While one is undertaking corporate tax planning, it advised to take help of a small business tax accountant so you may not overlook the options of probable tax cuts that only your accountant might be able to pinpoint. However, there are other easily understandable tax loopholes to look into when filing small business taxes in Canada.

Maximize your non-capital losses

Likewise, if your business has a non-capital loss (defined as when your expenses exceed your business income) in any year, consider when you can best use that loss to reduce your tax liability. Non-capital losses incurred after 2005 can be used to offset other personal income in a given fiscal year by moving it back up to three years or forward up to 20 years. You can consult your small business tax accountant on this.

Increase your charitable income tax discounts

Charitable donations to registered Canadian charities or other qualified recipients earn you tax credits and should be accounted for when calculating your corporate tax. And charitable donations totaling over $ 200 give you a higher tax credit because they’re valued at a higher rate. To maximize your charitable income tax discounts, consider giving more to the registered charities of your choice this year. If you make $ 30,000 and also give 5% of your income, lucky charities will receive $ 1,500 and you will get a nice deduction.

Strategize your contribution to capital costs

Most Canadian small business owners know that instead of simply deducting the cost of any depreciable assets they have acquired to be used in their business in a given year, they must deduct the cost of depreciable assets over the years through equity. However, many small business owners do not realize that they do not have to apply to the ACC the year it occurs. The CCA is not a mandatory tax deduction, so you can use as much or as little of your CCA entitlement as you want in a particular tax year and transfer any unused portion forward to offset higher income tax in the future.

Divide your income

This small business tax strategy will allow you to take full advantage of marginal differences in tax rates. The higher your income, the higher the marginal tax rate in Canada. By transferring part of your income to a low-income family member, such as a spouse or child, you can reduce the marginal income tax rate. This is a particularly effective tax strategy for small business owners with after school children.

Look for home business deductions

Do you run your business outside the home? If so, you may have more rainfall available. While not all businesses are suitable for working from home, home businesses do have income tax benefits. In addition to the household business deduction, entrepreneurs can deduct part of many family-related expenses from the home, such as heating, electricity, and home maintenance.


Frequently asked Questions

How do I apply for CCA on the T2125 form?

If you are the sole owner or member of the partnership, you can apply for a CCA on line 9936 of form T2125. Canadian companies can also apply the ACC to vehicles they have purchased for business purposes in the relevant section of the T2 companies tax return. The CAA calculation is the same for corporations, individual owners and partners, and the same CCA classes and rules apply. This calculation must be indicated in area A of the form.

Do I have to deposit my money in RRSP and TFSA?

The Registered Retirement Savings Plan (RRSP) and Tax Free Savings Accounts (TFSA) are excellent income tax deductions for small business owners, especially individual owners or partners. Whether you have to pay the maximum RRSP contribution each year depends on how much your income varies from year to year. The tax savings on the RRSP contribution are based on the marginal tax rate and as some or all of the permitted RRSP contributions can be carried over to subsequent years.

What are the rules for applying the costs of meals and entertainment?

“The maximum amount you can claim for food, beverage and entertainment expenses is 50% of the smaller of the following: the amount spent on those expenses, the amount that is reasonable in the circumstances,” says the Canadian Tax Administration (CRA). ). For income tax purposes, taxes and gratuities are included in the price of food and drinks and are also subject to the 50% rule. So, for example, if you invited a customer for lunch at a restaurant, the bill might look something like this: you can deduct $ 25 for a $ 50 account as a tax deductible expense.

Does my business structure affect my tax return?

The tax you pay will depend on the structure of your business. Most small businesses start out as individuals or partnerships. These facilities are not included and you must report your business income on a T2125 form along with a T1 Individual Tax Return. If you are an independent contractor or freelancer, the applicable tax rates will be the same as the personal income tax bands.

Do I need to file a tax return if my small business hasn’t made a profit?

Regardless of whether your small business is profitable or not, you still need to file a tax return. As an entrepreneur, it can take some time for your business to start and make money. If you have experienced a net loss in a particular tax period, you may be able to apply that loss to your other income to offset your total tax liability.

Bottom line

As a small business owner in Canada, part of your business income will go towards paying small business tax. Whether you are writing your business plan or have already started your business, it is important to understand the taxes that apply to you, the tax return process, and any tax deductions you may be applying for.

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