By Renée Sylvestre-Williams and the Sun Life team
Do you own an SME? Here you will find information on deductible business expenses and tips for paying less tax.
For an SME owner, completing a tax return is often complex. Not to mention that this year, COVID19 has undoubtedly caused its share of upheavals.
The Canada Revenue Agency (CRA) has compiled a comprehensive directory of resources for businesses related to COVID19. Has your company taken advantage of these grants, programs or loans? If so, it might be a good idea to consult your accountant to understand its effects on your taxes this year.
CERB and other emergency benefits: the effects on your taxes
What business expenses can you deduct from your taxes?
If you are a business owner, your income may fluctuate. And if you have new customers, they may be making requests that incur expenses. But have no fear. The CRA has established a list of deductible business expenses. It’s all there, from advertising to fuel to start-up costs.
Are you paying more tax than you should?
What about expenses unique to your business? Or everyday expenses that seem deductible but may not be? A tax specialist can help you sort it all out.
For example :
You can deduct your rent and property taxes if your office is in your residence. Your mortgage payments are not deductible.
Certain items, such as pencils, pens, paper clips, stationery and stamps, are also deductible. However, calculators, filing cabinets, chairs, and desks are not part of the list of approved office expenses. You need to capitalize and amortize these expenses.
Are you self-employed? Here’s how to manage your taxes.
Four tips to reduce your business taxes
How could you reduce your tax bill once all eligible business expenses have been deducted? Here are four things you should know.
- Be realistic about business expenses
Before deducting your expenses, make sure your business is earning enough. Your business must have a “reasonable expectation of profit” for the CRA. The CRA does not expect you to make a profit every year. She even understands that several years may pass before you do. But for her, your business is not a hobby: it is above all a commercial activity.
Recently, there was a judgment concerning a lawyer from Quebec. After taking a job with the federal government, she maintained a part-time private practice. She then deducted significant business expenses relating to these personal activities. However, these did not generate sufficient income. The CRA, therefore, refused to grant him these deductions.
- Invest in your development and your business
“You can invest in your business,” says Alexandra McQueen, Certified Financial Planner. “You can also invest in yourself if it fits into your professional activities. This could be attending a training or a convention. Note, however, that you cannot deduct more than two conventions per year. And according to the CRA, both must “relate to your business or profession.” In addition, each convention must take place in the region where you usually carry out your activities. Most congresses and training courses have adopted the virtual format in recent times. However, registration fees are still deductible if other CRA requirements are met. - Consider “incorporating” yourself
It might be a good idea to incorporate your business.
Incorporation can reduce your tax rate by a range of 9% to 15% on the first $500,000 of business income. This varies depending on your province or territory of residence. You could also reduce your tax bill by paying yourself dividends instead of a salary. The financial planner specifies that you will still pay personal income tax by withdrawing a salary. But receiving compensation also has its good sides. This allows you to increase your RRSP contribution limit and build a retirement fund under the Canada Pension Plan.
Incorporation can also be beneficial if you can leave some of your income in your business. This income will be taxed at a higher rate, around 50% depending on your province or territory of residence. However, the time elapsed before its disbursement can reduce the tax payable. In recent years, the gou
