provincial tax

As an entrepreneur, paying your taxes can be intimidating. The instructions may seem complicated, and if you make a mistake you could face penalties, interest charges, or an audit. But it’s important for business owners to understand the different provincial tax rates where they live. We’re going to go over what you need to know about sales tax, corporate tax, and personal income tax in B.C. in an easy-to-understand way. This should help you manage your taxes in B.C. with confidence, take full advantage of tax credits, and remove some of the stress from tax time. Sales tax in B.C. If you sell taxable goods or services in B.C., you need to collect the Provincial Sales Tax (PST) when you make a sale. The sales tax in B.C. is 7 per cent. There are a few products, such as liquor, that are taxed at different rates, but other than those exceptions, the rate is the same for all sales. To learn more about how sales tax works in each province, read this Small Business Guide to Canadian Sales Tax Rates. Does your business need to collect PST in British Columbia? As a simple guideline: if your business sells goods in B.C., you most likely need to charge PST. On the other hand, if you’re selling a service, it’s probably exempt. With that being said, there are a few important exceptions to that rule. For example, legal services and “services to goods” such as computer repair and vehicle maintenance are taxable. To help you figure out which sales you’ll need to collect tax on, here are some examples of what’s taxable and what’s exempt from sales taxes in B.C. Taxable goods and services in B.C. Some of the goods and services PST applies to: The purchase or lease of new and used goods in B.C.Goods brought, sent, or delivered into B.C. for use in B.C.The purchase of:SoftwareServices to goods such as vehicle maintenance, furniture assembly, computer repairAccommodationLegal servicesTelecommunication services, including internet services and certain digital and electronic media content such as music and movies Tax-exempt goods and services Here are some goods and services that are exempt from sales taxes in B.C.: Professional services (other than legal services)Sales and rentals of real propertyTransportation fares (e.g. bus, train, ferry, airline)Food for human consumption (e.g. basic groceries and prepared food such as restaurant meals)Books, newspapers and magazinesChildren-sized clothingBicyclesPrescription medications and household medical aids such as cough syrup and pain medications Register to collect PST in British Columbia If your business provides taxable goods or services, and you haven’t already done so, you’ll need to register to collect PST. The easiest way to do that is through the eTaxBC online service, where you’ll need to provide some basic details about your business. Once you’re registered, you can also use eTaxBC to file and pay the PST you collect. Corporate taxes in B.C. If your business is a corporation rather than a sole proprietorship, you’ll need to pay corporate tax. In some ways, corporate taxes in B.C. are simpler to understand than personal income tax. For example, as opposed to having many different tax brackets, provinces and territories generally tax corporations at just two different rates. There’s a lower rate for small businesses with income up to a certain threshold, and a higher rate that applies to all other income. In B.C., the lower rate is 2 per cent, and the higher rate is 12 per cent. The current threshold for the lower rate in B.C. is an income of $500,000. That means business income up to $500,000 is taxed at 2 per cent, and income above that amount is charged at 12 per cent. Example tax calculation For example, a company that made $650,000 in 2020 would pay the following corporate tax: $500,000 taxed at 2% 10,000 $150,000 taxed at 12% 18,000 Total $28,000 How to pay corporate taxes in B.C. To file and pay corporate taxes, you’ll need to fill out a T2 Corporation Income Tax Return and provide it to the CRA. One way is to file online, and corporations with revenues over $1 million are typically required to do so. If you prefer to file by paper, businesses located in B.C. can send their returns to: Prince Edward Island Tax Centre 275 Pope Road Summerside PE C1N 6A2 Corporate tax credits in British Columbia There is a range of corporate income tax credits in B.C. Your business may qualify for those credits if it’s involved in particular industries and activities. Some examples include: Book Publishing Tax Credit You may be eligible if your business has a permanent establishment in B.C., and book publishing is your main business. Interactive Digital Media Tax Credit You may be eligible if your business develops interactive digital media products in B.C. That includes products such as educational software, simulators, and videogames. Film and Television Tax Credit You may be eligible if your business makes film or television productions in B.C. The productions have to involve a certain amount of Canadian content. This tax credit program consists of six different tax credits for things like film training, scriptwriting, post-production and digital animation. Training Tax Credit This tax credit is for employers and apprentices who take part in eligible apprenticeship programs. To be eligible, the training program needs to be provided through the Industry Training Authority. Small Business Venture Capital Tax Credit This credit encourages investment in B.C. small businesses to help with early-stage development and growth. It’s available to corporations that invest in shares of eligible businesses. Personal income tax Now that we’ve covered some of the basics of business taxes in B.C., here’s what you should know when it comes to personal income tax. Keep in mind, if your small business is registered as a sole proprietorship, your business income will be considered part of your personal income and will be taxed the same way. B.C. tax brackets for 2020 You probably know some of the basics of tax brackets. Tax brackets are ranges of annual income that are used to determine the tax rate you pay. The income you earn past a specific threshold gets taxed at a higher rate. In B.C., the tax brackets are increased each year based on inflation. And for the 2020 tax year, the brackets were increased by a rate of 2.5 per cent. Here are the B.C. tax brackets for 2020: Taxable Income - 2020 BracketsTax Rate$0 to $41,7255.06%$41,725.01 to $83,4517.70%$83,451.01 to $95,81210.50%$95,812.01 to $116,34412.29%$116,344.01 to $157,74814.70%$157,748.01 to $220,00016.80%Over $220,000*20.5% *Budget 2020 proposes adding a new tax bracket for income above $220,000 at a rate of 20.5 per cent. Tax calculators make it simple When it comes to calculating your personal income taxes, there are a number of helpful online tax calculators that make it easier. They’ll enable you to simply plug in your income and have it calculated based on your tax brackets. Here is one simple calculator you can try: Tax Calculator B.C. Income tax deductions If you’re an entrepreneur with a small business, you likely have many expenses that you can deduct from your taxes in B.C. Basically, any reasonable small business expense used to generate business can be tax-deductible. Just make sure you save your receipts! They’re useful for backing up your expenses and will be required if you’re audited. Some of the types of small business expenses that can be deducted include: Vehicle expenses You can’t claim all of the expenses for your vehicle unless it is used only for work. On average, entrepreneurs tend to write off 50 percent of vehicle expenses like repairs, insurance, fuel, and toll charges. Home office expenses If you work from home, you may be able to deduct a portion of expenses related to your home, including mortgage/rent, property taxes, and maintenance fees. The per cent of these expenses you can claim will depend on what per cent of your home’s square footage is taken up by your workspace. Personal Expenses There is also a variety of other personal expenses you can claim, as long as they are directly related to your business. That includes things like: PhoneInternet Business suppliesSoftwareTravel When to pay your taxes in B.C. Here is an important date to mark in your calendar: For your 2020 taxes, you’ll need to file your tax return by Friday, April 30, 2021. In addition, if you currently have a debt owing for the 2019 tax year, the deadline to pay it has been extended from September 1 to September 30, 2020. If you register for a CRA online account, it can make it easier to manage your taxes and deadlines. It will let you manage your tax information, see the amounts you owe, and make payments quickly and easily. Now you should know the basics about how to handle your taxes in B.C. That includes how to calculate your business and personal taxes, and how and when to pay them. If your business also sells products to other provinces, you should also take time to learn about their tax regulations. So watch for our upcoming guide on taxes in Ontario.

provincial tax

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