As a business owner, filing taxes isn’t just a legal obligation, it is also a major consideration for commercial banks and reputable lenders in assessing the risk associated with providing businesses financing. When businesses fail to file their taxes, it has major negative implications towards their ability to apply for, and receive, an affordable small-business loan.
It is a common misconception that businesses who incurred financial losses in their most recent fiscal year do not have to file taxes. Generally speaking, you will not be required to pay any taxes, but it is still in your best interest to accurately file taxes for a variety of reasons, listed below:
- If you don’t file your taxes on time, or at all, you will be subject to various interest payments, penalties, and fines set out by the CRA.
- You create difficulty in obtaining new financing, as commercial banks and reputable lenders will ask to see your filed taxes.
- Your interest rates will be higher, as lenders who do not ask for access to tax information will generally charge high APRs (30-60%).
The mistake, of not filing taxes, can result in an increase of both direct and indirect costs, and limit the potential growth of your corporation when additional financing is sought after at a later date. The reasoning is that potential creditors have a hard time assessing your risk levels, and not filing taxes can often disqualify your business from the loan approval process. Lenders and creditors willing to accept this level of risk will provide you a loan, at an extremely high interest rate, to compensate against the perceived risk of default.
Furthermore, this can disqualify you from quality lending services such as Lending Loop, Canada’s first peer to peer lending service for small and medium-size businesses. Lending Loop offers fast access to capital at low interest rates, with monthly loan payments.
In addition, you may be losing out on transferable tax credits, generated during the fiscal year that have potential to reduce your income the following year – such as Capital Cost Allowance (CCA) and charitable donations. These tax credits can provide your business in a reduction of income tax in your next fiscal year.
Taxes must be filed within six-months of your fiscal year end. The Canadian Revenue Agency (CRA) website contains a large amount of information and a detailed breakdown, regarding income tax for corporations, and should be used as a guideline for any questions regarding filing taxes.