Canadian Bookkeeping and Tax RatesThis is "The Rates" page. It has compliance tax rates that would be of interest to Canadian small business owners and work from home bookkeepers. Use this search feature to quickly find the information you're looking for.  Custom Search You can scroll down to find which rate you are looking for or click on one of the QUICK LINKS to go right to the spot. You may also be interested in "The Deadlines" page which discusses tax compliance filing deadlines by tax type. Notice to Site Visitor I developed this tax rates page as a handy reference for myself. While I do my best to ensure it is accurate and complete, I make it available for your use with the understanding that I cannot be held liable for errors and/or omissions. Tax information is subject to frequent change so professional advice should be sought prior to acting on any of this information. Please make yourself familiar with my site policies prior to relying on any of the information on this site. Quick Links to Tax Rates on this Page
 Canadian (CRA) Prescribed Interest Rates
Taxable Benefits refers to interest-free and low-interest loans for employees and shareholders There are very specific rules when a corporation loans money to its shareholders who own more than 10% of the shares and their family members. You need to be careful that money you remove from the company is not at risk to be taxable. If you and other family members own less than 10% of the corporation, your transactions are treated the same as if you were an employee. The Tax Guy from the Canadian Tax Resource website explains shareholder loans in his August 29, 2008 blog. I'll recap here.
Generally, when a loan is made by the corporation to a shareholder, a taxable benefit arises for the shareholder. The amount received must be included in the recipient's income in the year the money was received. When the loan is repaid, it can be deducted from income in the year of payment. However, there are exceptions to this rule. If the loan is repaid within the year following the corporation's year end, then the loan does not have to be included in income. The loan cannot be a series of small borrowings and repayments for this rule to apply. The Tax Guy refers to this as the one year rule. For example, let's say your corporation has a December 31 year-end, and you as a shareholder borrowed $15,000 in 2009 from the corporation. No taxable benefit will occur if you repay the loan by December 31, 2010. If the loan was related to normal business activity, it is not considered a shareholder loan provided there is in place actual repayment terms where interest is charged at standard rates. The terms must be met and maintained. The Tax Guy refers to this as the lenders rule. There must be a written agreement between the shareholder and the corporation. The agreement should state the amount of the loan and the time frame the shareholder will repay the loan. The shareholder should try to make actual payments with regards the loan and not journal entries. This makes it clear there was a financial obligation and it was being met. If the shareholder is also an employee (as most small business owners are), a loan can be advanced due to employment and it will not be considered income (it is tax free). It could be to purchase a principal residence, a vehicle to be used for business purposes or new shares in the corporation. As with the lenders rule, payments must be in place for repayment and maintained. The Tax Guy refers to this as the principle residence rule. Do not confuse these shareholder loans with loans you made to the corporation as an investment in the business. These rules only apply when the corporation lends the shareholder/employee money. As these are very specific rules with regards the loan transactions, you should contact a tax professional for advice specific to your situation. You may also want to read CRA's bulletins IT-421R2 and IT-119R4. The first bulletin discusses section 80.4(2) Benefits Arising by Virtue of Shareholdings. The second bulletin discusses subsection 15(2) Shareholder Debt and Certain Persons Connected With Shareholders (also discusses 15(1)). On September 25, 2009, The Vancouver Sun had a great article written by Jamie Golombek on how to income split by lending money to your spouse at the prescribed interest rate of 1%. This is where you can take advantage of an exception to the attribution rules. By loaning money to your spouse at the prescribed interest rate, with interest paid back annually by January 30 of the following year, any resulting gains or income will be taxed in the lower income spouse's hands and not attributed back to the higher income spouse. It is important to note that the interest income on the loan will be taxable on the higher income spouse's tax return while the lower income spouse may receive a tax deduction. Mr. Golombek points out that although prescribed interest rates are set quarterly, the rate in effect at the time the loan was extended remains in place for the duration of the loan. It is good practice to ensure you have a written loan agreement or promissory note stating the terms including amount, interest rate, term of the loan and repayment arrangements. The Ernst & Young February 2009 newsletter recommends that you have a separate bank account from your spouse to preserve the source of the investments and resulting gains / income. If you found the above information on shareholder loans, employee loans, and spousal loans useful, this article on Management Fees and Salaries for Incorporated Businesses of interest as well.
