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When it comes time to file your annual tax return with the CRA, you’ll notice there are lots of similarities between personal tax returns and business tax returns. However, comparing the two by the same scale will give you a good idea of how different the two really are. We’re going to do just that below.
For most Toronto residents, the T1 General or a variation of it remains the standard tax form for personal tax returns. Detailed guidelines can be found on the Canada Revenue Agency’s website. When you open a business, it opens a host of new and unique tax forms to choose from.
There are also tax forms for payroll taxes, territory and province taxes, and good and services taxes.
Not all personal and business tax rates are the same. For example, if you are a sole proprietor, you have a personal tax rate for any self-employment income you earn. This can start at 15% and go up to as much as 33%.
If you work for an employer and get a paycheck every week or every other week, they take taxes out. Employers withhold federal and Ontario taxes, including contributions to the Canadian Pension Plan. At tax time, you simply report your earnings and the taxes withheld. Come tax time, all you do is report your earnings and the amount of taxes they withheld.
If you have a business that is a corporate entity, you might get a special income tax rate reserved for formally established corporations. These rates vary as well. However, the more money your business generates for you, the higher tax bracket you enter.
Tax rates for corporations vary from 15% to 33%. Many provinces or territories also require corporations to pay a corporate income tax too.
It’s difficult to claim write-offs on your personal income tax return.
Businesses in Toronto can deduct a variety of expenses, including home office deductions and vehicle use for business purposes, according to Ontario-specific guidelines available on the CRA’s website.
If you work out of your home and you have a dedicated home office that you use for nothing else, you could claim it as a home office deduction. If you drive your own car between worksites and on business trips, you could claim a vehicle deduction. Business startup costs up to $5,000 are deductible and you can also claim 50% of your business-related entertainment, meals, and medical expenses.
