This is a great question and because you are asking, you are already preparing for handling taxation on your own as a new business owner.
If you have registered a business
A registered business falls under a few categories known as Master Business Licence, Business Registration, Sole Proprietorship, Proprietorship, General Partnership and Partnership depending on the Province you registered within. If you have registered a business, but are not incorporated, this would be the tax category you would fall into.
How do the taxes work for me and my business?
A registered business taxes are part of your personal tax filing. Income from January 1 to December 31st each year are calculated and required taxes are due to be paid April 30th, same as they have been when you worked for someone else. The biggest difference now is keeping track of what you make overall as a business owner, the expenses the business has and what you are left to pay taxes on. As a general rule of thumb, keep 30 % of the total money you earn for taxation, this should allow you the room to ensure you have saved enough when taxation is due.
With a registered business, you and your business are one tax entity. I’ve included a chart below for the taxation between the Ontario and the Federal government as a guide no matter where you live in Canada. You can look up your specific Province or Territory for the exact amount but this is a good benchmark.
Let’s take a look at a simple calculation on a business owner’s income, expenses and tax amount due.
If you, as a business owner make $100,000 for the year beginning January 1st and ending December 31 of 2019.
The expenses of the business are $35,000.00. The remaining revenues are automatically considered income. You as a person and business owner have an income of $65,000.00
Viewing the chart below:
2019 tax rates:
- 15% on the first $47,630 of taxable income
- 20.5% on portion of taxable income over $47,630 up-to $95,259
- 26% on portion of taxable income over $95,259 up-to $147,667
- 29% on portion of taxable income over $147,667 up-to $210,371
- 33% of taxable income over $210,371
- 5.05% on the first $43,906 of taxable income
- 9.15% on portion of taxable income over $43,906 up-to $87,813
- 11.16% on portion of taxable income over $87,813 up-to $150,000
- 12.16% on portion of taxable income over $150,000 up-to $220,000
- 13.16% on portion of taxable income over $220,000
Federal taxes on $65,000.00 of income would be
15% of $47,630 = $7143.00
20.5% on the remaining $17,370 of income is $4342.50
Total federal tax $11,485.00
Provincial taxes on $65,000.00 of income
5.05% on $43,906 = $2195.30
9.15% on remaining $21,094.00 is $2007.51
Total Ontario Provincial Tax $4202
Total tax implications on $65,000.00 personal income is approximately $15,686.00.
This is about 25% owing to tax on an income of $65,000.00. If you earn more, remember the more you earn, the higher percentage will be required to keep aside for taxation. If you have saved more than you require for taxation, purchasing some RRSP’s will help you not only for your retirement but for the next tax season.
How do I pay the taxes?
It will take a year or two of income depending on when you start the business for CRA (Canada Revenue Agency) to have a calculation established for your expected future income. For the first tax filing year, you will probably be filing taxes that are owing in one lump sum as of April 30th. Once a tax pattern has been established, CRA will send out a letter to you each quarter with installment payments for each quarter or every three months. This can make things much easier for you regarding budgeting.
Many new business owners make the mistake of not calculating their taxable income when operating their own business and many fail based on this one item. It is always recommended to hire a bookkeeper, accountant or CPA to assist you.
At Ontario Business Central, we assist new business owner’s everyday to start their business.
Our mission is to assist you as much as possible to understand business ownership overall. If we can be of assistance in setting up your registered business, I have provided the links in jurisdictions where we offer business registration services.
Our business since 1992 has been to assist entrepreneurs and new business owners to succeed.
If you have any questions about starting a registered business, please feel free to contact our staff for additional information and assistance.
Office Hours: 9:00am – 5:00pm
Monday – Friday E.S.T.
Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.