Looking for Tax Compliance Filing Deadlines and Due Dates? HST is the harmonized sales tax in effect in Newfoundland, Labrador, New Brunswick and Nova Scotia. The Ontario March 2009 budget brought in HST as well, with the RST being eliminated by July 1, 2010. In July, 2009, the Campbell government announced that BC will switch to HST effective July 1, 2010 too. HST transitional rules for BC and Ontario have been released by CRA, BC Ministry of Finance and the Ontario Ministry of Revenue. More information will be released over the coming months. If you are registered for GST, then you are automatically registered for HST.
The simplified GST/HST rate for purchases is calculated as follows:
You can find the correct Quick GST/HST rate in the CRA publication RC 4058 Quick Method of Accounting for GST/HST. Appendix A has a table of the rates. Appendix B has examples of how to the complete your return. The Quick method has two different groups - (1) businesses that purchase goods for resale and (2) businesses that provide services. Make sure you select the correct classification. Each group is further broken down into participating province or non-participating province.
If you own a business in Canada, you must register for GST and collect it if your annual sales is greater than $30,000. Registration under $30,000 in sales is optional. If you are starting up your business and your sales will be less than $30,000, you should still register. It allows you to recover your input tax credits (ITCs) on start-up costs and normal purchases. The question often arises, especially with online internet sales; what are the rules pertaining to GST / HST tax rates on out of province sales? Here's is my understanding. If you reside in an HST province (called participating province), and make a sale to a GST province (called a non-participating province), you would reduce the tax charged from the HST to the GST rate. However, if the out-of-province customer picked up the goods in your province, then you must charge the full HST rate. Either way it is tax neutral to you as you get to claim all relevant ITCs. And it's the opposite if you are a non-participating province (GST) and sell to a participating province (HST). You must charge the HST rate to out-of-province sales unless the customer physically picks up the goods in your province. New place of supply rules are proposed for intangible personal property and services, to be effective July 1, 2010. Current rules rely on the supplier's location. Proposed rules will place greater reliance on where the consumer is located. You can find more information in CRA's Technical Information Bulletins B-103 Place of Supply Rules under the HST which includes proposed HST place of supply rules for intangible personal property and services effective July 1, 2010, B-079 Self-Assessment of the HST on Supplies Brought Into a Participating Province, and B-080R Rebates of HST on Supplies Made From the Participating Provinces. You used to be able to find the following list at the Canada Business website. The rates were located in the Canada-Saskatchewan GST/HST service section ... about mid-way down the page. The site has since been revised and I can no longer locate the table. Here is a copy of the table as it was presented in 2009. 
What I really like about the table is that it includes the effective combined rates for PEI and Quebec as they charge PST on GST.You can find the current PST rates ... and the proposed PST rates for all provinces and territories at taxtips.ca>ps>pstrates The BC PST rate is currently 7% ... but BC will be switching from PST to HST in July 2010. The BC HST rate will be 12% ... not 13% like all the other HST provinces. GST/HST pertaining to virtual or electronic commerce (online internet sales) is discussed here, including non-resident tax rates.
Please note - The latest payroll information is posted on CRA News before it gets posted here. Most current payroll deductions tables available on CRA website. Most current Form TD1 Personal Tax Credits Return available on CRA website. The latest form should be used by bookkeepers for all new employees or revisions to existing employees. Click here for Payroll Tax Compliance Filing Deadlines and Due Dates. Click here for Proposed 2012 Changes to CPP.
