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Tax Breaks for Canadian Small Businesses

It’s tax season and taxes are top of mind for everyone, especially small business owners who have both personal and corporate taxes to tackle.

Although it’s good practice to employ a reputable accountant that specializes in small business (and whose fees are tax deductible as a business expense), it’s always good practice to stay informed in key areas of small business finance such as this one. In the case of corporate income taxes,  there are number of resources and credits available to small businesses that you will want to take advantage of,. It’s also important to know what receipts and documentation your accountant will require.

Whether you have a computer based filing program or a file folder with paper receipts, it’s essential to keep all your receipts well organized - this will result in fewer headaches and less confusion for both you and your accountant when the time comes.

According to the Canada Revenue Agency, any reasonable current business expense as well as "certain costs that are reasonable for a particular type of business, and that are incurred for the purposes of earning income,” can be deducted.  Business expenses can be deducted for tax purposes. Personal, living, or other expenses not related to the business cannot be deducted for tax purposes."

Whether you are a sole proprietor running your business from home or an incorporated bricks-and-mortar business with employees, here are just a few examples of tax credits that may apply.

Home-Based Small Businesses

Home-based businesses present a lot of flexibility with respect to what may be ‘written-off’ at tax season, so remember to keep all your receipts and ask your accountant if you qualify for any of them. Such expenses may include:

  • Portions of utility bills (hydro, phone, internet, etc.)
  • Home-Based Business Insurance
  • Office Supplies (even if your office is the kitchen table!)
  • Mortgage Interest and Property Taxes
  • Vehicle Expenses (a portion of gas, oil, repairs, and maintenance could be deducted if you use your vehicle for business - even if you use your vehicle for personal use as well)

Brick-and-Mortar Small Businesses

Although it is often quite clear what is considered a business deduction when your small business has it’s own space, there are still some interesting deduction opportunities you may not be aware of:

 

  • Allowable Reserves: Any small business owner who has experienced a cash flow crunch recognizes and appreciates the need to have funds set aside for a rainy day. Well, the good news is, a reasonable amount of allowable reserves can be deducted from your income.
  • A Hiring Credit for Small Business allows businesses some relief of the employer’s share of Employment Insurance premiums up to $1,000.
  • Income Splitting: Employee’s wages are a business expense and therefore tax deductible. If you employ your spouse or another family member - as many family-run businesses do - you can split your income to allow you to be in a lower tax bracket, giving yourself a better tax break.
  • Health and Dental Insurance Premiums: As long as you are sufficiently self-employed, and you offer health insurance to all employees, your private health services plan premiums qualify as deductible expenses.
  • Research and Development: This is often overlooked by Canadian small business owners, but even sole proprietors can deduct costs associated with “scientific research and experimental development.” So, experiment away!
  • Equipment, Computers and Vehicles: Any “equipment” purchased for your business is deductible. Just keep in mind that large purchases are subject to be reported as a Capital Cost Allowance.
  • Team-Building: A company social or sporting event for you and your employees can boost morale, improve retention rates and positively impact productivity. They are also tax deductible!
  • Startup Costs: For new businesses, business startup costs are initial expenditures incurred during the preliminary steps leading to the start of operations. In other words, some costs incurred prior to the official start date could be tax deductible.

 

These are just a few examples of what credits and deductions may be available to you and your small business. Speak to your accountant or visit CRA for more details.

About the Author: Michelle Pinchev