Corporate Tax

As a small or medium business owner in Alberta, you are constantly looking for ways to maximize your savings and reduce your tax liability. One effective strategy is to take advantage of eligible business expenses that can be claimed as write-offs. At Richardson Miller LLP, we understand the importance of optimizing your tax deductions and reducing your business tax liability. In this blog, we will highlight the top 11 tax write-offs available for small and medium businesses in Alberta, helping you save money and achieve financial success.

What is a Tax Write-Off?
A tax write-off, also known as a tax deduction, is an expense that can be legally deducted from your taxable income. By strategically identifying and claiming eligible expenses, you can reduce the amount of income subject to taxation. This ultimately helps you lower your overall tax liability in that tax year and keep more money in your pocket.

Tax Write-Offs for Small Businesses

1. Office Rent and Utilities

Do your run your business in office or building? Did you know that you can deduct a portion of your office rent and utility expenses? This includes rent payments, property taxes, insurance, and utilities such as electricity and internet.

When it comes to office rent, small business owners can deduct a portion of their monthly rent payments. This applies whether you have a dedicated office space or if you work from a home office. The key is to calculate the percentage of your home or office space that is used exclusively for business purposes. This percentage will determine the portion of your rent that can be deducted.

In addition to rent, other expenses related to your office space can also be deducted. This includes property taxes and insurance premiums specifically tied to the business portion of your property.

Utility expenses such as electricity and internet are also eligible for deductions. Just like with rent, you will need to determine the percentage of these utilities that are used for business purposes. This can be done by calculating the square footage of your office space in relation to the total square footage of your home or office.

Small businesses spend an average of 11% of their total expenses on rent and utilities. Source: Statistics Canada

 2. Business Travel Expenses

If you travel for business purposes, you can deduct expenses such as airfare, hotel accommodations, meals, and transportation.

The Canada Revenue Agency (CRA) allows you to claim reasonable and necessary travel expenses incurred for business purposes. This includes travel within Canada, as well as international travel. However, it’s important to note that personal travel expenses cannot be claimed under the guise of business use.

When it comes to airfare, small business owners can deduct the cost of flights or other transportation expenses related to business travel. This includes airfare, train tickets, and rental cars. Hotel accommodations are also eligible for deductions, as long as they are reasonable and necessary for business purposes.

Meals and entertainment expenses can also be deducted, but only up to a certain percentage. Generally, the CRA allows for a 50% deduction on meals and entertainment expenses. However, it’s important to keep detailed records of these expenses, including who was present and the purpose of the meal or entertainment.

 3. Vehicle Expenses

Do you have a vehicle that you use for your business? If so, you can claim deductions for expenses such as gas, maintenance, insurance, and lease payments. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to keep detailed records of your business mileage to support your claims.

To claim vehicle expense deductions, it’s critical to maintain accurate records of your business mileage. This includes tracking the date, starting and ending locations, and purpose of each trip. You can use a mileage logbook or smartphone app to make this process easier. With detailed records, you can confidently claim the deductions you’re entitled to while minimizing the risk of an audit.

Benefits of Vehicle Expense Deductions

By taking advantage of vehicle expense deductions, you can:

  • Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  • Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  • Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Business Efficiency: Use your vehicle expenses to streamline your operations and improve productivity.

4. Home Office Expenses

If you operate your business from a home office, you may be eligible to deduct a portion of your home expenses such as rent or mortgage interest, property taxes, utilities, and maintenance costs. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to ensure that you meet the specific criteria set by the Canada Revenue Agency for claiming home office expenses.

For example, your home office must be your primary place of business, and it must be used exclusively for business purposes. You must also be able to demonstrate that your home office is a clearly defined workspace and that it is used regularly and continuously for business purposes.

Benefits of Home Office Expense Deductions

By taking advantage of home office expense deductions, you can:

  •  Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  •  Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  •  Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Work-Life Balance: Operating from a home office can provide flexibility and improve work-life balance.

 5. Professional Services

When you run a business, you will inevitably use professional services such as lawyers, accountants, and consultants. These fees can be claimed as business expenses, which can help reduce your taxable income and lower your tax liability.

Hiring professionals such as lawyers, accountants, and consultants can help ensure compliance with tax laws and provide valuable advice for your business. For example, an accountant can help you keep accurate financial records, file your taxes on time, and identify areas where you can save money on taxes. A lawyer can help you navigate legal issues related to your business, such as contracts and intellectual property. A consultant can provide specialized expertise in areas such as marketing, human resources, or operations.

It’s important to keep detailed records of the services provided and the fees charged. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the fees paid are reasonable and necessary for your business.

Overall, hiring professionals can provide valuable support for your small business and help ensure compliance with tax laws. By claiming these fees as business expenses, you can reduce your tax liability and reinvest those savings back into your business. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the Canada Revenue Agency (CRA).

 6. Advertising and Marketing

Expenses related to advertising and marketing your business can include a wide range of costs. This includes the cost of online ads, such as pay-per-click campaigns or social media advertising. It also includes expenses for print ads, such as newspaper or magazine advertisements. Additionally, costs associated with website development and maintenance can be claimed, as having a strong online presence is crucial for many businesses today. Furthermore, expenses for promotional materials like business cards, brochures, and branded merchandise are also eligible for write-offs.

Small businesses spend an average of 2% of their total expenses on advertising. source: – Canadian Federation of Independent Business (CFIB). 

7. Office Supplies and Equipment

Purchases of office supplies such as stationery, printer ink, and computer software can be claimed as write-offs. These expenses are necessary for the day-to-day operations of your business and can add up quickly.

In addition to office supplies, if you buy equipment such as computers or furniture for your business, you may be eligible for capital cost allowance (CCA) deductions. This allows you to deduct a portion of the cost of the equipment each year, based on the depreciation of its value over time. This deduction can help reduce your tax liability in the year that the equipment is purchased and in subsequent years.

It’s important to keep accurate records of these expenses and equipment purchases, including receipts and invoices. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the expenses and equipment purchases are reasonable and necessary for your business.

