Tuesday, September 6, 2011

How to Pay Yourself Dividends: Completing the T5 Slip and Summary

If after careful contemplation you have decided that it makes more sense to pay yourself via dividends instead of a salary, you will need to ensure that you prepare the proper documentation for Revenue Canada (CRA) and if you live in Quebec, Revenue Quebec.  These are discussed below:

Note: This assumes that you are paying income taxes at the small business tax rate i.e. your net profits for tax purposes are less than $500,000.  These are referred to as "dividends other than eligible dividends".

T5 Slip
You have to fill out both a T5 slip and complete the following boxes
  • the actual amount of dividends on Box 10 of the slip
  • the grossed up amount of dividends on Box 11 = amount of Box 20 X 1.25
  • the dividend tax credit on Box 12 = 13.33% X Box 11
For example if you pay yourself a dividend of $20,000 you would:
Enter $20,000 on Box 10
Enter $25,000 on Box 11
Enter $3,332.50 on Box 12.

You will also need to enter the 
  • year, 
  • payer's name and address
  • recipient's name and address
  • Report code – The code in this box indicates that this slip is the original ("O"), an amended ("A"), or a cancelled slip ("C"). 
  • Recipient type – The code in this box indicates if the amount was paid to an individual ("1"), a joint account ("2"), a corporation ("3"), an association, trust, club, or partnership ("4"), or a government ("5")
  • Recipient identification number – If you are an individual (other than a trust),the number in this box is your social insurance number. In all other cases, the number is your 9 characters Business Number.

The summary is fairly straightforward and is basically an aggregation of all the dividend slips.  After entering the name, business number, address etc of the corporation you need to indicate:
  • how many slips were filed
  • add up the amounts per the boxes and indicate them on the appropriate line
Other Notes:
  • Payment of dividends should be recorded in the corporation minutes
  • The CRA has fillable dividend forms i.e. the appropriate fields can be entered online and then printed out.
  • Once completed the T5 slips and T5 summary should be mailed to the address indicated on Page 2 of the summary.
  • Another copy should be kept for your records.
  • A third copy should be given to the recipient(s) of the dividends to maintain with their tax return.
  • The deadline for completion is February 28th of the calendar year in which the dividend was paid.
As always it is good to get the advice of an accountant before filling out and filing the slips and forms.

Thursday, September 1, 2011

How to Register for GST, QST, Payroll Deductions and Corporate Income Tax in Quebec

Whether you are an individual, partnership or corporation you are required to use form LM-1-V to register for:

  • Payroll Deductions at Source
  • Corporation Income Tax

Registration is not required for unincorporated entities who are not required to charge GST & QST and do not have employees.
All corporations are required to fill out the form so as to obtain a Corporate income tax identification number since all corporations must file corporate tax returns whether or not they have any business activity.

Revenu Québec - LM-1-V - Application for Registration

When is an Automobile Allowance Not a Taxable Benefit to Employees

Revenue Canada allows for what it deems to be a reasonable reimbursement of car usage for business purposes.  For 2011, this amount is $0.52 for the first $5,000 kms driven for business and $0.46 for each kilometre after that. These amounts will not be reflected as a taxable benefit to the employee. Note that travel from home to your place of business is considered to be personal and cannot be included in the calculation.

It is advisable to keep a log of kms driven for each business related journey that includes the following information:

  • Date of Travel
  • Name of Client
  • Address of Client
  • # of Kilometres Driven  

Also note that no further reimbursement of operating expenses is permitted as the allowance rates ($0.52 etc) already reflect these costs.

Further Guidance can be found at the CRA website under Reasonable per-kilometre allowance

QPP Rates and Maximum Retirement Pension for 2011

The Quebec Pension Plan amounts are calcuated at 4.95% of gross earnings up to a maximum of $48,300. This means that if you are an employee, the maximum QPP you will pay in 2011 ius $2,217.60.
If you are self employed, you are required both the employee and employer portion, which is exactly the same as the employee portion. As such, the rate is 9.90% of your net self employed income up to a maximum of $4,435.20. The table is provided below:

Source: Revenue Quebec

Thursday, August 25, 2011

3 Reasons Why You are Getting A GST/HST or QST Refund

When filing your GST/HST and QST returns you might find that you have a refund.  This could be a recurring situation or could happen infrequently.  Some reasons why this might happen:

  1. Expenses exceed sales:.  Businesses in the beginning stages often have more expenses than actual sales.
  2. Sales are Zero Rated: There are several reasons why you may not have to charge sales taxes on your sales, most notably if you are selling internationally.  In this case, while you have not collected any GST/HST or QST, you are still able to claim the sales taxes paid on expenses.
  3. Large purchases: You might have made a large, business related purchase eg. machinery, furniture, computers etc. which you are may claim on your sales tax returns.
  4. QST Refund Only: If your business is resident in Quebec, but sells to other provinces, you are not required to charge QST.  However you are still making taxable purchases in Quebec.  In this case QST paid might exceed QST collected.

GST/HST Reporting Frequency Threshold

GST/HST registrants must select their reporting frequency based on their estimated taxable sales as follows:
(Source: CRA Election for Reporting Period Form)

Wednesday, August 24, 2011

Change in GST-QST Reporting Frequency

There are several reasons you may want to change your GST-QST reporting period including:
  • increase in sales may require that you change your reporting period
  • you may want to manage cash flow better by reporting more frequently
  • business activity may have dimished requiring less reporting
  • reduce administration
Note that you can only change the reporting period at the beginning of your fiscal year as the reporting periods must correspond with your fiscal year.  With a couple of exceptions, the forms below are due two months after the end of your fiscal year.

If you are registered for GST-HST, you will have to fill out the Election for GST/HST reporting period
If you are registered for GST-QST, you will have to fill out the FP-620-V Election Respecting the GST/QST reporting period