Are you thinking of starting or already have a small business? There are many advantages to owning a small business especially when it comes to Canadian tax savings.
One of the simplest tools is a calendar. A calendar can be utilized to track the monthly activities for all your important dates and deadlines. A few examples are when to pay payroll, GST/PST, tax installments, as well as statutory holidays. Most online calendars can be set up to automatically send you a message in advance of upcoming deadlines.
Receipts for business related activities
Store all your receipts in one place. One example is to have an accordion folder that has a slot for each month. As you collect each receipt, place them in the correct month. This keeps them organized and easier to record on your bookkeeping system. Take note a credit card statement is not considered proof of purchase. It is important to have the original receipt that shows what has been purchased if Canada Revenue Agency (CRA) ever inquires.
There are those forgotten receipts that seem so little and insignificant. They are just as important and do add up quickly. Examples include parking receipts and the coffee you purchase to meet a client. Think about all the “small” receipts that can add up over a year. To get the most benefit from tax savings it is best to stay organized and keep track of all your receipts.
RRSP and TFSA Contributions
Registered Retirements Savings Plan (RRSP) and Tax Free Savings Accounts (TFSA) are particularly excellent for sole proprietors and partners to take advantage of Income Tax Deductions for Small Business Owners.
Sole Proprietor RRSP Contributions
The amount of RRSP contributions all depends on how much income fluctuates from year to year. For tax savings, RRSP contributions are based on the marginal tax rate. The allowable RRSP contribution can be carried forward into subsequent years. Consider a strategy of contributing more when you are expecting a higher income that could push you into a higher marginal tax rate.
Corporation RRSP Contribution
Canada Revenue Agency handles Corporate RRSP contributions differently. For starters the level of RRSP Contribution is based on income earned from salary. If part of your income comes in the form of dividends, this may reduce or eliminate RRSP Contribution room completely. As this is a more complex issue it might be best to contact a Chartered Professional Accountant (CPA). Banka & Company, CPA is knowledgeable about Corporate RRSP Contributions and can provide expert advice how to proceed.
Maximize non-capital losses
Non-capital losses are expenses that exceed business income in any year. Consider using this loss to decrease income tax owed. A few option non-capital losses can be used to;
- Offset other personal income in any given year
- Carried back three years to recover income tax already paid
- Carried forward up to seven years to compensate a large tax bill in the future
Maximize charitable income tax credits
Charitable donations receipts from registered Canadian charities earn you tax credits. The more you give to registered charities, the higher tax credits for you and more fortunate for the charities. Note only receipts that are registered Canadian charities qualify for tax credits.
Maximize Capital Cost Allowance (CCA) income tax claim
Capital Cost Allowance claim is the ability to deduct the cost of depreciable property (equipment, vehicles, office furniture, etc.) over a period of years. The CCA is not a mandatory tax deduction and provides flexibility when is the most suitable to use as much or as little in each tax year. A strategy is to carry forward any unused portion to help offset a larger income tax bill in the future. Hold off using CCA claim deduction when there is little or no taxable income.
Buying and Selling Assets
An important strategy to maximize your Capital Cost Allowance claim is buying and selling assets. Buy new assets before your fiscal year end and sell old assets after your current year end.
Home-based business tax deductions
There are lots of advantages to operating a business from your home. Home-based businesses can deduct a portion of several home related expenses. A few examples are heat, electricity, maintenance, cleaning materials, vehicle maintenance and gas, insurance, property tax, mortgage interest, furniture, and office equipment. You can also claim the space you use for your business as a deduction.
Every year there are changes to the Canadian tax system. To stay current consider developing short and long term tax planning. Banka & Company, CPA has helped many business owners with their tax planning that works specifically for their needs. Contact us today to find out how we can be of assistance for your small business.