Canadian Corporate Taxes

How to Maximize Your Return

It’s that time of year again –the dreaded tax season.  For business owners with incorporated corporations whose fiscal year has ended, this means having to file two separate returns – personal and corporate. It’s a daunting task to say the least, which is why many businesses chose to hand over their paperwork and receipts to a trusted accountant. But for those of you who are do-it-yourself types, here’s a guide to help you maximize your corporate tax return.

Type of Corporations

There are various types of corporations in Canada, all of which are subject to tax rates dependent upon corporate status. The corporations that have the lowest tax rate are Canadian-controlled private corporations (CCPCs).  These are entirely private corporations controlled and operated within Canada. CCPCs are eligible for the Small Business Deduction which, at this time, stands at 11%, the lowest tax rate available to corporations. All other corporations that do not fall under this category, whether private or public, are taxed at a higher rate. It is worth investigating at the outset the potential of having your business structure set up as a CCPC in order to benefit from the deduction.

Corporate Tax Credits

Research and Development Tax Credits: To qualify for an R&D tax credit (or the SR&ED Program) your company must be involved in experimental development, applied research, basic research and support work which would lead to advancement or address uncertainty in technological and scientific areas. This can encompass a wide range of R&D and is particularly useful for tech and environmental start-ups that are developing new products or improving upon existing products in the marketplace.

Tax Credits for Small Businesses: In addition to R&D tax credits, Canadian businesses can benefit from a range of tax credits for small business. Some credits are dependent on jurisdiction or depend upon industry, while others are Canada-wide and not industry-specific. Tax credits include areas such as apprenticeship job creation, designated activities on qualified property, child care spaces and pre-production mining.

Corporate Income Tax Deductions

If your corporation doesn’t qualify for any tax credits, take a look at potential corporate income tax deductions, you may be surprised what can be included! Below are some examples:

·         Gifts to employees
·         Automobile expenses
·         Insurance
·         Office expenses
·         Mortgage interest & security
·         Business meals/entertainment
·         Conventions
·         Canadian advertising expenses
·         Accounting/legal services
·         Home-based business expenses

Taking the time to research all the available tax credit and deductions for your small business can definitely help you save money in the long run. Take advantage of the incentives the Canadian government provides small business – that’s what they are there for! Good luck and happy filing.

Deducting Accounting and Tax Preparation Fees

Let's be perfectly clear - no matter what your political affiliations might be we can all agree that we hate paying taxes.

Whether it is your personal income or your businesses income, writing out that tax check can be extremely painful. That's why we look for ways to reduce them, especially deductions. Anything to lessen the tax burden is a good thing but what about getting those tax returns ready in the first place?

With tax codes being what they are, it's not easy to make sense of all the rules and regulations.

That's why we need a little accounting help every now and then. Can you deduct those tax preparation fees? The short answer is "Yes." But as with anything to do with the government, there is always a "catch."

Tax Preparation Deduction for the Business Owner

As the owner of a business you are eligible to deduct your accounting fees and tax preparation fees as a typical cost of doing business. Look for T2125 Statement of Business Activities and Line 8860.

This would be the fascinating "Legal, Accounting and other Professional Fees" category on your tax return. From the CRA tax code itself comes this official eligibility requirement:

"1. Except where there is a specific provision in the Act dealing with legal or accounting fees…, legal and accounting fees are deductible only to the extent that they:

(a) are incurred for the purpose of gaining or producing income from a business or property, and

(b) are not outlays of a capital nature."

Make sense?

Here's the translation: If you paid those fees in order to make more money for your business then they are deductable. How can there be any other reason for accounting but to make money? That would be with personal income situations. As far as the government is concerned, the T2125 form is just one piece of the total tax return puzzle. The rest of your personal income tax return has nothing to do with making money for your business therefore any money spent preparing those returns aren't deductable.

The Work Around

Yes, you would have to separate the accounting fees even if you're using the same accountant but your accountant should know this. One way around this deduction is for your accountant to assess 100% of their fees for your business returns. Then they would do your personal returns for "free." Who can blame them for spending all the time and effort on the business returns?

DIY Tax Returns

If you prepare your own taxes then you might be able to deduct the cost of software as part of the office expenses on the T2125 form. Again, this is only for business owners. As a regular employee who does their own taxes, you won't be able to make the deduction.


Another great reason for starting a business: More tax breaks!

Tips to reduce your income tax for small businesses

With the tax deadline fast approaching, it’s time to start planning now. To help you get prepared, we’ve provided a few quick tips to reduce your business tax bill. Some of them can be applied immediately and will definitely help reduce the amount of income tax you would have to pay.

1.       Take advantage of your business deductions

All expenses that you incur during business operations can be tax deductible. They can range from parking, postage, or even coffee. As long as you collect your business receipts, you can maximize your deductions when filing your return. 

If you either have a home office or lease a place, there are a few deductions that you can make that can help you reduce your income tax.  For home-based businesses, expenses such as insurance, electricity, phone, Internet are all expenses that can be claimed by you. According to the Canadian Revenue Agency (CRA), any expenses that are incurred while operating your business – be it home or elsewhere, are tax deductible.

   

2.       Use your RRSPs to your full advantage

Using your RRSP is one of the best ways you can reduce your small business income tax. It’s unique in that it’s designed to be used as a long term savings vehicle while reducing your tax rate at the same time. So, if in one year you have a high income, you can determine how much you want to contribute into your RRSP as the more you contribute, the more your income tax is reduced. In a low income year, making an RRSP contribution won’t help so you might as well let the unused contribution carry forward when you need it, so that you can make a larger contribution.

3.       Donate to charitable causes                                                       

When you donate to charities, you receive tax credits from the government. By giving more to any registered charity, you’ll be able to maximize the tax credits resulting in a lower tax income rate. 

4.       Pay your family by splitting your income

By splitting your income, you get to take advantage of the different tax rates especially if your income is high. When your income is high, you’re placed on a higher tax bracket, however, if a portion of your income is transferred to your spouse or your child (if they are in a lower tax bracket), you’d be able to reduce your tax rate on your income. 

So if your child is going to university, by transferring a portion of your income, you would be able helping them with their school expenses while reducing your tax rate at the same time. Likewise, you can also gift your children any appreciable assets such as stocks, bonds or property. Any capital gains that they receive are taxed in the lower tax bracket.

5.       Write off your car expenses

If you use your vehicle for your business, you are allowed to claim any automobile costs such as:

-          Car insurance

-          Gas

-          Parking

-         Car maintenance

You have to be aware of some requirements before you can claim any automobile expenses: 

• You must have an employee agreement between your business and employee that the car is used for work purposes; 

• The government requires you to fill out form T2200, stating this agreement.

These tips will help you lower your tax burden – however, we highly recommend speaking with your accountant about other ways to save on taxes.