EI rates will be frozen for 2010 under Canada's Economic Action Plan at 2008/09 rates which is 1.73%. At this rate, the fund will not break even. For 2011 and beyond, the rate will be set on a break-even basis. 2010 EI maximum insurable earnings are $43,200. The rate in 2009 was $42,300. 2010 EI maximum contribution is $747.36. The maximum amount in 2009 was $731.79. CPP rates for employers and employees have held steady at 4.95% since 2003 and will NOT be changing in 2010. The first $3,500 of earnings continue to be exempt. However, as with the EI rates, thresholds and maximums contributions normally increase each year. 2010 CPP maximum pensionable earnings are $47,200. The rate in 2009 was $46,300. 2010 CPP maximum contribution is $2,163.15. The maximum amount in 2009 was $2,118.60. Historical rates (1997 - 2010) for CPP and EI can be found on CRA's website under Business>Payroll>Calculating deductions>CPP>CPP contributions, maximums and exemptions ... and Business>Payroll>Calculating deductions>EI>EI premium rates and maximums respectively. If you are a sole proprietor, the employer portion of CPP contributions and EI premiums (often referred to as payroll taxes) paid for your employees are a tax deduction. They are reported on Line 9060 or Line 8340 of Form T2125 when you prepare your annual tax return. Don't confuse employee payroll taxes with the CPP premiums you pay on your self employment income. The amount you personally owe on your earnings will be calculated on Schedule 8.
CRA's publication T4130 Employers' Guide - Taxable Benefits and Allowances has a benefits chart on the last two pages which shows if you include GST/HST on the benefit/allowance and whether you are required to withhold CPP & EI, along with the T4 codes. Generally, cash allowances are NOT subject to GST/HST but non-cash benefits and cash reimbursements are subject to GST/HST ... unless they are exempt or zero rated. Check the benefits chart to be sure.
CRA released Income Tax Technical News No. 40 on June 11, 2009. There are some changes to employee taxable benefits.
Due to 2009 CRA court cases, CRA has changed its position on educational amounts paid to an employee's family member. Previously, these amounts were included on the employee's T4 slip as a taxable benefit. Retroactive to 2007, these amounts will now be included on a T4A made out to the employee's family member. This means the money will be treated as a scholarship with the possibility it will be tax free. Since 2006, scholarships are tax free if the student is eligible to claim the non-refundable education tax credit. Consideration should be given to amending the 2007 and 2008 T4 slips previously issued and issue T4A slips to the family member in their place. Go to the CRA website Businesses>Payroll>Benefits and Allowances>Education related benefits>Tuition fees, scholarships, bursaries for more information. The Ernst & Young November 2009 newsletter also has information and background on this tax change.
In this day and age of computers, sometimes it is hard to know and understand how a number is calculated. Have you ever wanted to figure out your CPP and EI deductions by hand? If you don't have a payroll program or service, and your payroll requirements are minimal, you can go to the CRA website and use their Payroll Deductions Online Calculator (PDOC). Here is how to calculate the employee and employer's portion for CPP and EI manually so you can spot check your payroll taxes for CPP contributions and EI premiums. Remember, this is the calculation for a single payroll run. If you are proofing your full year, omit the "divide by the number of pay periods in the year" part of the calculation. CPP contributions - The gross payroll less (the basic exemption of $3500 divided by the number of pay periods in the year) times the CPP contribution rate of 4.95% (2008 and 2009) equals the CPP premium (employee portion). The employer portion is equal to the employee contributions. Maximum pensionable earnings for 2009 are $46,300. Maximum contributions for 2009 is $2,118.60. EI premiums - The gross payroll times the EI premium rate of 1.73% (2008 and 2009) equals the EI premium (employee portion). The employer portion is 1.4 times the employee premiums. Note there is no basic exemption for EI premiums. Maximum insurable earnings for 2009 are $42,300. Maximum premiums for 2009 is $731.79. Now you can quickly verify that your payroll taxes were calculated at the proper tax rates. Employees who have over payments to EI and CPP in the year receive a refund when they file their annual personal tax return. Overpayments can happen if an employee has more than one job or retires during the year. The employer portion of the overpayment is not refundable. You will want to check the CRA payroll tables each year to determine the maximum pensionable / insurable earnings, the contribution/premium rates and maximum contributions / premiums. PIER stands for Pensionable and Insurable Earnings Review. It is a review CRA performs every year on T4 slips and T4 summaries submitted. They examine whether the correct tax rates were used in your payroll deductions, and if remittances and reporting were adequate. If you receive a PIER report (usually sometime during the summer), CRA has found a deficiency in your records for the year under review. The report comes with detailed instructions on how to proceed. As a small owner manager, when is it mandatory to pay CPP contributions and EI premiums to your employees? CPP is a mandatory deduction for anyone employed between the ages of 18 and 70. Everyone who is employed must contribute to EI. There are no age restrictions. Employees