Tax Loopholes for Small Business Owners in Canada Watch Video
Allan Madan, CPA, CA
This article will take you through the tax loopholes for small business owners in Canada, Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
Hi,
I found your tips very informative and useful. I live in Victoria BC and have an apartment building also in Victoria. I have an office in my home for looking after the business end. I realize a proportionate amount of expenses can be taken off of my residential home as rent for my business. Can I not also charge my company rent for having an office in my home?
Raj
Hi Raj,
You only claim one of the following: work from home expense on your personal return; or rent expense for the same amount on your business. You cannot double-dip.
– Allan and his team
Hi again,
Thank you for answering my question. So, I can’t charge my corporation rent for the office in my home, but proportionate rent expenses? I can’t randomly say, I will charge my corportation $500/ month just to rent a room in my home?
Raj
Hi Raj,
The best option is to charge your corporation rent for amount of home-office expenses incurred for business. Charging a flat rent of $500/month may not be accepted by the CRA in the event of an audit. The rent expense can be deducted as business expense.
However, the rent charged to your corporation will have to be reported on your personal tax return as rental income.
-Allan and his team
So I charge 1200.00 for the year for rent. Co. has an expense.
Do I not have to claim that 1200.00 as income on my personal tax return?
The tax man just throws that away? What about 500 a month or 6,000 a year. No one pays tax on that?
Thanks,
Dave
Hi Dave,
All income has to be reported on the tax return. Hence, you must report the $1200 of rental income and deduct any related expenses such as property taxes, mortgage interest, etc in order to lower taxes.
Please contact us if have any further questions.
Regards,
Allan and his team
Hi Dave,
You are correct. You are required to report all income on your personal tax return, and hence, you would have to report the rental amount earned.
-Allan and his Team
Hi Dave,
A quick question. My family member is planning to buy a Subway Franchise. I plan on getting a line of credit for them because they can’t get one. They will be paying me the interest the bank charges me. Will I have to report that interest as income? Is there a way to offset it? Thank you in advance.
Raj
Hi Raj,
You may be required to report the interest income. We’ll really need to look at the issue in greater detail to give you a precise answer.
However, if you are required to report the interest income, you’ll have an equal interest expense to the bank. As such, your net income will be $0.
Please don’t hesitate to contact me should you have more questions.
– Allan
(905) 268-0150
Hi
I didn’t get the loophole #5 how can pay back 8.8% of the HST back when i collect 13%
Thanks Sam
Hi Sam,
Thanks for the question. While your corporation collects 13% from its customers, under the Quick Method of Accounting for HST, your corporation only has to remit HST to the Canada Revenue Agency as follows: 8.8% x Sales for Year x 1.13. For example, if your corporation’s sales (before HST) were $100,000 in 2013, then your corporation is required to remit $9,944 of the $13,000 of HST collected (i.e. 8.8% x 100,000 x 1.13). Your corporation can keep the difference of $3,056 (i.e. $13,000 less $9,944).
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan,
Is quick method applicable to all small business or just service oriented ones? Because this quick method can eliminate lots of work for a sole proprietor or Incorporation. If One is using quick method can he still claim anything else from his company in the year end or on quarterly HST return?
Hi Ravi,
The answer to your question depends on the nature of your business. The quick method is applicable to your business if you meet all of the following requirements:
1. You have been in business throughout the year (365 days) ending immediately before your current reporting period;
2. You did not repeal an election for the quick method or the simplified method for claiming ITCs during the 365 day period;
3. You are not listed under the CRA’s list of “Exceptions” who cannot use the quick method (e.g. you are not a person who provides legal, accounting or actuarial services).
4. Lastly, your revenues from annual worldwide sales are not more than $400,000 for the last four fiscal quarters out of your last five fiscal quarters.
As long as your business meets these requirements it may elect to use the quick method. As for making other claims, while electing under the quick method you may still claim input tax credits (ITC) for GST/HST paid on capital items purchased. However, you may not claim ITC’s for your regular operating expenses.
Thanks so much for this info 🙂 Are there any loopholes for late election? I started my business a year ago but didn’t realize I had to elect for the quick method by the second fiscal quarter :(
Hi R.Ahmed,
You will have to wait until next year to register for the Quick Method of HST collection.
Can a lease holder charge tax on top of rent? I’m a restaurateur and have never heard of this before. Is this legal??
Hi Gus,
HST is supposed to be charged on commercial rent.
Hi Allan,
I currently charge a portion of my home I use for my online business to my corporation. We are doing a house renovation and need to move out of the house for a year and have to leased a place. Can I charge the lease payment to my business?
Thanks,
Rolando
Hi Roland,
Yes, you can charge a portion of your lease payment if you are working from the leased premises.