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Let’s Talk Taxes. A Tax Primer Covering Income Tax, Property Tax, GST Goods and Service Taxes

Let’s talk taxes! Regardless of what jurisdiction in the world you’re located in, governments typically use three bases of taxation. The first one is income and that’s what most of us are familiar with. So you work a job and you have to pay income tax associated with what you’re earning. Most of us have a lot of familiarity associated with that as being an employee. But the exact same concept happens as a business where your corporation is paying taxes on its business income as well.

The other is a property tax base. And similarly if you’re a homeowner, you’re probably familiar with having to pay property taxes more often to a municipal government but that is where the value of the property will have a certain tax, where a tax rate will be applied to whatever value is associated with the property.

And then the third broad category is goods and services. So you buy something for ten dollars and there’s a certain sales tax percentage that gets collected along the way for each and every single one of them. So if you’re a small business owner, what that means is that you’ve actually become a partner with the government in helping them to collect their taxes. Congratulations, you didn’t even know it but that is in fact what you have you have to deal with! So anything that you are selling, you are also going to have to collect that goods and services that GST or that sales tax on behalf of the government. Because the government is not going to have a tax agent there sitting right beside you with every single transaction. So as a business owner, it becomes your responsibility to tax your customers, to keep that tax in its own special category, and to send that money that you collected from your customers with the GST, the service, the sales tax and send that over to the government. So good job, you kind of become a tax collector without even knowing it!

As a business owner, property tax is probably the most intuitive of the three categories because if you are owning a property or leasing a property, there is in some likelihood and a factor associated with whatever the taxes are. Whether the landlord has you directly paying them or not, the property taxes will be one of the tax bases included. And then we come to income taxes. And you can almost think of the income taxes as having like two sub-bullets down below it. So one, your business itself is going to have to pay business taxes. But you also may have certain obligations if you have employees, to actually be deducting taxes from whatever salary or hourly reach that you are paying them. In Canada, what that can look like is a combination of federal and provincial taxes that you are going to deduct for that employee plus as an employer you’re going to have responsibilities to be deducting what we call, CPP and EI. So these are specific government programs. As soon as you bring an employee on board, you have obligations to be kind of the “collector”. So just like on the GST example, where you were kind of inherited a partnership role with the government as tax collector, you essentially inherited that role with your employees as well. Where what you need to be doing is from every pay check you’re issuing to them, saving a little bit to go to the provincial government, a little to the federal, and a little bit to some other social programs like CPP and EI. In other parts of the world, it’ll be different types of programs but essentially the concept of having the business owner be the one responsible for collecting, remitting, which remember remitting is just a fancy way of saying you take it off of that employee, you’re the middleman in the transaction, you take it off of the employee’s pay check and you submit it to the government. That money was never yours in any way, shape or form. You’re just an unpaid partner and it’s kind of the reality of taxes in any jurisdiction in any pretty much any country in the world that has a tax space.

Now as I mentioned under the income area, we talked a little bit about your obligations as a business owner to be the the collector and remit for your employees. But you also have certain obligations yourself as the business owner for any income associated on your own company’s profit that you will actually have to submit to government bodies as well. I think what’s important to remember with taxes is the idea that the taxes are always based on historic. So this is always going to be things that happened in the past. The government is not going to be so interested in what you are projecting to have happen into the future. It’s going to be focused on what happened in the past. So you’ll have very significant compliance requirements associated with making sure you can check the box on all of these different tax spaces. And depending on the complexity of your situation it may make sense for you to to do it yourself, it t may make sense for you to engage a specialist to be able to help you with it.

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