with earnings under $2,000 receive a 100% refund when they file their tax return. Those who earn over $2,000 may receive a partial refund calculated as follows: premiums paid - (earnings - $2,000) = refund. The above are general rules. There are a lot of exceptions. So now let's answer that question by looking at when CPP and EI does not have to paid by the employer. Some income is exempt from paying CPP contributions. See Employment NOT subject to CPP and Benefits and payments NOT subject to CPP for details. Some income is exempt from paying EI premiums. See Employment NOT subject to EI premiums and Benefits and payments NOT subject to EI for details. Jennifer Thieme, ezine author has an excellent article on How to Pay Employees with Cash. Just google it to find the article. Her method uses QuickBooks. The bonus to you? Her method protects your business while accommodating the employee. A short recap
Why is this necessary? It protects your business in the event of an employee dispute or a payroll audit. I would handle the payroll run a bit differently though than the article suggests. My choice would be to run these payroll cheques through a QuickBooks bank account type called "Payroll - Cash". This account would act as a clearing account. After each payroll disbursement, the account balance should be zero. Here's how it would work. Step One - Do a separate payroll run for cash. Enter your payroll data as usual applying the proper payroll tax rates. This will also create pay stubs for each employee. Print out your summary payroll report. Step Two - In your accounting software package, release the pay "cheques" issued in the employee's name. The memo field could mention that it was paid in cash. Each "cheque" would be coded to the Payroll-Cash account. Print out the pay stub for each employee. Step Three - On or about payday, write a cheque from your regular bank account issued in your name for the exact amount of the cash payroll run (calculated in step one), ensuring the memo area of the cheque is completed and stating the payroll period. The cheque would be coded to the Payroll-Cash account. Attach the payroll report as backup. Check Point on Account Balance - The payroll "cheques" offset the cash withdrawal from your bank. Your clearing account should now be zero if you did everything correctly. Step Four- Prepare a pay envelope that contains each employee's cash payment AND their pay stub (which you prepared in step two). Step Five - When you give the employee their pay envelope, have them sign for the pay either in a log (like at Canada Post when you pickup a registered letter/parcel) or on your copy of the pay stub. Have the employee open the envelope in front of you and count his/her pay. Check Point on Payroll Tax - I would like to emphasize that your payroll tax rates are the same as any employee paid by cheque or direct deposit. You would include and pay your payroll taxes on these cash payments in with your normal payroll source deduction remittance on form PD7A. Employee vs Independent Contractor? Make sure you are familiar with what constitutes an employee vs a self-employed independent contractor. Employee payroll tax rates and benefits are more costly to the employer, so it can be advantageous to hire an independent contractor instead of an employee. Over the years the courts have determined that four tests need to be met to determine employment status - (1) The Control Test, (2) The Integration Test, (3) The Economic Reality Test, and (4) The Specific Results Test. CRA has taken these tests and now monitors the following areas in making their determinations:
For more in-depth information and specific questions to ask, refer to the CRA publication RC4110 Employee or Self-Employed? If you are working in the U.S., refer to chapter two of the IRS Publication 15-A Employer's Supplemental Tax Guide. CCA (capital cost allowance) is the expensing of your capital expenditures over time for tax purposes. The accounting treatment (known as amortization or depreciation) is slightly different. The allowable CCA tax rates are found in the Income Tax Act Regulations 1100 Schedule II . It has classified different types of assets into classes. Each class of asset has a different CCA tax rate. So take care when you classify your assets. CRA does watch for this because if you pick the wrong classification and depreciate your assets too quickly, you would be deferring taxes. As a small business owner, the most common CCA classes, along with their tax rates, that you would probably be interested in are:
You can find more business CCA classes along with their tax rates in the CRA publication T4002 Business and Professional Income. Look in chapter 4 under CCA classes. Eileen Reppenhagen, CGA cautions bookkeepers to be aware that software is classified as operating software and systems software. As each type has a different CCA class, I think it's advantageous to track the two types separately in your books. To get a more thorough understanding of the complicated subject of CCA and how to apply the tax rates, visit CRA's website page at One of the articles discusses "Things You Should Know About CCA". This publication is a must read. The CRA publication covers:
Here is another one of the things you should know about CCA that is ... You don't have to make a full CCA claim on your tax return every year. If you are losing money, then it is better NOT to claim CCA in a particular year. Save the tax deduction for a future year. You can also take a partial deduction to bring your net business income to zero. A general rule when deferring your CCA claim is to defer your quickest depreciating assets first.
