An Overview of Accounting and Auditing in Canada
There are several reasons why businesses are drawn to Canada however, Accounting and Auditing are critical for any business in Canada. In Canada, the filing of financial statements is necessary for publicly traded corporations or corporations having more than 50 shareholders.
All Canadian corporations should prepare financial statements as per the Generally Accepted Accounting Principles of Canada or International Financial Reporting Standards. The financial statement is also required to be presented before the shareholders in not less than 21 days from the date of the annual meeting. Financial statements are required to be furnished before state authorities only when there is a request made by them during the tax inspection. Only an annual return is required to be filed by every corporation to confirm that the company will continue to conduct its business and that all legal requirements have been complied with. Even partnerships do not file financial statements but they have to prepare it. Only those partnerships which either conduct business in the territory of Canada or is a Canadian partnerships must file Form T5013 if:
- The sum of income and expenses at the end of the financial period exceed 2,000,000 CAD, or the company’s asset value is more than 5,000,000 CAD.
- At any time during the financial year if:
- It is a multilevel partnership
- A corporation or a trust is a partner
- The partnership has invested in shares of a main business corporation that purchases Canadian resources and assigns them to the partnership.
- The Department of Finance of Canada requests it.
Time Frame for filing financial statements and tax returns
Public corporations or corporations with more than 50 shareholders are required by law to file financial statements. Corporations registered at a federal level must file a tax return within 6 months from the end of the financial period and tax must be paid within 2 months post the end of the year. The company can decide its own financial year which is usually for a period of 12 months and can be increased up to 53 weeks from the date of incorporation of the corporation. Provinces can set their own deadline for filing tax returns and paying taxes however, in most cases, it does not exceed 6 months from the date of the end of the financial year. Further, the taxes must be paid within 2 months from the end of the period.
Just like corporations, even partnerships determine their financial year by themselves. The financial period must however not exceed 53 weeks from the date of incorporation of the partnership. This is only for the first financial year, the subsequent financial period should be 12 months only. The deadline for filing Form T5013 for the partnership depends on the partnership structure.
- If all the partners are individuals, then the deadline for filing Form T5013 is by 31st March after the end of the financial year.
- If few partners are corporations, including the ultimate owners of the multilevel partnership, then the deadline for filing the form T5013 is within 5 months from the end of the financial period.
- In the case of any other structure, the deadline depends on which of the following dates is earlier:
- Either 31st March from the end of the calendar year in which the financial period ended; or
- Within 5 months from the end of the financial year.
The calendar year is the tax period for individuals, and they must file tax returns by 30th April every year.
Liability for Late Filing of Financial Statements and Tax Returns
The penalty for late filing of tax returns is 5% of the amount of tax and an additional 1% of the amount of tax charged for each month’s delay for up to 12 months.
If there is a delay by partnerships to file the form T5013, then a penalty of 100 CAD is imposed, and an additional 25 CAD is imposed for each day of delay but up to 100 days.
If an individual delays in filing the tax return, then a fixed 5% of the amount of tax along with an additional 1% of the amount of tax charged for each month of delay up to 12 months.
All non-profit corporations are mandated to conduct audits. A voluntary audit can be conducted by other business structures. A voluntary audit is done to attract investments and for banks to assess the credit risk to provide credits.
Consolidated Financial Statements
A Canadian corporation having subsidiaries must prepare consolidated financial statements and must maintain copies of the financial statements of the subsidiaries.