 and his expenses amount to $3000,000. As per the law, she will be required to file her taxes come next year. Here's a simple side of how her tax returns process will go:
Note that this is a simplified example to give you a rough idea of how tax returns work. Depending on your unique situation, a few things might appear to change.
To start, she'll need to gather her tax information including business income, expenses, and credits.
Next, decide whether to file online or on paper. If online, log in to her CRA Business Account. If on paper, fill in the T1 Income Tax Return Form.
She'll then update her personal information including marital status, the number of her children, and banking information.
Once that's done, income reporting comes next. She will provide the details of her income for the year (2020), including amounts ($700,000) and sources.
She can then claim her deductions (expenses - $300,000) and credits, if any.
Lastly, she'll send the filled form either electronically or physically to the CRA or her tax center. If she owes taxes, she'll be required to pay by April 30, 2021 unless stated otherwise by the CRA> Tax refunds are sent our within eight business days if filed online.
A tax return form (T1) for self-employed and professionals can be obtained from the CRA website, along with the corporation's form.
What a tax return means for your business
The law states that all businesses must file taxes within the provided time limits failure to which penalties and interests apply. Not filing paying taxes can also land you in legal troubles.
Filing your returns means that your business is compliant with the state laws and free to trade with other businesses, apply for loans, and obtain tax refunds where applicable. Your tax return will also help you to understand where your business stands in terms of profitability as taxes are paid on profits.
To get the most of your tax returns, engage a tax expert to ensure that you're paying only what you owe.
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