 8. Employee Salaries and Benefits

Salaries, wages, and bonuses paid to employees are considered necessary expenses for the operation of your business. These payments are eligible for deduction as long as they are reasonable and directly related to the services provided by the employees.

In addition to salaries and wages, contributions to employee benefit plans are also deductible expenses. This includes contributions made towards health insurance plans, retirement savings plans (such as Registered Retirement Savings Plans or RRSPs), or other employee benefit programs. These contributions not only provide valuable benefits to your employees but also offer tax advantages for your business.

It’s important to keep accurate records of these payments and contributions, including payroll records, benefit plan statements, and receipts. This will help you accurately calculate the amount that can be deducted on your tax return. Additionally, it’s crucial to ensure that the salaries, wages, bonuses, and benefits provided are reasonable and in line with industry standards.

Small businesses in Canada employ approximately 8.3 million people, accounting for 70.5% of private sector employment. Source: Canadian Federation of Independent Business (CFIB)

9. Training and Professional Development

Expenses related to training and professional development for yourself or your employees are considered necessary for the growth and improvement of your business. This includes registration fees for conferences, seminars, courses, and workshops. These events and programs provide valuable opportunities to enhance skills, gain knowledge, and stay updated with industry trends and best practices.

By claiming these expense as small business tax deductions, you can not only invest in the development of yourself or your employees but also reduce your tax liability. It’s important to keep accurate records of these expenses, including receipts, invoices, and proof of attendance.

Small business owners can foster a culture of continuous learning and development within their organizations. This can lead to improved skills, increased productivity, and ultimately, business growth. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the CRA.

10. Bad Debts

It has happened to so many businesses, bad debts! If you have outstanding invoices that have gone unpaid or debts that are deemed uncollectible, you may be able to claim them as write-offs, helping to reduce your taxable income and lower your overall tax liability.

When a customer or client fails to pay an invoice, it can have a negative impact on your business’s cash flow. Did you know that the Canada Revenue Agency allows you to claim these unpaid invoices or bad debts as deductions, recognizing the financial loss incurred?

To claim these write-offs, it’s important to keep documentation and evidence of the unpaid invoices or bad debts. This includes maintaining records of the original invoices, communication attempts, and any supporting documentation that demonstrates your reasonable efforts to collect the debts. These efforts may include sending reminders, making phone calls, or engaging in collection activities.

It’s crucial to note that before claiming a bad debt as a write-off, you must make reasonable efforts to collect the debt. This means demonstrating that you have taken appropriate steps to recover the amount owed. The CRA requires that you have exhausted all reasonable means of collection before claiming the debt as uncollectible.

11. Charitable Donations

When you make a donation to a registered charity, you are not only supporting a worthy cause but also receiving a financial benefit. To claim these write-offs, it’s important to keep documentation and evidence of the donations made. This includes maintaining records of the donation receipts, which should include the name and registration number of the charity, the date of the donation, and the amount donated.

It’s important to note that not all charitable donations are tax deductible. The charity must be registered as a qualified donee, and the donation must be made voluntarily, without any expectation of receiving something in return.

Under the Income Tax Act, qualified donees are organizations that can issue official donation receipts for gifts they receive from individuals and corporations. Registered charities can also make gifts to them. source: canada.ca

Supporting charitable causes not only helps the community but also provides tax benefits for your business. By claiming these donations as write-offs, small business owners can reduce their tax liability while also making a positive impact on society.

By leveraging these top 11 tax write-offs for small and medium businesses in Canada, you can reduce your tax liability and maximize your savings. However, it’s important to consult with a professional accountant like Richardson Miller LLP to ensure compliance with tax laws and optimize your deductions. Contact us today to learn more about how we can help you navigate the complex world of business deduction strategy and achieve financial success.

What are the common GST/HST errors That Small Businesses Make?

Running a small business can be both rewarding and challenging. One of the challenges that small business owners face is managing their tax obligations. In Canada, small businesses are required to comply with the Goods and Services Tax (GST) and/or Harmonized Sales Tax (HST) regulations. However, many small business owners unintentionally make common errors when it comes to their GST/HST responsibilities. In this article, we will explore some of these common errors and discuss how small business owners can avoid them.

Tax Credits for Small Businesses

What are the available tax credits for small businesses?

Small businesses are entitled to various tax credits that can help reduce their overall tax liability. Some common tax credits include the Small Business Deduction, which allows eligible small businesses to pay a lower income tax rate, and the Research and Development Tax Credit, which provides incentives for businesses that invest in research and development activities. There are also tax credits available for hiring and training employees, investing in renewable energy, and promoting cultural industries, to name a few.

How can small business owners claim tax credits?

Small business owners can claim tax credits by including the relevant information on their income tax returns. They should keep proper documentation to support their claims and ensure that they meet all eligibility criteria. It is important to carefully review the requirements outlined by the Canada Revenue Agency (CRA) to ensure compliance.

What are the common mistakes made when claiming tax credits?

One common mistake made by small business owners is not keeping track of their expenses properly. To claim tax credits, accurate records and invoices are necessary. Another mistake is failing to claim all eligible tax credits. Small business owners should familiarize themselves with the available tax credits and ensure that they take advantage of all opportunities to reduce their tax liability.

Understanding Input Tax Credits (ITCs)

What are input tax credits (ITCs) and how do they work?

Input Tax Credits (ITCs) are credits that businesses can claim to recover the GST/HST paid on goods and services used in the course of their commercial activities. Essentially, ITCs allow businesses to deduct the GST/HST they paid on their inputs from the GST/HST they charged on their outputs. This ensures that businesses only pay GST/HST on the value they add to the final product or service.

How can small business owners ensure they are eligible for ITCs?

To be eligible for ITCs, small business owners must ensure that the expenses they are claiming the ITCs for are incurred for business purposes. They should keep detailed records of their expenses, including invoices that clearly indicate the amount of GST/HST paid. Small business owners should also ensure that they have registered for a GST/HST account with the CRA and are charging and collecting the appropriate GST/HST on their sales.

