Quebec business taxation is complex and many special cases are made depending on areas of activity (manufacturing, mining, telecommunications, operation of electrical energy networks ...).
Nevertheless, some central aspects of corporate taxation should be understood to gain a clearer picture, as well as adapt to the constant changes in the Quebec tax system.
Here are 5 points to help you understand Quebec business taxation.
1. The general tax rate for Québec businesses
The general tax rate for an SME only applies to your business profits. It is not always easy to calculate because SMEs are subject to both federal and provincial tax. That's why a corporate tax specialist is often a big help when it comes to declaring your company taxes.
The federal tax rate
For Canada as a whole, the basic business tax rate is 38%, then 28% after the federal tax abatement and 15% after the general tax reduction in Quebec. For SMEs, there is a rate deduction (DPE) which changes the rate to 10.5%, depending on the company’s income and the sector it relies upon.
Recently, Ottawa announced a 9% drop in the rate by 2019.
The provincial tax rate
When it comes to the general tax rate of SMEs at the provincial level, it sits around 8%. Depending on a company's annual revenue, its area of activity, or the number of employees it hires, this tax may vary. This is why it is important to know more about the specific tax rate assigned to your business.
2. The small business deduction
The DPE (small business deduction) is a tax deduction applied to the general tax rate. It is very advantageous for any SME that has access to it, but certain criteria must nevertheless be met in order to qualify.
To qualify for the DPE, one must be a Canadian-owned private enterprise, that is, not be managed by a non-resident or by public corporations. The DPE only applies to the annual income of an active company.
3. Late penalties
The consequences of a delay due to a payment deadline or an unfulfilled tax return can have very serious and even devastating consequences for a company.
Delays incur heavy penalties with a very high interest rates. These rates are even doubled since late penalties must be paid on both provincial and federal taxes.
As an example, the penalty for a delay is set at 5% of the amount of taxes payable. Any delay in payment or oversight leads to a loss of the tax benefits enjoyed by the company. It is therefore important to report and pay taxes on time.
4. Business taxation: when should you file your return?
To avoid any penalties due to a late tax payment, companies must make their declaration within six months before the end of the fiscal year. This involves completing the T2 corporate tax return and sending it by mail or online.
To pay taxes, businesses must do so two months before the end of the tax year.
5. Tax documents to conserve
It is important to properly store your tax documents. The Income Tax Act even requires that these documents be kept for a period of six years.
Records and supporting documents that specify the profits or sums paid by a company must be carefully conserved in digital form or in books or documents.
Simple rules to understand Quebec business taxation
For any entrepreneur, it is necessary to understand some basic rules concerning Quebec business taxation. These allow you to quickly find out if your company is eligible for tax deductions and avoid late penalties that could harm your company.
For any information request or if you need to hire a tax specialist to help declare your taxes, don’t hesitate to contact us. It will be our pleasure to assist you.