Filing your first income tax return as a business in Canada this year? If your business is a sole proprietorship or partnership, you'll file a T1 business income tax form—the same income tax return you use to file your personal income taxes. (If your business is a corporation, you have to file a T2, or corporate income tax return.)
You will declare all of your income using this one form, whether it is income from having a job and a business or income from one or several businesses.
Organize Your Paperwork
Prepare yourself by gathering your necessary papers and arranging everything you need around the computer if you are using income tax-preparation software. You will need:
- Your business tax-ID number
- Your social insurance number
- A copy of the Canada Revenue Agency’s (CRA's) "Business and Professional Income Guide"
- Your business records, showing your annual totals for sales, cost of goods sold, and business expenses
Register for "My Account"
If you haven't already, registering with the CRA's "My Account" online service has many advantages. It lets you manage your tax information and view payment history and assessments, as well as receive email notifications.
Entering Your Tax Information
- Fill out the "Personal Identification" section (the first section) of the T1 income tax form just as you would for your personal income tax. One of the great things about tax-preparation software is the ability to carry over information from the previous year. If none of this information has changed, the software can fill it in automatically from the previous year's return.
- The first step to figuring out your total income is to calculate your business income. To do this, you will need to fill out a T2125: Statement of Business or Professional Activities form. If you have more than one business, you'll need to fill out a separate T2125 form for each.
- Fill out the "Business Identification" section of the T2125 form. If you haven't done this previously, you will need to know the 6-digit Industry Classification Code for your business.
- Use your business records to complete the Income and Expenses parts of the Statement of Business or Professional Activities income tax form.
- If your business is a partnership, you will see sections on the form for filling in details of partners and for claiming "Other amounts deductible from your share of net partnership income."
Entering Business Expenses
Most tax-preparation software will walk you through the steps of identifying business expenses, but there are some common expenses to consider when filling out the form:
- Are you claiming motor vehicle expenses? The form contains charts to help you calculate your “motor vehicle expenses," “available interest expenses for passenger vehicles,” and “eligible leasing costs."
- Are you making a capital cost allowance claim as part of your business expenses? There are sections on the form to help you calculate your allowable claim. Capital cost allowance is covered in depth in Chapter 4 of the CRA's "Business and Professional Income Guide."
- Did you operate a home-based business this past tax year? If you did, you’ll want to work through the section of the form titled “Calculation of business-use-of-home expenses."
Entering Total Income
Go back to the "Total Income" section on the first page of your T1 income tax return. You will see a subsection titled “Self employment income." Enter your gross and net business, professional, or commission income on the appropriate line.
Enter all your other income on the appropriate lines. If you have a job as well as a business, for instance, you will be entering your employment income from your T4 slips on line 101. Once you’ve finished working through this section, you’ll have calculated your Total Income—including your business income.
Continue filling out the rest of the T1 income tax form just as you normally would.
There! You’re done with your first business income tax return. All you need to do now is double-check it and then file it. If you are using tax preparation software it can automatically NetFile your return.