What are the consequences of incorrectly claiming ITCs?

Incorrectly claiming ITCs can lead to penalties and interest charges from the CRA. The CRA may also conduct audits to verify the accuracy of the claims. If it is found that ITCs were claimed incorrectly, small business owners may be required to repay the amounts they claimed, along with any associated penalties and interest. It is crucial for small business owners to ensure that their ITC claims are accurate and supported by proper documentation.

Managing Sales Tax for Small Business Owners

What are the sales tax requirements for small business owners?

Small business owners are required to collect and remit sales tax on taxable supplies. The amount of sales tax to collect depends on the province or territory where the business operates. In some provinces, the sales tax is a combination of the federal GST and the provincial sales tax, while in others, it is the harmonized sales tax (HST).

How can small business owners determine the amount of sales tax to collect?

To determine the amount of sales tax to collect, small business owners must consider the applicable tax rate and the total amount of the sale. They should calculate the sales tax separately and clearly indicate it on the invoice. It is important to stay updated on any changes in the sales tax rates and regulations to ensure compliance.

What are the common GST/HST errors made when reporting sales tax?

A common mistake made by small business owners is failing to charge and collect the correct amount of sales tax. This can result in underpayment or overpayment, both of which can have consequences. Small business owners should also ensure that they report and remit the sales tax in a timely manner to avoid penalties and interest charges from the CRA.

Integrating Personal and Business Finances

What are the implications of mixing personal and business finances for small business owners?

When small business owners mix their personal and business finances, it can create complications and make it difficult to track business expenses accurately. It can also make it challenging to manage cash flow and obtain a clear picture of the business’s financial performance. Additionally, mixing personal and business finances can potentially affect the owner’s personal liability and ability to claim certain deductions and credits.

How can small business owners separate personal and business finances effectively?

To separate personal and business finances effectively, small business owners should open separate business bank accounts. This will help keep business transactions separate from personal transactions and simplify bookkeeping. It is also advisable to obtain a separate credit card for business expenses and use accounting software or tools to track and categorize expenses accurately.

What are the potential consequences of not keeping personal and business finances separate?

Not keeping personal and business finances separate can lead to inaccuracies in financial reporting, which can have legal and tax implications. Small business owners may find it challenging to determine the true profitability of their business, and it may affect their ability to claim certain tax deductions and credits. In the event of an audit, having mixed finances can also raise red flags and result in additional scrutiny from the CRA.

Avoiding Common Errors in HST Filing

What are the common errors made by small business owners when filing HST returns?

When filing HST returns, small business owners often make errors such as entering incorrect amounts, failing to report all taxable sales, or forgetting to claim input tax credits. Other common errors include not filing returns on time or not remitting the correct amount of HST. These errors can result in penalties, interest charges, and additional administrative burdens.

How can small business owners minimize the risk of making errors in HST filing?

To minimize the risk of making errors in HST filing, small business owners should ensure that they have a thorough understanding of the HST regulations. They should keep accurate records of their sales and expenses, reconcile their HST accounts regularly, and review their HST returns for any potential errors. Seeking professional advice or using accounting software can also help ensure compliance and accuracy.

What are the consequences of making mistakes in HST filing?

Making mistakes in HST filing can result in penalties and interest charges from the CRA. These charges can add up quickly and impact the financial health of the business. Additionally, errors in HST filing can trigger audits from the CRA, which can be time-consuming and stressful for small business owners. It is essential to take the necessary precautions and ensure accurate and timely HST filing to avoid these consequences.

Every business is unique. If you have specific questions on how to build a strategy to avoid common GST/HST errors when filling and how to mitigate these expenses, call us today!

Reasons Why Your Business Needs To Hire a CPA in Edmonton

Running a business involves various decisions and responsibilities, including finances and taxes. As a business owner, it can be challenging to keep up with the complicated rules and regulations surrounding financial and tax processes. To manage these important aspects of your business, you may want to consider hiring a professional, such as a chartered professional accountant (CPA). Let us explore why your business needs to hire a CPA.

Why should you hire a CPA?

Reason 1: CPA’s are accounting experts

CPA’s are highly trained professionals who have expert knowledge in accounting and tax. They undergo rigorous training and have practical experience, which makes them the perfect advisor for any business. By hiring a CPA, you can rest assured that you are hiring an expert in this field.

Reason 2: CPA’s can help you save money on taxes

A certified public accountant can assist you in identifying tax deductions and credits that you may have overlooked. They can also help you develop a tax strategy that is aligned with your business goals. With their help, you can maximize your tax savings and keep more of your hard-earned money.

Reason 3: CPA’s can assist with tax planning

A CPA can help you with tax planning to ensure that your company’s tax situation is optimized, minimizing your tax liability, and ensuring that all tax obligations are being met. They also provide guidance on important financial decisions that may have tax implications, such as investments and acquisitions.

Did you know that our Founders, Angela Richardson, CPA, CGA and Bobi-Rae Miller, CPA, CGA have over 20 years of experience working in public practice with small to medium-sized businesses?

What services can be provided when you hire a CPA?

Service 1: Preparation and filing of tax returns

A CPA can help you prepare and file your tax returns, ensuring thorough compliance with the tax laws of your jurisdiction. They also help you coordinate with the Internal Revenue Service (IRS) on your behalf, minimizing potential disputes over your tax documents.

Service 2: Bookkeeping and financial statement analysis

Before a standard numbering system was developed, ancient accountants used clay tokens to keep track of animals and grain to do their analysis. Now, CPAs provide bookkeeping services and financial statement analysis, which is essential to how you operate your business, make decisions and track performance. These services include the preparation of financial statements, general ledger entry, and complex business transactions.

Service 3: Audits and reviews

CPAs can also conduct audits and reviews. Audits involve a comprehensive analysis of your financial data, ensuring that your business is working according to the laws and regulations that govern you. Reviews are less extensive, but they provide a high level of assurance for potential business partners and lenders.

How do you choose the right CPA for your business?

