Eight Tips for Reducing Tax Payments in Canada

Owning and operating a business entails a significant amount of effort, and it goes without saying that maximizing profits is a top priority. With that in mind, here are some valuable pointers on taxes that can help you accomplish just that.

To avoid the risk of losing receipts and potentially missing out on tax deductions, it is crucial to be diligent about record-keeping. In addition to organizing electronic copies of scanned receipts, ensure you file hard copies as well, as this can prove useful in the event of an audit.

Self-employed individuals have until June 15th to submit their taxes in Canada. However, it is important to note that if you owe money to the Canada Revenue Agency (CRA), your tax bill must be paid by April 30th to avoid any late fees. Filing after the June 15th deadline will incur a 5% late penalty, and subsequent interest of 1% per month, as indicated on the CRA website.

When it comes to tax planning, one effective strategy involves hiring your spouse or child and providing them with a salary. This approach has dual advantages: firstly, the first $12,069 of their employment income is tax-free, thanks to the "basic personal amount" as outlined by the CRA. Furthermore, their salaries count as a tax deduction for your business. It is important to ensure that these salaries are reasonable and well-documented, providing evidence of the work performed.

Developing a habit of using a separate business credit or debit card to cover all business-related expenses can greatly simplify record-keeping and may help you avoid raising any red flags with the CRA. In cases where an expense falls into a gray area, such as a bathroom upgrade for your home office, be sure to clearly indicate its relevance to your business on the receipt.

Opting for tax-advantaged savings plans is a wise decision that can contribute to your retirement savings while simultaneously reducing your tax liability. A Retirement Savings Plan (RSP) allows you to shelter your savings from taxes, while a Tax-Free Savings Account (TFSA) permits penalty-free withdrawals.

If you have encountered losses due to non-paying customers, experienced capital losses, or been a victim of theft in relation to your business, it is important to remember that these losses can be claimed as valid tax deductions.

It is not uncommon for business owners who operate from a home office or run a home-based business to overlook certain expenses such as utilities, internet charges, and postage. However, the CRA requires you to determine the percentage of your home space used for business purposes in order to calculate the portion that can be claimed for rent, mortgage interest, utilities, and other related expenses.

If you have journeyed a distance of no less than 40 kilometers in order to conduct your business operations, it is feasible for you to potentially reclaim a multitude of costs that are associated with this endeavor. These costs encompass transportation and storage fees, commissions for real estate agents, as well as fees incurred for the purpose of connecting or disconnecting utilities.

Here is an additional recommendation: Opting to collaborate with an accountant who possesses a comprehensive understanding of your specific business genre may potentially lead to monetary savings through the identification of tax deductions that may have remained unbeknownst to you.

Please note that this information is solely meant for educational purposes and should not be regarded as professional tax advice. It is highly important to seek guidance from a certified tax specialist who can offer personalized tax advice that is tailored to suit your personal or business circumstances.