Last updated: Nov. 25, 2024 

Year-End Tax Strategies to Maximize Tax Savings for Self-Employed Tradespeople 

As a self-employed tradesperson, juggling jobs, quotes, and invoices keeps you busy enough – never mind thinking about taxes before they’re due. 

However, with some year-end tax planning, you can maximize your tax savings and ensure that your hard-earned money goes further.  

Here are a few end-of-year strategies that could help you optimize your tax return: 

1. 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. 

Consult a tax expert to determine if this strategy is right for you and your family. 

2. Organize Subcontractor Payments and Paperwork 

Individuals, partnerships, trusts, and corporations that obtain over 50% of their business income from construction and pay subcontractors must comply with T5018 reporting requirements. This involves filing a T5018 statement of contracts paid form for each subcontractor paid over $500. 

Payments to independent contractors and subcontractors can be reported on a calendar or fiscal year basis and are due six months after the reporting period.  

3. Maximize Tax Deductions 

You know the old saying, it takes money to make money. So why not take advantage of all the tax deductions you get for spending money running your business? 

From office supplies to fuel to accounting fees, you can use tax deductions to lower your tax bill if you keep good records and follow the rules. 

RELATED Top 7 Tax Write-Offs Canadian Independent Contractors Should Claim 

You may also be eligible for a Capital Cost Allowance (CCA) for larger capital purchases, such as vehicles or equipment. See below for a more detailed explanation. 

4. Capital Cost Allowance 

Claim Capital Cost Allowance (CCA) deductions to spread the cost over multiple years for long-lasting assets like tools and equipment. 

For example, if you purchase office furniture or a tool worth more than $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.  

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 allow 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. 

Each tax incentive has specific eligibility requirements, so seek tax advice before acting. 

Tax Planning Lets You Keep More of Your Money 

A well-planned tax strategy is as essential as measuring twice and cutting once. 

Just as precision is crucial in your trade, accuracy in your tax planning can lead to significant savings. 

Planning ahead – especially for big-ticket items like vehicles, machinery and equipment – allows you to take advantage of specific tax rules and incentives. 

Download our tax planning guide for even more tips on creating a tax strategy that maximizes benefits for independent contractors. 

Want to learn more about creating a tax strategy that’s tailored to the needs of independent contractors? Click the link below to connect with the FBC team. We would be happy to help!