Edmonton Small Business Accountant | How To Avoid Payroll Tax Problems
Many business owners are very good at what they do in their business, but not necessarily in running their business says Edmonton small business accountant. Business owners should learn very quickly how to remit source objections to Canada revenue agency, in order to avoid problems later on down the road. Two of the biggest problems that business owners have when it comes to source deductions, is not paying the correct amount, and not paying on time. Both of these issues are extremely easy to avoid, once business owners know how to avoid them.
The first problem that business owners face when it comes to source deductions, is not sending in the correct amount. Most business owners know that they have to take off CPP, EI and taxes from their employees paychecks. However, some business owners don’t know that they also need to send additional funds to CRA. Business owners need to pay a contribution themselves to CRA in addition to the amount they deduct of their employees checks. This is approximately 7.4% additional, and it is for the employer CPP entity employer EI. Edmonton small business accountant says that once business owners understand that this is a requirement an expectation for them to pay, they can plan appropriately in order to ensure that they are sending the right amounts to CRA all of the time.
Second problem that business owners make when it comes to paying source deductions, is that they miss paying, or they pay late. There’s many reasons why a business owner may pay their source deductions late. One of the reasons is they may not have the funds. Since running out of cash in the business is one of the biggest problems that Canadian businesses face, this is something that business owners should be aware of. Even if they are having problems making payments, missing a tax payment to CRA because of cash flow, isn’t worth the risk. The penalties for filing late can be up to 20% interest for a single day. This is the CRA’s most expensive penalty. Business owners should find the money from just about anywhere in order to make this payment to avoid such steep penalties.
If the reason why the business owner has missed the payment is due to forgetting, Edmonton small business accountant recommends great way to avoid forgetting when to make this payment, is to do it at the same time that a business owner is running payroll. If they get into the habit of submitting payment to the CRA at the same time that they are writing paychecks, is much less likely that a business owner will miss a payment or pay late. It’s also great timing because business owners will be already figuring out source deductions their employees, and writing checks. It makes sense to do them all at the same time.
By understanding what their obligations are to CRA, ensuring they make the correct payments and on time, business owners can avoid huge penalties and potentially triggering audits for their business. Business owners can completely avoid running into any payroll problems in their business.
When setting up their business, entrepreneurs need to understand what their obligations are to CRA in terms of source deductions says Edmonton small business accountant. By understanding what they need to do in order to avoid late penalties, and collection calls from CRA, business owners can operate the business knowing that their employees are getting paid, and CRA’s getting the taxes the need.
Employers should understand all five of the components of CRA remittances in order to pay them all properly says Edmonton small business accountant. Those five components are employer and employee CPP, employer and employee EI, and taxes. Not only do the business owners need to know that all five of those components are required, they should also understand that two of them are not deducted of the employees paychecks. The employer CPP and EI are amounts that the business owner needs to contribute themselves in addition to the amount that they’ve taken off from their employees. That amount is just under 7.4%, and just recently went up in 2019. By knowing all of these various components, business owners can ensure that they are not only taking the correct amount of source deductions off of their staff’s checks, but that when they are remitting those payments to CRA, there sending the full and complete amount they should.
If business owners are not sending the correct amount, CRA will find out about it sooner rather than later. As soon as a business owner files there T4’s says Edmonton small business accountant, if there is a shortfall of remittances, CRA will see that instantly. Not only will the business owner be assessed with having to pay the shortfall, they will also pay steep penalties all within 30 to 90 days. This may also trigger a payroll audit for the business. These are very easily avoided, by business owners knowing how much they must deduct off of their checks as well as from it to the Canada revenue agency.
It’s also important to note, that the directors of the company are personally liable for this shortfall amount, whether the business is still around or not. In order to minimize risk, business owners may ensure that one of the spouses in the business is not a director. Since CRA is not able to come after spouse that isn’t a director, that can help that owner somewhat protect themselves. This is especially important if the business owner is in a risky business, where they believe there is a chance they may not get paid for a job, and end up with a shortfall on source deductions says Edmonton Small Business Accountant.
Understanding what their obligations are, can help employers avoid making errors on remitting source deductions to CRA. Many business owners have enough cash flow problems in their business, without adding steep penalties to the amount that they are expected to pay. we would love to be of service to you!