Tip 1: Look for a CPA with experience in your industry

It is best to hire a CPA with experience in your industry, as this will make them more familiar with the unique factors affecting your business. They can also provide more relevant insights and guidance that can help you achieve your business goals.

Tip 2: Consider the cost of hiring a CPA

The cost of hiring a CPA is an essential factor to consider. You should weigh the cost of hiring a CPA against the business benefits they provide. Some CPAs charge a flat fee, while others charge an hourly rate. Ensure you choose a CPA whose rates you can afford.

Tip 3: Meet with potential CPA’s to discuss your business needs

You need to meet with potential CPAs before choosing to work with them. These interviews are an opportunity to ask questions and get to know the CPA, ensuring they have the right experience and understanding of your business. It’s crucial to feel comfortable working with your CPA, so don’t hesitate to ask for recommendations and credentials.

What are the benefits of hiring a CPA for small business owners?

Benefit 1: CPA’s can help you stay compliant with tax laws

A significant advantage when you hire a CPA is that they keep you up to date with tax laws. They ensure that your business tax returns are prepared and filed accurately and on time, avoiding legal and financial penalties that arise due to non-compliance.

Benefit 2: CPA’s can provide valuable financial advice

A CPA can also provide valuable advice on financial decisions that will advance your business goals. They can help you manage your financial data, perform cost analysis, and develop financial strategies that will benefit your company in the long run.

Benefit 3: CPA’s can save you time and hassle during tax season

Finally, when you hire a CPA it can ease the stress and burden of tax season with their expertise. They perform time-consuming tasks such as gathering and organising tax documents, preparing and filing your tax returns, and responding to any issues that arise during the process, freeing up time that you can use to focus on running your business.

These are some of the reasons it is important to have a professional accountant on your team. It is important to be proactive as a business owner so you do not find yourself in hot water with CRA. At Richardson Miller LLP, we have decades of experience working with business owners and corresponding with CRA.

If you have questions about what your next steps are, contact us today!

Welcome to our guide on filling and paying corporate tax in Canada. In this article, we will provide you with all the information you need to know about corporate tax returns, filing deadlines, common mistakes to avoid, and available deductions or credits. So let’s dive in and explore the world of corporate taxation.

What is a corporate tax return?

A corporate tax return is a document filed with the Canada Revenue Agency (CRA) that reports a corporation’s income, deductions, and credits for a specific tax year. It is similar to an individual income tax return but designed for businesses. Filing a corporate tax return is mandatory for any business that meets certain criteria.

Definition of a corporate tax return

A corporate tax return is an annual return filed by a corporation to report its income, expenses, and taxes owed to the government. It is a legal requirement outlined in the Income Tax Act.

Who needs to file a corporate tax return?

All corporations that carry on business, including Canadian-controlled private corporations (CCPCs), are required to file a corporate tax return. Whether your corporation is profitable or not, you must file the return.

What is the deadline for filing a corporate tax return?

The deadline for filing a corporate tax return depends on the corporation’s tax year-end. For tax years ending in 2022, the due date to file the T2 corporate tax return is generally within six months after the end of the taxation year.

How to file a corporate tax return?

Filing a corporate tax return involves several steps. Let’s take a look at a step-by-step guide to help you through the process.

Step-by-step guide to filing a corporate tax return

  1. Gather all relevant financial documents, including income statements, expense receipts, and financial statements.
  2. Use tax software or hire an accountant to prepare your corporate tax return.
  3. Calculate your taxable income by deducting allowable expenses from your total income.
  4. Fill out the T2 corporate tax return form, providing accurate and complete information.
  5. Double-check all the details and ensure you haven’t missed any deductions or credits.
  6. Sign and date the return before submitting it to the CRA.

Common mistakes to avoid when filing a corporate tax return

While filing a corporate tax return, it is important to avoid common mistakes that can lead to delays or penalties. Some common mistakes include incorrect calculations, missing documents, and omitting eligible deductions or credits. To avoid these errors, consider hiring an accountant or using tax software to ensure accuracy.

Do I need an accountant to file my corporate tax return?

Hiring an accountant is not mandatory, but it can be beneficial, especially if you have a complex business structure or are unfamiliar with tax rules. An accountant can help you navigate the complexities of corporate taxation, identify potential deductions or credits, and ensure compliance with tax laws.

What are the consequences of late filing?

Filing your corporate tax return after the deadline can result in penalties and interest charges. Let’s explore the consequences of late filing in detail.

Penalties for late filing of a corporate tax return

If you fail to file your corporate tax return by the due date, the CRA may impose penalties. The penalty amount is based on the number of months after the end of your tax year that the return is late. It is crucial to file your return on time to avoid these penalties.

Interest charges for late payment of corporate taxes

In addition to penalties for late filing, late payment of corporate taxes can also result in interest charges. If you have taxes owing and fail to pay them by the due date, the CRA will charge compound daily interest on the outstanding balance until it is fully paid. Paying your taxes on time is essential to avoid unnecessary interest charges.

Can I request an extension for filing a corporate tax return?

In some cases, you may be able to request an extension for filing your corporate tax return. However, extensions are only granted under certain circumstances, such as financial hardship or circumstances beyond your control. It is advisable to contact the CRA to discuss your situation and inquire about possible extensions.

Key deadlines for corporate tax filing

Understanding the key deadlines for corporate tax filing is essential to avoid penalties and interest charges. Let’s take a look at the important deadlines you need to be aware of.

Deadline for filing the T2 corporate tax return

The deadline for filing the T2 corporate tax return is generally within six months after the end of your corporation’s tax year. It is crucial to mark this date on your calendar and ensure you file your return on time.

Deadline for paying corporate taxes

The deadline for paying corporate taxes is the same as the filing deadline. You are required to settle any taxes owing by the due date to avoid interest charges.

What happens if I miss the filing deadline?

If you miss the filing deadline for your corporate tax return, penalties will apply. The CRA may charge a late filing penalty based on the number of months your return is late. It is important to prioritize your tax filing responsibilities to avoid these penalties.

Are there any deductions or credits available for corporate taxes?

