Five Tax Tips for Small Business Owners in Canada

One of the most overlooked ways for small businesses to save at tax time starts at the beginning of each tax year. It’s simple: keep every receipt. Find a way to corral all the loose receipts lying around your desk, in your purse and in your car. They can add up to a lot of deductions. Another easy and often overlooked deduction is the cash transactions that many small businesses do. Keep track of everything in a log.

2. Log Your Mileage

Keep an accurate record of the mileage you do in your personal vehicle for business. You may be able to deduct travel expenses such as public transportation fares, hotel accommodations and some meals. Your vehicle log should record the date of each business trip, destination, the reason for the trip and kilometers driven. The odometer reading of the vehicle should also be recorded, at the beginning and end of each year, to determine the total kilometers driven in the fiscal period. If you buy, sell or trade your vehicle during the year, be sure to record the odometer reading at that time.

3. Get Advice on Big Purchases

Many small business owners make the mistake of thinking that the total price paid for a major business purchase can be written off all at once; however, this is not necessarily the case. Under the Canadian tax system, the cost of assets usually must be deducted over several years (depreciation). The system also requires that different assets are deducted at different rates (capital cost allowance).

Before buying assets for your business discuss this with your accountant as they’ll know the tax benefits, deprecation rate allowed and best time to make purchases.

4. Income Splitting

This tax strategy provides an opportunity to take advantage of the marginal tax rate disparities. The higher one’s income, the higher their marginal tax rate. Transferring a portion of that income to a person with lower income, such as a spouse or child, reduces the marginal tax rate on the higher income.

5. File on Time

It’s important to comply with filing deadlines to avoid paying a late-filing penalty. This penalty is a minimum of five percent of the balance owning on your return, plus another penalty of one percent of the unpaid tax, multiplied by the number of months the return is not filed (to a maximum of 12 months). Consider online tax filing, which is available 24/7, to save time and hassle in paying taxes and payroll source deductions.

In Conclusion

Tax season can be challenging for small business owners in Canada as they are focused on many day-to-day business demands. But with a little careful planning, incorporation of routine and advice from an accountant, tax savings may be maximized (and pitfalls avoided).

For more tax savings, consider reading about a Health Spending Account. This plan turns after-tax medical costs into before-tax business expenses. Download our FREE guide below: