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Last updated: Jun. 13, 2018
If you’re a small business owner in Canada, there are a large number of tax deductions you can claim against your small business spending.
This helps minimize your tax burden and maximize your business income.
Take Advantages of Tax Deductions
This is the most obvious option. Tax deductions help reduce your tax bill. But, you can’t take advantage of all the tax deductions available to you if you don’t know what they are.
Here are just a few tax deductions small business owners in Canada can claim.
- Operating Expenses: Rent, insurance, heating, electricity, and office supplies
- Vehicle Expenses: Insurance, lease payments, toll charges, oil, maintenance, and fuel
- Capital Property: Vehicles, equipment, computers, fixtures, and furniture
- Media Advertising Costs: Canadian market magazines and newspapers, as well as Canadian market television and radio broadcast stations
- Business Management Expenses: Annual license fees, business taxes, membership dues for professional organizations, online marketing fees, mail and delivery costs, and professional consulting services.
Income-Splitting
The added benefit of hiring your family is the opportunity to take advantage of income splitting.
Keep in mind, they need to actually be doing some work. And you need to do the paperwork to support their employment. It’s not unheard of for the Canada Revenue Agency (CRA) to ask to see not just T4 slips, but also employment contracts.
Still, the benefits outweigh any bookkeeping headaches. In addition to claiming their wages as a business expense, hiring family and splitting your net income could drop you into a lower tax bracket.
Get Tax Credits
To encourage research and development, the Canadian government has created a number of different tax credits aimed at specific sectors of the economy. Your small business might be able to claim Investment Tax Credits (ITCs).
Some of the ITCs include:
- Scientific Research and Experimental Development (15% of all qualifying expenditures)
- Mineral Exploration Tax Credit (15% of qualifying expenses)
- Apprenticeship Job Creation Tax Credit (up to $2,000 per year and equal to 10% of the salary paid to an eligible apprentice for the first two years)
- Investment Tax Credit for Child Care Spaces (25% of the cost of creating spaces with a maximum credit of $10,000 per space created)
- Atlantic Investment Tax Credit (10% of the value of purchase price of new buildings, machinery, and equipment used in farming, fishing, logging, manufacturing, and processing).
Meet Deadlines
Study after study shows that Canadian business owners get stressed when it comes to preparing taxes. That stress tends to lead to procrastination which means filing their tax return late.
Yes, as a small business owner your taxes are not due until June 15, but, any taxes owed must be paid by April 30th.
Failing to meet the proper deadline means you’ll get hit with a costly fine. The CRA will charge you a hefty 5% penalty on the amount owed when you do eventually file. The fees compound daily starting May 1 of the calendar year. The penalty the CRA charges can change without notice too.
Maintain Complete & Accurate Records
It doesn’t matter if your small business is profitable or you owe taxes, you still have to provide business income details with your tax returns. That’s why it’s imperative that you keep receipts; these prove the deductions you are making are legitimate.
Bookkeeping and tax preparation planning might not be something you look forward to doing but keeping track of your financial records year-round is essential. Not only does this help you review how your business is doing, you will be more prepared come tax season.
FBC, Helping Business Slash Their Tax Burden
This is a golden rule for Canadian small business owners: expenses are tax deductible if they were used to help it make money. That means you should try and deduct everything you legally can. To make sure you’re taking advantage of every tax deductible available to you, contact the small business experts at FBC.
Why FBC? Since 1952, FBC has worked exclusively with small business owners, farm operators, and independent contractors across Canada. Over the last 66 years, we have helped tens of thousands of clients, big and small, maximize their deductions and minimize their tax burden.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.
