Q.How do I report my business income and which income tax forms do I need?

The way in which the income tax return you need to report your business income varies from the form of business you opt for. If you have a sole-proprietorship or partnership firm, you need to complete the FORM T2125, which replaces the old T2124 (Statement of Business Activities) and Form T2032 (Statement of Professional Activities) on your T1 income tax to report your business income. If you operate more than one business please note that you will have to fill out a separate FORM T2125 for each business. In case if your business is incorporated, a T2 income tax return (the corporate income tax return) will be used to report your business income and you will file for personal income tax return(T1) separately.

Q.My business is a partnership. What income tax form do I need to fill out?

Basically all you have to do is to calculate the business income for all the partners,then the business expenses for all partners,claim for any expenses that the business did not reimburse you for and any deductible business expenses and complete the “Details of Other Partners” chart. Then as a partner you will be required to report your business income by completing Form T2125 (Statement of Business or Professional Activities).

However, if during the year of operation the business has had 6 or more partners, you will also be required to complete a PIR (Partnership Information Return). In such a situation, you will normally have a T5013 slip (Statement of Partnership Income) and then the appropriate sections of Form T2125 will be filled accordingly.

Q. I have a job as well as a part-time business. How do I report this?

Assuming that you don’t have an incorporated part-time business, you will report your business income by completing the T1 income tax return package which includes Form T2125 which replaces the old T2124 (Statement of Business Activities) and Form T2032 (Statement of Professional Activities).

It also include lines for the deduction of your business’s appropriate expenses. The income you earn from your job will be reported as usual on the first page in the appropriate lines of the T1 tax return (from the information on the T4 slip which is given to you by your employer). However your total income will be the sum of your business income and income from your job.

Q.I make a few bucks from my hobby. Do I have to declare this income?

According to the Canada Revenue Agency “a business is any activity that you do for profit”. The defination further says that a business includes a profession, a manufacture, a trade, an adventure or concern in the way of trade and an undertaking of such kind. If you are selling any product or service that’s definitely an activity for generating profit.

The authorities doesn’t care for the amount of products you sell or even that you take the particular activity as your hobby, they will consider it as your business so whatever money you make from your hobby will be seen as your business revenue.

In this situation you will have to report the income you earn from your hobby by completing Form T2125(Statement of Business or Professional Activities) included with the T1 income tax package.

Q.How long do I have to keep my business records?

You need to keep your business records for six years for the taxation purposes. It is stated by the Canada Revenue Agency that "if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate".

If you have filed a tax appeal or objection the Agency also cautions that you keep your records until the problem or issue is resolved, and until the time limit has expired for filling any further objection or appeal(which means keeping records for a specific accounting period longer than 6 years).

Please note that you need a written permission from the director of your tax services officer if you want to discard your business records before the minimum period i.e. 6 years is over.for this purpose the T137 (Request For Destruction of Books and Records) is used.

Q.How is an Internet business taxed?

The Canada Custom Agency collects the income tax based on the form of the business not on the way the business operates (not merely income tax, this rule applies on all the other taxes. Likely other business an internet business also has to register for taxes like GST and PST if applicable). Now if your internet business is a sole proprietorship you will report your business income like all other sole proprietor businesses i.e complete the Form T2124 (Statement of Business Activities) or Form T2032 (Statement of Professional Activities).

Q.My business made no money this year. Can I still claim business expenses?

Being a sole proprietor or partner if you are using the T1 form to file your income tax, you will be listing different business expenses while filling out the Form T2125 (Statement of Business or Professional Activities). You will record a business loss on the form if your business income is less than your business expenses. Now will you be able to use this loss to claim your expenses depends upon whether you have another source of income or not. If you have another source then you may wish to use the income by taking it from this business (the non-capital business loss) to compensate your other income which will end up claiming the business expenses.

Q.Can I claim business expenses that I no longer have receipts for?

No you can’t because you must have support of original documents for all the claimed expenses of the business on your income tax return, such as receipts. The Canada Revenue Agency may decide to reduce the amount of deducted expenses if you don’t have an “evidence” on receipts for all claimed business expenses. The auditing process would be made more complicated and difficult if your business expenses claimed don’t have the support of receipts.

A certain number of income tax and GST/HST accounts are being regularly audited each year by the Canada Revenue Agency to maintain a quality check on the tax system and to monitor its performance or reliability. You will surely want all your accounts in order if your business is choosen for auditing. Besides for auditing purposes, it is a mandatory requirement for the operation of a successful business to keep all the business records up-to-dated, complete and accurate.

Q.Can I Start a Small Business in Canada When I'm Not Living in Canada?

Yes it is possible for a nonresident to start a business in Canada but there are a few requirements to be fullfiled. Are you a Canadian,firstly? If yes then all you should have is a Canadian address (a real address, not a post office box). If you have one yourself or have established a Canadian address and are a Canadian citizen then you can get registered for your new business in the same province where the address is located in and get started as a sole proprietor. But if you don’t have your personal address then you can form a partnership with a Canadian resident and use his/her address for starting your new business.

Q.How do I find small business start up money?

There are 3 most popular sources of getting the start up money for small business. First is mostly people start looking into your own pockets, even if they have plans to take small business loans, but almost every financial lender expects some personal financial contribution such as interest from the borrower.

But if the persons own pockets are empty then the second most popular option is taken which help from friends and/or family.This sort of financing mostly takes the shape of personal loans. And the third mostly popular source are the financial institutions such as credit unions,banks etc.to gain finances from this area you will need certain things like a good credit rating, a solid and practical business plan, skills, expertises and collateral.