The end of April is almost upon us and for those living in Canada, that means the tax filing deadline looms ahead. Traditionally, the due date is April 30 of each year, but because that date falls on a Saturday in 2022, Canadian tax filers actually have until Monday, May 2 to have their taxes filed – or at least a postmark. There is an exception for the self-employed, who have between now and June 15 to get their returns filed. Last year, the Canadian Revenue Agency (CRA) received and processed over 30 million returns and benefits.
With this annual deadline squarely ahead, FranNet of Canada thought it might be helpful to blog about tax and financial reporting requirements for franchise owners – sort of a refresher course, if you will. Off we go…
Multi-Tiered Tax Code
In Canada, there are corporate taxes, payroll taxes, the goods and services tax (GST), and the harmonized sales tax (HST). For corporations, each year they’re required to file a return which includes the calculated sum for all applicable federal and provincial taxes.
Tax Liabilities for Franchisees
Canadian franchisees are subject to income tax on their net income total. General corporate tax rates range anywhere from 26% to 31%, depending on the province. However, Canadian residents that own and operate a private corporation may be eligible for a lowered ‘small business’ tax rate, which ranges from 10% to 18%, on a portion of their net income.
The amount of the initial franchise fee that franchise owners pay in exchange for a license to do business is considered a depreciation for Canadian tax purposes, on a straight-line basis, and for the life of the franchise. If operating in a participating province, all franchisees are also required to register, collect, and remit GST/HST in accordance with their corporate tax calculations. In Quebec, this is the QST, and British Columbia, Saskatchewan, and Manitoba may require a provincial sales tax (PST). If the franchisor (brand) is a non-resident who collects fees from a Canadian franchisee, there is also a withholding tax obligation.
Keeping Payroll Taxes Current
Any franchise owner with employees is required to keep current on payroll taxes, by registering and remitting a portion of the withheld amount to the CRA. Periodic payments must be made on a regular basis on the amount owed. And upon the completion of each calendar year, each employee’s total income and deductions are reported via T4 slips.
As a franchise owner in Canada, it is your responsibility to provide requested financial information, upon request, for lending institutions, investors, franchisors (brand), and the CRA. To ensure full compliance with all CRA regulations, it’s highly advisable to seek the services of a chartered professional accountant (CPA) to guide and certify all your financial statements and file your annual federal/provincial tax return.
If you’re ready to begin your entrepreneurial journey, FranNet of Canada can help you get started. With consultants serving every Canadian province, there’s a representative near you, who also lives and works in your area. To find your local province consultant, simply follow this link and select “Canada” on the FranNet Franchise Consultant Directory page of our website.