Yes, there are deductions and credits available for corporate taxes. Let’s explore some common deductions and credits that can help reduce your corporate tax liability.

Common deductions and credits for corporate taxes

1. Capital cost allowance (CCA): This deduction allows you to claim the depreciation of eligible assets used in your business. 2. R&D tax credits: If your corporation conducts scientific research and experimental development activities, you may be eligible for R&D tax credits. 3. Small business deduction (SBD): The SBD provides a reduced tax rate on the first a certain amount of active business income earned by a Canadian-controlled private corporation.

How to claim deductions and credits on your corporate tax return

To claim deductions and credits on your corporate tax return, you need to carefully review the eligibility criteria and complete the relevant sections of the T2 form. Providing accurate and detailed information is crucial to ensure your claims are valid and compliant.

What records should I keep for corporate tax purposes?

Keeping proper records is essential for corporate tax purposes. The records should include financial statements, sales and expense receipts, bank statements, invoices, and any other supporting documents related to your business transactions. These records will help you accurately prepare your corporate tax return and provide evidence if audited by the CRA.

In conclusion, filling and paying corporate tax in Canada is a crucial responsibility for businesses. Understanding the requirements, deadlines, and available deductions or credits is essential to ensure compliance and minimize your tax liability. Whether you choose to file your tax return independently or seek professional assistance, staying organized and informed will help you navigate the complex world of corporate taxation.

Does this all sound overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion and get you on the right path. Having clean, up-to-date books will make tax time so much easier for you!

Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

Do you have a bookkeeper or an in-house accounting team?

RM LLP – In-House Corporate Year End Checklist

Fantastic! This list will give you an idea of the specific things you should review and gather. Every business is unique. We’d be happy to help you tailor your year-end to-do list to specifically suit your company.

There are certain tasks to be done on certain dates.

On your year-end date:

  1. Count your inventory at your year-end date.
    1. A spreadsheet is a great way to aid in your inventory count. You’ll want columns for the item description, the number counted and the cost of the item. The columns can be formatted to calculate your total inventory value easily.
    2. Make notes on any items that may be useless.
    3. Do you have items that are stored in another location? Include those too!
    4. Do you have items that are in transit? Have you already paid for them? Make notes on these special circumstances.

Shortly after your year-end and review with your bookkeeper/accounting team:

  1. Ensure all transactions are entered into your accounting software and the bank and credit card accounts are reconciled.
  2. Review the bank and credit card reconciliations. Are there any old/weird transactions on the list of outstanding items that shouldn’t be there? Make a note of them.
  3. Review your accounts receivable listing. As of your year-end date, were those things still owing to you? Pay special attention to the really old invoices. Are any of them unlikely to be collected? Note any uncollectible accounts or items that don’t appear correct.
  4. Review your accounts payable listing. Did you owe all of these items at your year-end date? Is anything missing? Is there anything that shouldn’t be on the list? Look for Vendors that you typically wouldn’t have an account with. Do you have a payable from a restaurant or retail store? A common error is to record an invoice for something small and accidentally fail to match the payment of that amount. I can’t tell you how many times I’ve seen Booster Juice show up on an accounts payable listing. This is obviously an error of some kind. Make notes on anything out of the ordinary or if there are errors.
  5. Review the payments made in the month following your year-end. Were there any expenses paid that actually related to the previous month? What were they? Make a note of them if they aren’t already included on your accounts payable listing.
  6. Review at the detailed general ledger. Are there any obvious errors? A misallocation of an expense type? Specifically:
    1. Are there any insignificant repairs or supplies classified as equipment purchases?
    2. Are there any expenses that need to be reallocated?
    3. Are there any personal expenses accidentally included in the company expenses?
    4. Are there any significant equipment purchases/deposits accidentally classified in expenses?

Once you’re confident that the bookkeeping is ready to go, here is a list of items to provide to your accountant:

  1. Access to your accounting software
    1. Do you use QBO? Please ensure that Richardson Miller LLP is invited to be the accountant.
    2. Do you have desktop software such as Quickbooks or Sage?
      1. Provide a backup or Accountant copy so that we easily access your detailed information.
      2. Provide any login credentials we need to access your financial data.
  2. Bank statements with reconciliations for each month of your fiscal year
    1. Note any unusual/old items that don’t belong on the outstanding transaction listing.
  3. Credit card statements for each month of the year with related reconciliations. Does your credit card end on a mid-month date? Make sure you include the statement that fully covers your year-end. For example, if your year-end is March 31, and your credit card statement goes to the 14th of the month, include your credit card statement that ends on April 14 so that we can see all of the transactions for the year.
  4. A copy of your accounts receivable listing.
    1. Note any unusual/incorrect or uncollectible amounts.
  5. Do you have Inventory or Supplies on hand at year-end?
    1. Provide your inventory listing and valuation.
  6. Your accounts payable listing
    1. Note any items that may need correction.
    2. Are there any amounts owing that aren’t on this list that should be? Note them.
  7. Did you pay for business expenses personally that isn’t already captured in the bookkeeping?
    1. Please provide those receipts too. Keep them separate so that we know that the company needs to reimburse you for these costs.
    2. Did you drive your personal auto for business purposes? How many kilometres did you drive during the year for business?
    3. Home office expenses? If you operate your business from your home, you can expense a portion of your home costs. These costs may include:
      1. Internet
      2. Mortgage interest
      3. Property taxes
      4. Rent
      5. Utilities
      6. Repairs and maintenance
      7. Security system
      8. Insurance
  8. Do you have loans in your business?
    1. Provide any line of credit or loan statements
    2. Provide the details of any new loans taken by the company. The Loan Agreement will have details on repayment terms and interest rates. We’ll need all of this information.
  9. Did you buy or sell any major equipment/assets?
    1. Please provide any Invoices or Bills of Sale.
    2. Provide any new rental agreements too!

Happy Fiscal New Year!

It’s time to prepare your documents so we can complete your year-end filings.