The simplified method can be used for trips relating to your selected 12 month period of medical expenses, moving expenses or northern residents deductions. With the simplified method, you do not need to keep receipts. The simplified meal rate is a flat rate - $17 per meal or $51 per day. To claim the simplified travel mileage, you must track the mileage of your trips and prorate it. Small businesses are not allowed to use the simplified method for their vehicle expenses at this time ... but I keep hoping soon. It would reduce paperwork! As a small business owner, you report your vehicle expenses on Form T2125 using the detailed method. This means you do have to keep all your receipts. Mileage rates for the 2010 tax year are not released until 2011. Here are the 2009 mileage rates that were released early in 2010.
If your employees use their personal vehicle for business purposes, these are the published tax rate deduction limits for the tax-exempt portion of allowances that CRA considers reasonable. Any amount paid over these rates is considered a taxable benefit that must be reported on the employee's T4 slip. Reimbursement of toll or ferry charges or supplementary business insurance is acceptable provided you did not calculate your allowance to include these reimbursements. The allowance should only be paid on the business kilometers and the employee should NOT be reimbursed for expenses related to operating the vehicle as this allowance is meant to cover those costs. It is recommended you have employees keep an auto log as proof of the number of kilometres driven for business use. As a sole proprietor, you are NOT eligible for a per kilometre allowance. You must use the detailed method. This allowance is for employees only. If you are incorporated and work in your business, you are an employee and eligible to use these rates ... but you also have another option. These tax rates are reviewed annually and announced each year-end.
Flat allowances paid that are not based on kilometres driven are fully taxable. If the auto expenses exceed the allowance, the difference may be deductible ... check with your accountant. CRA's publication T4130 Employers' Guide - Taxable Benefits and Allowances has a benefits chart which shows that you cannot include GST/HST on this allowance. These tax rates are for the "passenger vehicle category" and used on Form T2125 Page 5 in Charts B and C. They are reviewed and revised annually each December.
Need more information, read more here ... Historical Tax Rates - Maximum Class 10.1 Capital Cost Restrictions Jan 1, 2001 to present -- $30,000 plus taxes Source of Historical Rates: CCH publication 'Preparing Your Income Tax Returns' 810a  The Bookkeeper's Reference to Canadian Personal Tax Looking for personal tax information? Personal taxes is outside the theme of this website (except for pieces and parts that relate to your home based business) as its niche is bookkeeping for the work from home business owner. But ... ... personal tax planning is an important aspect of your overall financial plan that should not be ignored. Soooo ... I am introducing you to my favorite tax site. I found this site a few years back and I drop in on a regular basis. TaxTips.ca is an all Canadian reference site for easy to understand tax, financial and investing information. It also has terrific calculators. The one I like is the Canadian income tax calculator . You input a few key pieces of information and it estimates your taxes - all for free. Now that's easy tax planning! After every federal or provincial budget, the information is updated to reflect the changes. TaxTips.ca is owned by a small private company located in Cedar, B.C. The web content is prepared by a husband and wife team who are retired from owning and operating a small business, with one being a retired professional accountant. I just love this site ... and I hope you do too! Make tax planning part of your overall financial plan because you don't want to forget that ... Freedom is the Goal, Right?
