The best thing about starting a business is that you get to be in total control of the operation. You get to decide which products to launch and which strategies to implement. However, the one thing we recommend is ensuring you receive the right guidance when it comes to your accounting, namely your taxes.
When you start your own business in Canada, you need to look out for more corporate matters, financial planning, lenders, loans, and taxes. Surely, using secured credit cards in Canada to manage your business money can help you with tax deductions and build your businesses credit, but there’s more advice to be gained on how to manage taxes for your company.
Here are some top tax tips for business owners in Canada to file their financials like a pro:
Table of Contents
1. Don’t Ditch The Business Receipts
Your business receipts are the paper trail for all of the money you spent on any professional activity, product or material. Yes, even on a mere notepad or a writing pen. All small expenses will add up considerably at year-end. Keep your receipts tracked and stored by order of purchase in a dedicated business expense folder. This makes the process of adding up all of your expenses easy for your accountant. Using a corporate credit card or dedicated business account debit card is a far better choice than using your personal accounts. The reason for this is that by using your personal accounts to complete your business purchases makes tracking almost impossible. More to that, you don’t be able to benefit from small business tax deductions if you don’t keep your expenses separated.
2. Consider a Liaison Officer Service
The Canada Revenue Agency offers free webinars or virtual visits to help small business owners in Canada understand their taxes better. The service provides answers to tax related questions no matter how minor or complex they may be. In fact, according to a publication released in February of 2022, 99% of business owners who used the service claimed that the liaison officer successfully addressed all of their concerns. More specifically, a liaison officer can assist you with:
- Understanding your tax rights and obligations as a business owner
- Avoid the most commonly made errors which can wind up costing you down the road
- Better manage your tax affairs
- Accessing more tools, resources and services offered by the CRA
- Quick analysis of your records and books
- Strengthening your bookkeeping system
- Determining whether are not your business is on the right track
- Preventing possible auditing issues
Prior to Covid-19, liaison officers would make personal visits to your business. While they are now back to in-person, there is also the option of booking virtual appointments.
3. Know Your Tax Deductions
The best way to file your business taxes is to first understand what you’re able to claim. This will depend on the type of business you have. For example, if you’re a cookbook author or a chef then you can claim for utensils, kitchen equipment, ingredients. If you travel to provide private cooking lessons for your clients then you can also claim your car, gas and maintenance on the vehicle.
If you’re a contractor, then of course you would claim your supplies, materials, work space, machinery and also your transportation expenses to get from job site to job site. You must only use the equipment, car, or home space you utilized for business because the CRA will check the receipts or ask for verification. If you attempt to claim more than what you are eligible for, that’s considered tax fraud, which is the last issue your small business needs.
If you have a staff you might also claim tax-deductible medical expenses for your employees and working staff.
4. Split Your Income
Any money going out of your business account can be considered for a tax deduction. That’s why experts advise splitting your income among your family members to reduce your tax bill. Or, in simple words, hire your family as your arms-length employees. Be cautious however. Some business owners have made the mistake of paying massive salaries to their family members for trivial tasks. For example, paying your sister a $250,000 income per year for sorting files isn’t realistic, and very difficult to validate in the eyes of your business taxes. So, when you are organizing your business structure to add family employees, make sure you research and study how you can split your income for a lower tax bill. This is another area where a liaison officer can effectively guide you in the right direction.
5. Benefit From Work-From-Home Business
Most business owners start their company from a small space in their home. Therefore, you can claim that area for the tax deduction. However, even if you are an established organization with separate office space, you can still benefit from this.
Do you have any employees who work from home due to health issues? Or have you simply divided the shifts to cope with your small office? Whatever the reason might be, you may be able to receive tax deductions for it. A great resource for what types of expenses may be claimed for work-from-home employees can be found here.
8 Tax Benefits of Owning a Small Business in Canada
Want to know the tax benefits that come from owning a small business in Canada? Check out our other article.
In Conclusion
It’s never too late to start planning your business taxes. Thinking about taxes only when it’s down to the crunch can be an extremely stressful undertaking, especially if your business is doing well and you’ve been knee deep in the operations of it all. When you are a new start-up just taking a lead in the industry, paying your taxes correctly is mission critical. A couple of hours here and there during your down time to read articles such as this, gather your documents and at the very least organize them well will go a long way towards your filing responsibilities in the new year.
Group Enroll is a provider of employee benefits in Canada; whether you are a team of 2 or team of 2000. We are also a central hub of information for small business owners, HR professionals, Directors and CEO’s. Want to know more about how to launch a successful start up? Tax information or even how to manage high performing employees? Visit our blog. Have specific questions about how group benefits work and want to speak to an expert? We can do that too.