Here is a handy to-do checklist to help you compile your documents. This list is by no means suitable for every business, but it will give you an idea of the typical items required to compile financial statements and a corporate tax return. We are always happy to help you determine what is most appropriate in your unique circumstances.

Do we do your bookkeeping?

RM LLP – Corporate Year End Checklist

We’ll need you to provide a bunch of documents so we can fully capture your corporation’s activities:

  1. Bank statements for each month of your fiscal year
    1. Include any receipts for items that were paid through the bank account. Depending on the number of transactions, a good practice is to keep the receipts WITH the related bank statement.
    2. Did you write any cheques? Do you keep the check stubs for your records? Please include those too. Did you write cheques that didn’t clear the bank by your year-end date? Which ones?
    3. Did you pay anyone by E-transfer? Is it clear who was paid and for what? Provide any notes so that we are able to classify your costs accordingly.
  2. Credit card statements for each month of the year. Does your credit card end on a mid-month date? Make sure you include the statement that fully covers your year-end. For example, if your year-end is March 31, and your credit card statement goes to the 14th of the month, including your credit card statement that ends on April 14 we can capture all of the transactions for the year.
    1. Include any receipts for items paid through the credit card. Using the same technique as with your bank statements, organize your receipts by the statement. Feel free to make notes on the receipt if you think something needs to be clarified.
  3. Invoices for sales for the year. Depending on your business, here are some options on how you may do that:
    1. Include copies of your invoices for the year. It’s a good idea to track when your customers paid you. Write the date you collected the money on your copy of the invoice. Do you have some invoices that haven’t been paid as of your year-end date? Indicate which ones. Do you have some customers that don’t look like they’ll be able to pay your invoice? Which ones?
    2. Maybe you have several invoices were providing individual documents isn’t possible or practical. Do you have a program that tracks your sales revenues? Eg. Square or an industry-specific App? Are you able to provide sales summaries by month or year? We’ll be happy to discuss what types of reports would be most appropriate to provide.
  4. Do you have Inventory or Supplies on hand at year-end?
    1. At your year-end date, count your inventory. Create a spreadsheet that details the item on hand, the number of items and the cost of the items (NOT what YOU sell it for, but what it cost you to obtain). Be sure to include stuff that you’ve paid for but may not yet have received. What is the total amount of inventory on hand at year-end?
    2. Depending on the nature of your operations, we can help you find some practical to track your inventory.
  5. At your year-end date, did you owe people money?
    1. Provide copies of invoices that you hadn’t yet paid. Eg. That phone bill that you paid the week after your year-end? THAT’s exactly what I’m talking about.
  6. Did you pay for business expenses personally?
    1. Please provide those receipts too. Keep them separate so that we know that the company needs to reimburse you for these costs.
    2. Did you drive your personal auto for business purposes? How many kilometres did you drive during the year for business?
    3. Home office expenses? If you operate your business from your home, you can expense a portion of your home costs. These costs may include:
      1. Internet
      2. Mortgage interest
      3. Property taxes
      4. Rent
      5. Utilities
      6. Repairs and maintenance
      7. Security system
      8. Insurance
  7. Do you have loans in your business?
    1. Provide any line of credit or loan statements
    2. Provide the details of any new loans taken by the company. The Loan Agreement will have details on repayment terms and interest rates. We’ll need all of this information.
  8. Did you buy or sell any major equipment/assets?
    1. Please provide any Invoices or Bills of Sale.
    2. Provide any new rental agreements too!

To Incorporate or Not to Incorporate

Should I Incorporate my business… This is a very common question, and the answer isn’t always clear. It depends on your current situation, your future plans, and some best/worst-case scenario analysis. We’ll look at the various factors/benefits and drawbacks.

If you’re not incorporated…

If your business is not incorporated, you report your business income and expenses with a schedule on your personal tax return. The net income is included in your taxable income and you pay tax based on your marginal personal tax rates. On the flip side, if you have a net loss, that amount can be deducted from your other sources of income.

What does it mean to Incorporate?

When you Incorporate a business, you create a separate legal entity. Your business operations occur within this entity.

What are the benefits to incorporating:

  1. Separate legal entity. Corporations can own property, obtain loans, and enter into contracts. If the owner happens to die, the corporation lives on.
  2. Easier access to capital. Corporations can often borrow money at lower rates or more diverse lending options.
  3. Lower tax rates. In Alberta, the small business corporate tax rate is 11%. This rate is considerably less than the marginal personal tax rate of 25%-48% in Alberta. This personal tax rate doesn’t include the Canada Pension Plan payment requirements of up to $6,332.90 (based on 2021 rates).
  4. Limited liability. A corporation can protect you from being personally liable for certain business liabilities.

What are drawbacks of incorporating:

  1. Corporate tax filing requirements. The cost of preparation of a T2 Corporate tax return is often significantly higher than that of a business schedule on a personal tax return.
  2. Record-keeping requirements. In addition to the revenues and expenses, you’ll need to track the assets and liabilities of the corporation. This can add considerable costs in record/bookkeeping.
  3. Other costs. It costs money to incorporate: the basic costs to incorporate, a name search, maintaining your corporate Minute Book, and Annual Return filings.

Should you Incorporate your Business?

Answer: That all depends on your circumstances. The benefits must outweigh the additional costs and filing obligations. Here are some factors to consider when looking at your options:

  1. What are your earnings in your business? Do you earn at least $20,000 more than what you need to live on and would appreciate saving on personal tax? This is the point where the benefits start to make sense when considering the cost of incorporation. If you have net business losses in the start-up phase of your business, it may be beneficial to NOT incorporate and use the losses to offset your earnings from other sources. In the same way, if your business earns approximately what you require to live on, there are generally very few tax savings to warrant the costs and efforts involved in incorporating.
  2. Do you have other business partners or a need to raise money? Incorporating can add flexibility in how owners are compensated. Corporations also have more flexibility in obtaining financing from lenders or raising capital through investors.
  3. What sort of risks is inherent to your business? Can someone sue you? What is the likelihood of a lawsuit? If there is a chance that you could have uninsurable losses, you may wish to consider incorporating. The corporate entity could shield personal assets from lawsuits or unforeseen business operation losses.
  4. Do you have other needs? Do you require the appearance of being a little more established or sophisticated in the business world? Will potential customers/clients respect you more if you’re incorporated? Perhaps you simply won’t qualify to obtain a sales contract if you’re not incorporated.

