The end of the calendar year also means year-end’s for a lot of small businesses. Unincorporated businesses are required to have a December 31 year-end by the Canada Revenue Agency, but a lot of incorporated businesses use December 31 as their year-end’s, too. In our previous posts we described what you need to do to leading up to your year-end and in this post we will explain how the year-end process works.
The Different Roles of Your Accountant and Your Bookkeeper
When you’re thinking about filing your business year-end tax return, it’s important to understand the different roles that your accountant and bookkeeper play. Your bookkeeper will support you in preparing your business financials to be reviewed, adjusted and filed by your accountant. Your bookkeeper will not actually file your tax return, that is something that your accountant does.
Similarly, while an accountant could help prepare your year-end filing, they would probably do so at a much higher cost than what a bookkeeper would charge and it is often not something an accountant would be interested in doing as they’re more interested in the reviewing, adjusting and filing part of the process. Preparing your year-end tax return is something that is well suited for your bookkeeper.
Preparing Your Business Financials and Adjustments Your Accountant Might Make
As we described in our previous blog post, leading up to the end of your businesses fiscal year you should be working to catch up on entering any outstanding invoices and expenses. To keep in line with the CRA, revenues and expenses must be incurred during the financial year that they were either earned or consumed. There are some grey areas – please read our last post for more details.
But there is more to be done than just catching up on outstanding paperwork before you can give your business financials to your accountant.
You must take a snapshot of your year-end assets. This would definitely include any parts or equipment that you’re holding for resale as part of your business. Your accountant will compare this asset list to the list you made at the end of the previous tax year to determine how much the value of your business assets has changed. That asset list may include things like office furniture and computers and it’s important to include these because it’s likely that your accountant will amortize part of the value of these assets as a depreciation expense to reduce the taxable income of your business (which means that you’ll pay less taxes if you’re reporting a profit!).
Your accountant will also review your outstanding invoices. If they see invoices that are quite old they might ask you about the likelihood of those invoices ever getting paid. If you feel that they might not get paid, for whatever reason, then your accountant might write them off as a bad debts expense. Like the depreciation expense on your business assets, this can provide some corporate income tax relief by reducing the business income that you’ll be paying income taxes against.
Filing Your Business Tax Return
Once your accountant has reviewed and adjusted your corporate tax return they will file it with the Canada Revenue Agency. Your accountant will complete a T2 for your business reporting all of the revenue and expenses incurred during your tax year and calculating a profit or loss. The T2 can be submitted physically (printed on paper) but typically they are submitted electronically.
There are other forms that will be included as part of your corporate tax return, but which forms that includes depends on the type of business you own and how your business operates.
You do not have to submit all of your supporting paperwork as part of your tax filing – the CRA will take what you submit at face value. However, the CRA does randomly (and maybe sometimes not so randomly – check out our blog post series ‘All About CRA Audits’ to learn more) audit businesses to make sure they are in compliance so you are required to keep all of the supporting paperwork on your corporate year-end for a seven year period.
The work is not done when you’ve caught up on all of your outstanding invoices and expenses leading up to your small business year end. Your bookkeeper will continue helping you get a snapshot of the state of your business at the very end of your tax year so that when you turn your company books over to an accountant for review, adjustments and filing, they will have everything they need.
Please check back on November 24, 2014 when we’ll finish this three-part series with a look at what you should be doing in your business after your tax year has been filed.
Simply Bookkeeping1 provides professional bookkeeping services for freelancers, solopreneurs and owners of unincorporated and incorporated businesses. We customize our services based on your needs – we only see some of our clients a few hours a month but others we see on a more regular basis. Our services are reasonably priced and we tightly track the amount of time we spend working for you so you only pay for the services you get.
To learn more about us, please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org.
Have Your Say
If you’re getting ready to process your small businesses year end, we’d love to hear from you. Tell us what you’re wrestling with and lessons that you’ve learned through the process! Also, please share this article using the social media share buttons – chances are there are others out there wrestling with the same process!