One worry when launching a small business in Canada is how to manage your taxes. Every company, from Amazon to your local barbershop, receives some form of tax breaks. That’s why we’re here to give you a few pro tips on how to take advantage of the best tax benefits of owning a small business in Canada.
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What is a Tax Write-off?
Let’s start with the basic definition of a tax write-off. Also referred to as a tax deduction, a tax write-off is any expense that can be subtracted from your annual taxable income. The benefit of a write-off is that it can lower the amount of taxes you have to pay each year, which should be music to the ears of any individual or company.
We’ve listed our top eight tax deductions that could be available to your small business operation. A couple of things to note, however. First, always consult a CPA before claiming a deduction. The Canada Revenue Agency (CRA) is very serious about tax penalties and an unwarranted deduction may cost you thousands of dollars. Second, working with accounting or bookkeeping software is a good idea to keep track of these deductions throughout the year. As you’ll find out, there are a lot of expenses and items to keep up with.
1. Business Insurance
Insuring businesses is the core of our services at Group Enroll. Depending on the group insurance policy under which your employees are covered, you may pay high premiums for a variety of features. These premiums could be considered tax deductions.
Some of these premiums include group health and dental insurance, workers comp, auto insurance, and life insurance. This is one reason why offering a generous group benefits plan to your employees is important for any small business.
If you make donations to a charity or non-profit organization, these are also considered tax write-offs as long as they are cash contributions, gifts of property, or travel expenses incurred while doing volunteer work. On that note, you cannot claim a deductible for time spent doing volunteer work. The CRA needs solid cash numbers.
If you’re looking for a group health insurance plan for your employees, get a free quote here.
2. Salary and Benefits
Another business expense that can be considered a write-off is the salary and benefits you provide to your small business employees. To qualify as a deduction, there are a few things that must be proven.
The employee must not be considered a sole-proprietor, partner, or LLC member and you must also show proof of insurance. In addition, the salary that you pay the employee must be reasonable for their position and job title.
You also can’t get a deductible for favoured employees. An example of that would be if one of your employees owns a good portion of your company’s shares.
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Many small businesses rent out their facilities and equipment. If this is the case for your business, you may claim a deduction for rental expenses. Note that you must not own any percentage of your company’s building or else you will be disqualified from receiving this benefit. Other expenses that may be claimed include any items you rent for your business and business service cancellation fees.
If you are working out of your home, this is a separate deduction and should not be claimed as a rent deduction. Additionally, issues may occur if you have a relationship with the building owner and pay less than the market value for rent. Consult your CPA in this situation.
4. Utility Expenses
Most Canadian businesses make use of internet and phone service. If you own a business operation that requires electronic devices to run efficiently, you may be eligible for a tax break. If you have a home office, only additional landlines may be included in your deduction. Your personal home line does not qualify.
Tracking the percentage of time that you use your mobile phone for work-related ventures is very important when it comes time to file your taxes. Keep that in mind if you plan to claim your cell phone as a tax deduction at year’s end.
Because of the guesswork involved in a lot of these claims, it is recommended that you speak to a financial advisor or CPA to take it off your hands and make things easier for you.
With so many digital avenues to advertise your business these days, pretty much every dollar you pay for marketing campaigns can be counted as a write-off. These include paid social media ads, as well as expenses towards things such as ad creator software. However, they must be considered a reasonable campaign by the CRA. You can’t make up a new advertising idea and expect it to qualify. The CRA must be able to clearly visualize the promotion.
This tax credit also extends to promotion. If your company holds events to increase exposure for your business, this is an acceptable deductible and expenses will usually be considered write-offs.
Going to school to pay fewer taxes? Sounds great. Education can be considered a tax write-off. This is on the condition that the educational services you are paying for directly relate to the advancement of skills necessary to do your job. In other words, if you’re a convenience store owner and you take clay modeling classes, those expenses won’t qualify you for a deductible.
Acceptable education deductibles include seminars, industry publication subscriptions, workshops, and more. Some businesses offer educational assistance programs for their employees. In that case, expenses may be tax-deductible.
7. Moving Expenses
Another way you may be eligible for tax deductions is if your company has recently relocated. Moving expenses for a business are considered write-offs. Transportation expenses fall under a few different deductible categories. In most cases, any expenses you incur with a business-owned vehicle or transportation service can be claimed as a deductible.
In certain circumstances, this benefit may extend to business owners if they relocate to a new home for work-related reasons. But be sure to consult your CPA if this is the case to make sure. Additionally, if you reimburse your employees’ relocation costs for the same reason, you must file these expenses as a taxable benefit to the employees.
8. Legal Fees
All business owners run into some form of the legal situation every once in a while. Legal fees can cost you several thousands of dollars. Fortunately, there are some tax benefits of which you can take advantage. Charges made by lawyers or accountants can be claimed as deductibles as long as they are justifiable.
As with the other write-offs on this list, these can only be claimed if the charges pertain to your business. You cannot claim personal attorney fees. Monthly retainer fees, on the other hand, would qualify as deductibles.
See Your Options with Group Enroll
Small/medium businesses make up 99.8% of the private sector. Being so critical to the economy of Canada, the government has a particular interest in this sector. At Group Enroll, we can help you with certain tax deductibles such as business insurance.
We work with the most reputable lenders in Canada to get your business the best group insurance rates found anywhere. We put a dedicated focus on getting quotes to you faster than any other group insurance broker. Your time is valuable, and we understand that.
On that note, here are a couple of ways to get started:
Send us a message by filling out our contact form or giving us a call during business hours at 1-877-600-5666.
Our team of insurance experts matches what you’re looking for in a group plan with the most compatible insurance provider to ensure your employees get the coverage they need. Get started today!