Let’s take a look at some real-life examples.

Scenario 1:

Dylan is a fantastic artist and his friends have convinced him to sell his works online. He works at building this dream in his spare evenings and weekends. He’s using his savings and day job earnings to fund the start-up costs for his new business. It’ll take time to establish his brand, build his website, and perfect his product before sales start to increase.

Dylan should probably NOT incorporate. He will likely have a net loss from his first year or two of operations. These losses can be used to reduce his other forms of taxable income on his personal tax return. He’s better off avoiding the excess costs to incorporate and enjoy the personal tax savings writing off his business losses.

Scenario 2:

Casey is a real estate agent. Casey has been reporting their net business income on their personal tax returns for years. Over the last few years, Casey has found that the earnings from business activities are quite a bit more than what they require to comfortably live on.

Casey could likely benefit from incorporation. When net business income is at least $20,000 more than what is required for living, earning money through a corporation (and benefiting from small business tax rates) can be a fantastic way to defer some tax. Casey would draw from the corporation when they need to live on and report the related compensation (salary and/or dividends) on their personal taxes. Excess earnings remain in the corporation and are not taxed personally. The greater the earnings over the living requirements, the greater the tax deferral. A business owner earning a net $400,000 while only requiring $90,000 can see tremendous tax savings from incorporation making it well worth the costs to incorporate.

Scenario 3:

Ava, Marissa and Lauren are Engineers. They want to combine their efforts and offer consulting and design services. Marissa is only able to work half-time as she has demanding family obligations. They wish to take advantage of as many research grants as possible.

This Engineering company would benefit from Incorporation for a number of reasons:

  • A separate entity would allow for flexibility in allocating compensation to its various owners. All three can be equal owners of the corporation, but their wages can be determined based on their efforts.
  • Many grants require that businesses be incorporated in order to receive funds. The company may also require bank financing for projects/equipment.n incorporated company may appear more sophisticated to potential customers/clients/collaborative partners. There is a strong chance that certain contracts may require the company to be incorporated.

Scenario 4:

Martin has worked as a truck driver for years. He’s always dreamed of owning his own rig and being his own boss. He has finally saved enough for a down payment on a truck and has lined up fairly steady work allowing him to quit his day job.

Martin may wish to consider incorporating. With his line of work, there is potential for accidents. Should the unthinkable happen and insurance not fully cover the fallout, his personal assets could be exposed to this liability. The separate corporate entity would allow him to declare bankruptcy within the corporation and walk away from the liabilities.

Keep in mind that situations can always change in your business. If it doesn’t look like now is the right time to incorporate, it’s fairly simple to incorporate at a later date. Talk to your experienced, qualified Chartered Professional Accountant about the right path for you. If you don’t yet have a trusted advisor, we’d be happy to help!

Truckers spend more than 300 days each year on the road.

That doesn’t leave a lot of time to spend on managing your finances.

For those in the trucking industry, having an accountant on your team is crucial to the success of your business.
But how do you choose the right accountant? Keep reading to learn more about how to choose the right trucking accountant for your business.

What to Look For in the Right Trucking Accountant

There are a number of ways to find information about trucking accountants in Canada. Some of these options are asking colleagues, asking friends or family, performing internet searches, and asking other professionals.

Once you have a list of potential candidates, you can narrow your list down by knowing what to look for in the best trucking accountant. The following are some of the qualities to look for.

Credentials

The best accountant for your trucking business will have the proper education and credentials.
They should also be ethical. Strong ethics are important when dealing with financial records and governmental entities. Staying compliant with your taxes and always being honest will keep you out of hot water.

Bookkeepers vs Accountants

You should look for an accountant rather than just a bookkeeper.

Bookkeepers are responsible for record-keeping and can perform some functions of an accountant like creating simple financial reports. Accountants have more responsibility and help you with your business financials on a larger scale.

They can help you with business planning and prepare your tax returns. Accountants are also able to deal with tax authorities if any tax-related issues come up.

An accountant can perform bookkeeping services but they are much more qualified to review your business financials overall, look at the big picture, and offer guidance on the financial state of your company.

Experience

It’s essential that you choose an account that has proven experience in the trucking industry. Trucking taxes can be complex and you don’t want just any accountant handling your taxes. An accountant with years of experience working with companies in the trucking industry is important because only they will know how to get you the best deal when it comes to tax time.

There’s no substitute for experience when it comes to identifying deductions and saving you money on your taxes. An accountant who is experienced with your type of business will also know how taxes and finances work for your business structure.

Truckers who are self-employed face unique challenges when it comes to managing their finances. Life on the road and staying organized with administrative business operations don’t always go hand in hand. A good trucking accountant can help you with your books, accounting, GST, and even your personal taxes.

There are many deductions you can take and expenses you can write off that only an experienced trucking accountant will be able to identify. As a trucker, the last you want to worry about when you hit the open road is your taxes. You can feel confident that your business finances are being taken care of when you choose an experienced accountant.

Security

Security of information is more important than ever in this digital age.

Your accountant has access to sensitive information about your business. It’s important to ask them what measures they are taking to safeguard and protect your confidential information.

While no industry is immune to cybersecurity threats, a good accountant will be proactive and transparent about how they plan to keep your information secure.

Availability

When it comes to finding the right accountants for truckers, you need to look for candidates who are available to you all year round. Some trucking accountants that can help you with your taxes might not have the capacity to provide service all year round.

Accountants for gas companies and accountants for oil companies as well as trucking accounts should be providing service throughout the calendar year.

This is essential to getting the most out of your business finances and your taxes. You never know when you might receive inquiries from the Canada Revenue Agency (CRA) or when you might be audited.

