Detailed Tax Planning Tips for Canadian Business Owners
Collect Receipts for Business Expenses
- Purpose: To maximize tax deductions, it’s crucial to collect and retain receipts for all business-related expenses.
- Importance of Original Receipts: The CRA requires original receipts as proof of business expenses during audits, which can include advertising costs, office supplies, and interest on business property.
- Retention Period: Keep receipts for at least six years after your last Notice of Assessment.
Take Advantage of Business-Use-of-Home Expenses
- Benefit: If your home office is your primary place of business or regularly used to meet clients, you can deduct a percentage of home-related expenses.
- Eligible Expenses: This includes utilities, cleaning supplies, insurance, property taxes, mortgage interest, and capital cost allowance.
- Calculation: Deduct a portion based on the proportion of your home used for business compared to the total home area.
Claim Non-Capital Losses
- Definition: Non-capital losses occur when business expenses exceed income, providing a way to offset future income.
- Usage: Carry losses back up to three years or forward up to 20 years to reduce taxable income in profitable years.
- Strategic Planning: Consult with a tax professional to decide whether to use losses immediately, carry them back to recover previous taxes paid, or carry them forward for future tax benefits.
Manage RRSP and TFSA Contributions
- RRSP Contributions: Contributions are tax-deductible, reducing taxable income in high-income years. Unused contribution room can be carried forward.
- TFSA Contributions: Although contributions are not tax-deductible, investment growth and withdrawals are tax-free, providing flexibility for savings and investments.
- Strategic Timing: Determine contributions based on current and future income levels to maximize tax benefits.
Incorporate Your Business
- Tax Advantages: Incorporating your business can lead to lower corporate tax rates, particularly beneficial for Canadian-controlled private corporations eligible for the small business deduction (9% tax rate).
- Additional Benefits: Incorporation provides limited liability protection, potential for income splitting among family members, and tax advantages on business asset sales (e.g., capital gains exemptions).
- Considerations: Consult with a tax advisor to evaluate whether incorporation aligns with your business goals and financial strategy.
