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 create a strategy to lower your tax bill and boost your bottom line. 

1. Long-Term Tax Strategy and Business Transition Plan 

If you haven’t already developed a long-term tax strategy or business transition plan, it’s time to prioritize this. Wide-sweeping tax measures introduced in 2024 make protecting your assets more important than ever. 

While a lot of media attention was focused on the changes to the capital gains inclusion rate, other changes to the rules around Alternative Minimum Tax (AMT) and Lifetime Capital Gains Exemption (LGCE) were also made. Bill C-59 came into effect in June 2024, updating Intergenerational Business Transition (IBT) rules and opening up more options for your business transition plan. For certain Small Business Corporations that meet eligibility requirements, the new Canadian Entrepreneurs’ Incentive provides “a capital gains inclusion rate that is one-half the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime.” Lastly, the Canada Pension Plan (CPP) enhancement will affect take-home pay for employees and anyone drawing a salary from their corporation. 

With so many different tax rules at play and interacting with each other, it is highly recommended that you seek tax advice to understand how these changes could affect you and your business transition plan. 

2. Review Compensation Options Against CPP Enhancement 

As mentioned above, how you pay yourself from your corporation will have an even more significant impact now that the CPP enhancement has ramped up. It’s a good time of year to review what kind of compensation will best meet your tax and financial goals. 

While dividends may seem like a good idea for taxes, they don’t contribute to your Registered Retirement Savings Plan (RRSP) contribution limit or the Canada Pension Plan (CPP). Plus, they won’t protect you if you get hurt or injured. But again, the CPP enhancement means less take-home pay and could negatively affect your immediate cash flow. Seek tax advice to understand what works best for you. 

3. Organize Paperwork and Maximize Tax Deductions 

Getting your paperwork in order now can give you time to solve issues before the calendar year-end, such as tracking outstanding customer payments. Additionally, organizing your files in advance will help you take advantage of crucial small business tax deductions or make informed purchasing decisions. 

To learn more about small business deductions that often get missed, read Top Small Business Tax Deductions. For more tips on organizing, check out 7 Simple Ways to Organize Your Receipts. 

4. Capital Cost Allowance 

If you’re considering a large capital purchase, like a vehicle or machinery, you may be eligible to claim Capital Cost Allowance (CCA) deductions. CCA allows you to spread the cost of significant expenditures over multiple years for long-lasting assets like tools and equipment. 

For example, if you purchase a tool worth over $500, these expenses fall under CCA Class 8. This class allows up to 20% of capital cost allowance per year (depreciation expense), which means that if you have a $2,000 expense, you can deduct up to $400 annually in CCA.  

You also have a lot of flexibility with CCA and can claim the amount you’d like, from zero to the maximum allowed for the year. The key is to act before the end of the calendar year so you can time your expenses and CCA deductions to your advantage. 

5. Tax Incentives For Asset Purchases 

As of 2024, two tax incentive programs remain when purchasing assets for your business: the Accelerated Investment Incentive (AII) and the Immediate Expensing Property rules. 

While the AII is in its winddown phase (2024-2027), it can still allow you to deduct more of your CCA in the first year you purchase a capital item. Immediate expensing rules will enable you to deduct the total cost of qualifying assets in the year they are acquired rather than depreciating them over time, and they are still available to individuals. Again, your eligibility depends on your circumstances, so speaking to a tax expert is best. 

6. Income Splitting  

The tax on split income (TOSI) rules or income splitting rules have tightened, but depending on your tax situation, some income redistribution strategies may still help you.  

For example, you could lend investment money to your spouse at the prescribed interest rate set by the CRA (currently 5%). While the higher-income earner declares the interest paid, their overall income increases minimally. The lower-income spouse invests the funds, earning a higher return than 5%. This strategy can reduce the family's overall tax burden and build wealth, but it may not be the right choice for everyone, so seek tax advice. 

7. Catch Up On Instalment Payments 

It’s easy to fall behind on installment payments. The end of the year is a great time to review your financial situation and pay any outstanding installment payments before accruing more interest or penalties. Those who have outstanding debt or do not discuss debt payment can be subject to collection action by the CRA 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 or speak to your tax provider about how to get back on track. 

Tax Planning Lets You and Your Business Prosper 

Just as the quality of your product or service dictates the success of your business, the quality of your tax planning determines future tax savings. 

Being strategic about the timing of purchases and losses – especially for big-ticket items like vehicles, machinery and equipment – allows you to take advantage of specific tax rules and incentives. 

Download our year-end tax planning guide for even more tips on creating a tax strategy that maximizes benefits for small business owners. 

Download your Year-End Tax Planning Toolkit here

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