Your accountant should be active and available at all times and able to answer your questions.

Commitment to Learning

The best trucking accountant will go above and beyond. They will stay up to date on the latest tax developments and industry changes that might affect your business.

They will also implement the latest and greatest technology that can help you with your business finances. Be sure to ask potential accountants what they do to stay on top of their game as accountants for truckers.

What Questions to Ask

Knowing what questions to ask is as important as knowing what qualities to look for.

Once you’ve narrowed your list to a few potential accountants, you should contact them and ask for a consultation. This “interview” is an important time to get to know your options and get answers to your questions.

You should prepare for this conversation ahead of time by making a list of questions. Some questions that might be on your list include:

  • What is your experience with trucking taxes?
  • How long have you been an accountant?
  • Do you have a proven track record of success?
  • Do you have any testimonials from former and current clients?
  • Who will be handling my taxes specifically?
  • What are your fees?
  • Do you provide a good value for what you charge?
  • How can I contact you?
  • Do you provide prompt and attentive customer service?
  • Are You Looking for a Trucking Accountant?

Finding a trucking accountant that truly cares about your business isn’t easy. We here at Richardson Miller LLP are experienced accountants in the trucking niche.

We have a proven track record of success and are qualified and motivated to provide you with the best financial advice and tax strategies for your business.

Click here to contact us today and learn more about how we can help your business grow.

Behind every small to medium enterprise is a person. Does your corporate tax strategy consider the person that is the entrepreneur?

A tax strategy should consider both the corporate tax AND personal tax implications.

What mix puts the most dollars in your jeans at the end of the day?

Open and honest communication with your accountant is critical.

Does your accountant know YOU as well as your business?

Knowing YOU is a critical factor in deciding on the best solution for owner compensation. Without a full understanding of your situation, the wrong compensation plan can cost you big bucks.

What do you have going on in your household for tax purposes?

  1. Do you have a spouse? What is their income level?
  2. Do you have other sources of income? Giant expenses to deduct this year?
  3. Significant life changes planned in the next year or two? A new house, children, a marriage, a divorce? Retirement plans?
  4. What is your five-year plan?
  5. What about children? How old are they? Plans for post-secondary education?
  6. Does anyone in your household have medical issues or disabilities?

I’ve often said that the more I know about my clients, the more opportunities for tax savings. A corporate tax strategy that fails to consider these factors isn’t much of a plan.

The corporate tax strategy should be pro-active.

  1. AVOID PERSONAL TAX SURPRISES. Based on your corporate activities, what is your personal tax bill going to be? What are some opportunities to mitigate that personal tax hit? RRSPs? Donations? (One of my favorite clients has me calculate how many charitable donations are required to eliminate his personal tax bill each year. That guy makes my heart smile.)
  2. TAKE ADVANTAGE OF LOWER TAX BRACKETS. Perhaps your personal income is low this year, but you are planning on buying a house next year. You were planning on drawing significantly more out of your corporation for the down payment. It’s likely a terrible idea to have personal income in 2020 of $20,000 and $200,000 in 2021. Smooth this out over the two years so that you’re taking full advantage of the pleasant tax brackets in 2020 and avoiding the ugly brackets in 2021. Think about bumping up your income to $120,000 in 2020 and buying an RRSP to take advantage of the Home Buyers Plan for that down payment (if you qualify).
  3. INCOME SPLITTING OPPORTUNITIES. In a family business, everyone pitches in at some point or another. Should you consider paying your spouse a wage? Can you justify putting your children on the payroll? ***NOT YOUR TODDLER*** Perhaps your older child helps clean up the shop or organize paperwork. Pay them a reasonable and justifiable wage instead of an allowance. From there, they can pay for their own expenses or college savings.
  4. DO NOT PROCRASTINATE. The longer you wait to supply your year-end to your accountant, the fewer tax planning opportunities there are. Keep on top of things and get your corporate documents to your accountant within a month or two of your year-end. I picture my October year-end guy that brings his year-end to me in April. There is very little I can recommend for him to reduce the corporate tax bill or his personal tax bill. To further rub salt in those tax bill wounds, he typically has to pay interest and penalties for late remittances.

Do you think you have a “one strategy for all” accountant? I’d be happy to provide a second opinion in a complimentary consultation. Contact Richardson Miller LLP today!

The ongoing discussion of Salary versus Dividends has got to be one of the oldest debates since the dawn of complex taxation. Over the years, I’ve heard many people (accountants included) preach that dividends are the way to go. I cringe at these “one size fits all” solutions.

Salary versus Dividends – how to choose

The increasing Canada Pension Plan (CPP) rates make a dividend only compensation strategy tempting, but consider this:

  1. Childcare costs can only be deducted against employment (or self-employment) income. If you have dividend-only income, those daycare receipts could be worthless at personal tax time.
  2. Did you move during the year? Moving expenses can only be deducted against employment income.
  3. Do you have a health spending account in your corporation? This is only deductible in your corporation if you are an employee of your corporation. You are not an employee if you are only paid a dividend.
  4. Dividends are grossed up on your personal taxes. This means that your taxable income is essentially inflated for calculating credits and programs that are income-dependent. Dividends will mean reduced Child Tax Benefits or GST credits. For older entrepreneurs, it can mean clawed back Old Age Security benefits.

Perhaps dividends are the most cost-effective method of compensation for you. Consider taking a tiny wage from your corporation so that you are technically an employee and can access benefits and tax credits aimed at people who report T4 income.

Be aware of the consequences of dividend-only compensation.

  1. No (or reduced) CPP benefits. Think retirement plan and disability payments. Consider taking those employer and employee CPP savings and locking them into a long-term investment plan to save for the lost future benefits.
  2. No accumulation of RRSP contribution room.

The answer isn’t simple and each individual situation needs to be evaluated separately. Depending on the various taxation policies at provincial and federal levels of government, the ideal compensation strategy can flip flop annually. Make sure your accountant is aware of any changes in your household and personal plans.

Richardson Miller LLP is here to help you with all of your Accounting needs. Contact us today.