Income tax and other taxes

Do you want to start a business and understand the steps you must take to fulfil your tax obligations? Whether you are interested in self-employment or starting or reactivating a business, you will find in this section all the information you need to bring your project to reality.

When you do business in Québec, two taxes must be applied on sales :

  • GST (goods and services tax)

  • QST (Québec sales tax)

Under an agreement concluded between the government of Canada and the government of Québec, Revenu Québec administers the GST in Québec. Therefore, Revenu Québec receives and processes applications for registration for GST for all entities with commercial activities within its jurisdiction.

The GST and QST are taxes applicable to most goods and services that a business sells or offers. The GST is calculated at the rate of 5% on the sale price. The QST is calculated at the rate of 9.975% on the sale price.

Example: for a purchase of $100

Cost of the good or service: $100

GST 5% ($100 x 5%) = $5

QST 9.975% ($100 x 9.975%) = $9.98

Total paid by the consumer: $114.98

$100 + $5 (GST 5%) + $9.98 (QST 9.975%) = $114.98

 

Registering for the GST and QST

It is not obligatory to register for the GST and QST to create a business. Indeed, it is only when you generate revenues of more than $30,000 (before taxes) over four consecutive quarters that you have to register. Analyze your budgeted financial statements before making your decision.

Merchants that make taxable sales must generally collect these taxes. They then become agents of Revenu Québec. In this capacity, they must register under the GST and QST systems on the Revenu Québec website. On that website you will also find information on how to collect, calculate, and remit the taxes, how to apply the two taxes to various transactions, expenditures related to meals and entertainment, sales to diplomats or governments, and applications for tax reimbursements.

Register under the GST and QST systems

According to Revenu Québec, from the fiscal point of view, a self-employed worker is a person who, under a verbal or written agreement, commits to another person, his or her client, to perform material work or supply a service for a price that the client commits to pay him or her. Self-employed workers may also own a business or be commission salespeople.

Here are some criteria to help you distinguish between a self-employed worker and an employee :

  • There is no connection of subordination between self-employed workers and their clients;

  • There is no employer-employee relationship, as is the case for employees;

  • Self-employed workers usually pay their own expenses;

  • They assume the financial risks inherent to their work;

  • They supply their own materials, although they are not required to perform the work themselves;

  • They may have employees or call upon other self-employed workers.

 

Rights and obligations of self-employed workers

Income earned by self-employed workers and by partners in a partnership (e.g., a limited partnership) is assessed in their personal income tax return as taxpayers. This is the inverse of revenues of a corporation or company, for which revenues are taxed in a tax return that is different from those of its shareholders.

Example: for the year 2013, a self-employed worker must produce his tax return before June 15 2014 and pay his taxes before April 30, 2014.

 

Tax deductions for self-employed workers

Self-employed workers may deduct from their personal income tax return all expenses incurred in relation to their business activities. These expenses must be supported by documentation, including invoices and contracts.

Fill out your tax return effectively

An incorporated business is an entity distinct from its owners.

 

Rights and obligations of incorporated businesses

After a business is incorporated and following one fiscal year-end, the business must produce a tax return distinct from that of its shareholders. The year-end date for the incorporated business may be chosen during the first fiscal year. The first fiscal year may be less than 12 months long. Once the date of the fiscal year-end for the incorporated business has been decided, it is almost impossible to change that date. There, the choice must be made wisely.

An incorporated business has six months to produce its taxes after the year-end that has been chosen. It is important to know that a company has three months, in the federal system, to pay its taxes to the Canada Revenue Agency if it is a private company under Canadian control, and two months to pay its taxes to Revenu Québec. If the business does not pay its taxes by the deadline, it will have to pay interest.

 

Basic tax deductions for an incorporated business

An incorporated business may deduct expenditures made in connection with the performance of its activities. These expenditures must be reasonable and supported by documentation that must be kept for at least 6 years, including for the current year.