7 Year-End Tax Planning Tips for Small Business Owners

*UPDATED FOR 2024*

The calendar year may be winding down, but there’s still time to make your year-end tax planning a little less stressful.

To help, we’ve assembled seven of our best year-end tax tips to help you lower your tax burden and boost your bottom line.

1. Organize your files and receipts

With so many competing priorities, organizing files often falls to the bottom of the to-do list. However, an ounce of prevention is worth a pound of cure when it comes to locating and organizing receipts, bills, expenses, and bank statements in advance of your year-end.

Why? Because doing so may help you identify business issues that you can still potentially solve within the calendar year, such as tracking down outstanding customer payments. Additionally, organizing your files in advance will allow you to help you take advantage of key small business tax deductions.

For more tips on getting organized, please check out our blog 7 simple ways to organize your receipts.

To learn more about deductions, please see our blog, Top small business tax deductions.

2. Review your mileage

If you use your personal vehicle for business-related activities, you can deduct a portion of vehicle use expenses such as fuel and maintenance costs.

The key to this is to make sure you’re regularly updating your mileage log – a record of your business travel for the entire year. Without a record of your mileage, the CRA will disallow your vehicle expenses as a tax deduction.

To learn more about how to keep a proper mileage log, please see How to keep audit-proof mileage logs that lower your taxes.

3. Consider hiring family members

Lots of small businesses rely on family members to help out, but hiring and paying your spouse and/or children a salary can also the following tax benefits:

1. If the salary stays under what the CRA defines as the basic personal amount, the salary remains tax free. For the 2023 taxation year, the basic personal amount $15,705.
2. Any salaries paid out to employees, including family members, count as a tax deductions.

It goes without saying that keeping accurate employment records is just as important for related employees as it is for non-related employees.

One more thing to note when hiring family is that employees who are related to their employer (individual or corporation) may not be in an insurable employment. If they do not have EI premiums deducted from their pay, then they would not be eligible for EI benefits either. To learn more, visit the CRA website.

4. Use income splitting strategies

Income splitting is when you split income, or dividends, from one family member to another family member that is in a lower tax bracket, significantly reducing your taxable income.

While the Income Tax Act has attribution rules that prevent you from simply gifting your spouse part of your income, there are ways you can still use income splitting to help lower your tax burden.

For example, you can lend money to your spouse and lower your taxable income, as long as you follow these rules:

• It must be an interest-bearing loan.
• The interest needs to match the prescribed rate set by the CRA at the time the loan is made.
• Your spouse must pay the interest by January 30 of the following year.
• The prescribed rate* remains fixed for the term of the loan, so if your investment expected returns higher than the prescribed interest rate, it will be a good way to help bring down your taxable income. Any return is taxed at your spouse’s lower rate. Plus, the loan interest expense can be deducted by your spouse.

*The prescribed rate set is quarterly by the CRA. It is currently at 5% and will hold until at least December 31, 2024.

To learn more about additional income splitting strategies, please speak to a tax professional.

5. Consider purchasing capital assets

If you need to buy a major capital asset like a building, machinery, or equipment to use in your business, consider buying it before the end of your fiscal year to claim tax depreciation, or Capital Cost Allowance (CCA), to reduce your income on your tax return.

You typically can only claim 50 per cent of the maximum allowed CCA in the same year you purchased the asset; the rest of the cost depreciates over a period of several years using CCA.

It’s important to note that the amount you can claim through CCA for property depends on the type of property you own and when you acquired it. The CRA also groups fixed assets into different classes, and each class has its own depreciation rate.

Timing wise, if you’re thinking of making a major capital asset purchase, it is better to do it as close to the end of the fiscal year as possible. If you delay making the purchase until the next fiscal year, then you have to wait another full year before you can claim the maximum depreciation rate.

As always, it’s recommended you speak to a tax professional before making any major capital purchases to better understand the tax implications.

6. Catch up on your installment payments

It’s not uncommon for small business owners to ignore installment payment notices – either because they’re too busy to deal with them or because of a cash flow crunch.

Unfortunately, the CRA will charge interest, and in some cases a penalty, on late or insufficient installments. And since the interest is compounded daily, and applied to tax and penalties, it can quickly add up. Those who have outstanding debt or do not discuss payment of debt can be subject to collection action by the CRA in order to recover the unpaid amount.

This can be easily avoided if you make quarterly installments for GST/HST/QST, corporate tax, and personal income taxes. To learn more about installment payments, visit the CRA website.

7. Contribute to an RRSP or a TFSA (or both!)

Are you investing in a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA)? If you’re not, you’re missing out on tax savings and tax-free earnings.

You might be wondering, should I use an RRSP or TFSA? The answer is both if possible — and you should max them out to the best of your ability. Depending on your tax bracket and your personal and business savings goals, however, one may meet your needs better than the other.

To learn more about benefits of RRSPs versus TFSAs, please see our blog Should I use an RRSP or TFSA as a business owner?

Free Guide: Year-End Tax Planning Strategies for Your Small Business

Many small business owners wait until spring to start thinking about their taxes, but this simple act of waiting could cost them thousands.

Fall is actually the best time to start think about your taxes. It allows you to get organized and assess what cost-saving actions you can take before the end of the tax year to lower your future business or corporate income taxes.

Consider this 40-page toolkit your roadmap to help you get organized, reduce your tax burden, and keep more money in your pocket. In here you’ll find some of the most successful year-end tax planning strategies we employ for our tax Members.

Download your Year-End Tax Planning Toolkit here

Every year we save our Members over $42 million. We can help you too.

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