Side Bar Chat - How to Figure Out Your Marginal Tax Rate In Canada we have a progressive tax system based on individual incomes not family incomes. A low rate is imposed on lower incomes and a high rate is imposed on higher incomes. Currently there are four different federal tax brackets. The federal government has their tax schedule and each province / territory has one as well. So it's tough to know what your combined marginal tax rate is, which is the highest rate at which your last dollar of income is taxed. If you are in the lowest tax bracket, your income is taxed just on one rate. If you are in the second to fourth tax bracket, you pay tax at different rates. Capital gains and dividend income attract different marginal tax rates than other income because of special tax rules. Only 50% of capital gains are included in taxable income while dividends are included in taxable income at 125% or 145% with an offsetting deduction from taxes payable. Have you ever wanted to calculate your marginal tax rate but don't know how? Well here's how to do it. Get your latest tax return filed with the CRA. Find the Schedule 1 Federal Tax and Your Provincial Tax Schedule in your tax return package. In BC, it's form BC428 British Columbia Tax. Each province has their own tax schedule. The form will start with two letters for your province / territory followed by 428. On page 2 of both schedules, you will see the four different tax rates imposed on various levels of incomes. Federally, they are 15%, 22%, 26%, and 29%. Provinces set their own rates. Take your taxable income reported on line 260 of your T1 return and pick the tax rate you paid tax on. If you are looking at your filed return, it should be easy to spot as you will see a completed calculation in one of the four columns. Add the federal rate from your Schedule 1 and the provincial rate from your provincial tax schedule to get your marginal tax rate. So if you had taxable income of $40,000 in the province of BC, your marginal tax rate would be 22% plus 7.7% = 29.7%. That means on your last dollar earned, you paid 30 cents in tax. Your marginal rate is the highest rate your income is taxed. But here's the thing. Your marginal tax rate is not your actual tax liability. To calculate that, you want your average tax rate. Your average tax rate will be lower than your marginal tax rate. The easiest way to calculate your average tax rate ... take your tax payable from line 435 of your T1 (page 4). Divide it by your taxable income on line 260 of your T1 (page 3). My favorite tax site has an average tax rate table for every province or territory at varying levels of employment income, showing average tax rates for each. You can also find marginal tax rates by following the links to your province or Canada. So why do you want to know these rates? Well, you can calculate what if scenarios (instead of letting the computer software do it for you). Suppose you couldn't decide whether to purchase a $1000 RRSP or donate $1000 to a charity. With the above information, we can figure out which gives you the most tax savings. Using the $40,000 taxable income again, here's how: (1) RRSP contribution of $1000 x marginal tax rate of 22% = tax savings of $220 plus future interest/dividends are sheltered. (2) Charitable contribution of $1000 ... 200 x 15% = $30 + ($1000-$200) x 29% = $232 = tax savings of $262 That's just one example of what you can do when you know your marginal tax rate. Canadian Controlled Private Corporation (CCPC) CCPCs are taxed favorably (interpret that as lower or at a reduced rate) on active income (excludes investment income) up to the small business threshold or limit ($500,000 federally for 2009/2010, $400,000 federally for 2008). This rate reduction is called the small business deduction. This amount is eligible for an 11% tax rate (11% in 2009/2008) instead of the general 18% tax rate (19% in 2009, 19.5% in 2008). If your CCPC is part of a group of companies, the small business deduction is shared within the group. Find 2009 CCPC tax rates and business limits for all provinces and territories by clicking here . Clicking on the link will open a separate window that takes you to my favorite tax site. Remember to come back here when you've found what you needed. CCPCs also receive a break on their filing deadline if they don't have investment income. If your company has shareholder loans, be aware of the very specific rules that apply when a corporation loans money to its shareholders who own more than 10% of the shares and their family members. You may also want to make sure you meet CRA criteria before you take any management fees or bonuses ... to ensure there are no negative tax consequences. If your BC corporation has employees (even if it is just you) you must report the salaries / wages to WCB and pay assessment premiums as per section 38 and 39 of the WC Act. You are exempt from registering with WCB if your corporation is classified as a personal financial holding company whose activities and income are passive. They criteria includes:
Remember, even if you don't owe taxes or your company is inactive, you still have to (as in must, are still required to) file your corporate tax return. You operate a business as a sole proprietor or a partnership. Is it the right time to incorporate your business? I attended an IPBC (Institute of Professional Bookkeepers of Canada) webinar in 2009 by Debi Peverill CA from SBR Communications ... where the topic of when to incorporate was discussed. This is a very brief summary of what I took away from the hour long webinar. This chat gives YOU talking points to discuss with your accountant ... because incorporation isn't right for every business. You should only consider incorporation if:
The disadvantages of incorporating:
My conclusion after attending the IPBC webinar - if the owner is withdrawing all profits instead of leaving them in the company, there is little advantage or reason to incorporate. Find additional information on CCPCs at Compliance Notes on CCPCs on The Deadlines page.
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