As a small business owner in Canada, you have likely been focusing on your business and making it grow.
In the back of your mind, you may also be thinking about how much you may owe in taxes this year. Even though nobody likes to pay tax, it is inevitable. In this blog, we want to suggest a few tips that you may have forgotten about when it comes to your taxes.
First, you need to know what your taxable income is. This is the amount of income that they government will impose tax upon. This includes your income less any expenses and eligible deductions you may have.
Your expenses not only include those that occur with the daily operation of your business, but if you have any non-capital loss or bad debt, they can both be deducted as well. Bad debt is when you are owed money by a customer, but you haven’t been able to collect it within a year of when it was due.
A non-capital loss is when your expenses exceed your income in your fiscal year. If your business has a non-capital loss, this can be applied to business income. A non-capital loss can be carried back 3 years. If you are looking to carry it forward, you can typically carry it forward 20 years, though this can be a bit more complex.
When it comes to your taxes, we want to mention a few deductions that are sometimes forgotten about. To start with, you may have home office which means you may have deductions that you haven’t taken into consideration.
As a small business owner, if you work from your home and your workspace is where you do more than 50% of your work, or if you use this workspace to earn your employment income, you can claim this as a deduction. You can also claim it as a deduction when it is your principal place of business and you meet customers there.
This deduction not only includes a portion of your mortgage or rent payment, but your utilities, property tax and home insurance. The amount that you get to deduct is determined by the size of your office (and any storage) in relation to the size of your home.
You can also deduct office expenses, such as pens, stamps, paper and so on. You cannot include anything that may be classified as a capital item such as desks, chairs, filing cabinets and calculators. These items are depreciated annually.
Phone and internet charges may also qualify as a deduction. Though if they are used for both personal as well as business, only the percentage that is used specifically for your business can be taken as a deduction.
You can deduct some of your vehicle expenses, provided that you use your vehicle for the purpose of work, not simply driving back and forth to an office. Since you can only deduct the portion that is used for earning business income, you need to keep track of your mileage in a logbook.
These deductions not only include your fuel, but they also Includes your motor vehicle license, registration, vehicle maintenance, insurance, and any possible leasing costs.
You can also deduct education expenses, if they relate to the education required for your professional license or designation for your business. Of course, these license and membership annual dues are also deductible. As are subscriptions, including magazines as long as they are used to earn business income.
As a small business owner, you can deduct 50% of your total meal and entertainment expenses, as long as they are for business purposes. As with everything, ensure that you keep your receipts. The Canada Revenue Agency won’t accept your credit card statement. When it comes to meals, it is even recommended that you write down who you were meeting, for future reference.
Of course, any tools or equipment purchased specifically for your business can be deducted. As with the capital assets we mentioned above regarding your office, these will be subject to depreciation.
When you purchase capital assets, you can’t claim the full purchase price in one year, but you can claim the depreciation amount. You can deduct the maintenance costs for these assets though.
In addition to these deductions, you can also deduct your business advertising and promotional expenses, as well as any accounting and legal fees that are associated with your business. You can also deduct interest on any money that was borrowed for business purposes as well as your bank charges. Finally, you can deduct employee salaries and benefits, including worker’s compensation.
Some of these may be straight forward, but we recommended that you check with your experienced bookkeeper to see which of these apply to you.
They can also assist you in determining if you should be taking a salary, dividends, or if you should be income splitting. They can help you navigate the tax on split income (TOSI) rules.
As we mentioned in our blog ‘Income Splitting Rules’, there are pros and cons to all of these different ways of paying yourself, as well as any combinations of them.
Remember that working with your experienced bookkeeper throughout the year makes tax time more manageable. In addition to all of the tax tips above, a bookkeeper can also let you know if there are any tax credits available to you.
They can assist you to plan throughout the year so that you are not only aware of your tax situation, but to help you achieve savings and set you on the path to achieve your long-term goals.
Some additional tips we want to provide you with are when it comes to tax deadlines.
According to the Canada Revenue Agency, if you are operating as a sole proprietor and you earn business income, you need to pay your taxes by May 2, 2022. This is the same date as for your taxes (this is because April 30th falls on a weekend this year). As a sole proprietor, your actual tax return doesn’t need to be filed until June 15 though.
If your business has been incorporated, you must file your tax return no later than 6 months after your fiscal year end. Your fiscal year end is the date that you have set as to when your company finishes its 12-month business cycle. A lot of times, this is different than the calendar year-end.
Again, when you file your tax return, this is not the same date as when your actual tax payment is due. Typically, your corporate taxes are due 2 months after your tax year ends.
For Canadian-controlled private corporations (CCPC) claiming the small business deduction for the current or previous year, your corporate tax is due 3 months from your tax year-end.
As we mentioned in our “Taxation of Investment Income” blog, these corporations and all associated corporations are ones that had taxable income less than $500,000 in the previous year.
If your incorporated business makes over $30,000 a year, you must register with the Canada Revenue Agency and get a GST number. In BC, your GST is 5% and your provincial sales tax (PST) is 7%.
When you open your GST/HST account, your reporting period will be assigned to you. This date is located at the top of your GST34-2, GST/HST Return for Registrants.
These payments may be monthly, quarterly or annually. If you file monthly, your return as well as any amount owing needs to be paid within 1 month after the end of the reporting period. If you file quarterly, your return and payment need to be received within 1 month after the end of the reporting period.
Finally, if you file annually, your return and any money owing are due 3 months after the reporting period date. An exception to this is if your fiscal year-end is December 31st. In this case, any GST that you owe is due on April 30th and your return is due June 15th.
Your PST payments will vary depending on how much sales tax you have collected throughout the year, and dependent on your province. In BC, your PST reporting periods are as follows:
Once you know when your various tax payments are due, you can plan for them in advance. Your bookkeeper may have even set you up with separate GST and PST bank accounts, away from your main bank account.
Need help from an expert?
There are a lot of things you need to remember about taxes when you are a business owner. Let one of our experts at Valley Business Centre help. For over 30 years, Valley Business Centre has been providing comprehensive bookkeeping, payroll and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor and metro Vancouver B.C. areas. Valley Business Centre provides reliable and effective services to all clients.
Disclaimer
This article is written for informational purposes only. It is current at the date of posting and changes to laws and regulation may result in the information becoming outdated. It is not intended to provide legal, tax, or financial advice. It is recommended that readers get advice from a tax professional before making any final decisions.
