Tax Tips by Allan Madan

Allan Madan, CA
 Jul 25, 2010

We’re all tired of paying too much in tax. For this reason, I’ve created a list of the Top 5 Tax Tips for business owners, which are listed below:


1. Incorporate your small business in Etobicoke

The small business tax rate is only 16.5%, which is comprised of 11% for Federal Income Tax and 5.5% for Ontario Income Tax. Conversely, the highest marginal income tax rate for an individual living in Etobicoke, Ontario is 46.4%.

Therefore, as a small business in Etobicoke, you can save up to 30% (approximately) by incorporating. Before incorporation, you should speak with your local accountant to discuss all of the pros and cons.

2. Pay your family member a salary, says expert (accountant Etobicoke)

A great way to reduce the income tax that you pay is to split your income with a family member. One way of doing this is by paying a salary to your family member, such as your spouse or children.

The salary paid by you or your corporation will be tax deductible and will be taxable to the recipient. Usually, children have very low incomes and will therefore pay very little tax on the salary that they receive. Likewise, if your spouse is in a lower tax bracket, in makes sense to pay him/her a salary to reduce your or your corporation’s tax bill.

3. Make purchases near the end of the year

Allan (accountant Etobicoke) emphasizes on leaving certain purchases till the end of the year. If you have business purchases to make, such as equipment, supplies, or other items, you should consider deferring the purchases to the month of December. That way, your small business can receive a tax deduction for the entire year, even though the purchase was made at the end of the year.

In addition to reducing taxes, you’re also improving cash-flow buying deferring purchases.

4. Claim home office expenses –

The costs associated with your home office can be deducted for tax purposes. These costs include:

– Mortgage interest

– Property taxes

– Condo fees

– Maintenance and repairs

– Rent (if you are a tenant)

The percentage of the above costs that can be deducted is determined by the following formula:

Area of home office / Area of home x 100%.

For example, if your home office is 200 square feet and your home is 2,000 square feet, then 10% of the running costs of your home can be deducted.

There are certain other conditions that need to be satisfied in order to deducted home office expenses. Therefore, you should speak with a professional accountant first.

5. Claim a Reserve for Inventory Obsolescence and Bad Debts

Allan (accountant Etobicoke) as a professional feels that you should physically review your inventory in your warehouse / storage area at the end of the year in order to assess which inventory is obsolete, damaged or no longer saleable. Obsolete, damaged and inventory that is not saleable can be written for tax purposes.

Allan’s (accountant Etobicoke) expert advice states that, you should also review your accounts receivable listing for accounts that are greater than 90 days past due. If it’s unlikely that an accounts receivable will not be collected, the amount should be written-off as a bad debt expense. Bad debts are deductible for tax-purposes.

You should consult with your accountant in Etobicoke before taking an inventory or accounts receivable write-off.


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.

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Comments 4

  1. My soon-to-be wife and I are looking to save some money. I was looking to save on taxes by income splitting with my fiancé who makes a lower income. Would I be able to do this or can you only use this strategy if you are married to them?

    1. Hi, Jack! Unfortunately you can only split your income with a spouse, common-law partner, or your children. But if there is a difference in the income tax brackets that you are both in then you can have the higher income earner pay for the bills and other expenses. This will allow the lower income spouse to use their income for investment. Because they are in a lower tax bracket, the marginal tax rate will be lower and you will save money that you would have otherwise had to pay in taxes.

  2. Hi Allan, I was reading your material on Quick method and you indicate that the other income generated using quick method is NOT taxable? Could you confirm your source for this position? Thanks for your tips.

    1. Hi Tom,

      Section 9 of the Income Tax Act states that business income is taxable. However, GST/HST collected and remitted according to the QM is not considered business income, even if it yields a better result than the Traditional Method of HST Collection.


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