What are the Tax planning tips for business owners?

This article is about tax planning tips for self employed individuals, and if you are a sole proprietor or an individual who is self employed and owns his/her corporation, then these tax tips for self employed individuals are for just you, so let’s get started.

Tip #1 Declare a Bonus:

By having your corporation declare bonus at the year end, there are two main advantages. Number one, your corporation can claim a tax deduction for the bonus payable without even paying it. Number two, you do not have to include the bonus payable in your personal income.

There is one catch. Within 180 days or six months the corporation must pay the bonus to you. For example, if your corporation has a December 31st year end, then it must pay the bonus by June 30th of the following year, at which point you will include the bonus received in your income.

Tip #2 Give Non-Cash Gifts to Employees:

By giving non cash gifts to employees, your company can receive a tax deduction, and since it’s not a taxable benefit to the employee who receives the gift, it’s an ideal tax planning tip for self employed individuals. Non cash gifts do not include, obviously, cash or gift cards. They include things like consumer goods, consumer electronics, clothing, jewellery, and so forth.

The CRA does restrict when you can give a non cash gift to an employee. It’s only on special occasions like an anniversary, a birthday, a wedding, the birth of a child, a religious holiday, and so forth. The maximum amount that you can give to an employee for non cash gifts is $500 per employee in a given year. However, you can give multiple gifts in a year as long as you do not exceed the threshold of $500 per employee.

Tip #3 Deduct Health & Dental Costs:

Your company can pay health and dental premiums to an insurance company for you and your employees and receive a deduction for the payment. It is not a taxable benefit to you, your family, or your employees. There is a restriction and that is you must be actively engaged in your business to qualify and your business must be your primary source of income.

If you have employees, you must extend the same health and dental benefits that your family receive to all employees. If you don’t have any employees, the health and dental benefits received cannot be excessive, they have to be reasonable, similar to what you would receive if you were working for a third party employer.

Tip #4 Hire an Apprentice or Co-op Student:

Your company can receive a tax credit of up to 10% of salaries and wages paid to co-op students and apprentices. The maximum amount is $2000 per year, per co-op student or apprentice. So take advantage of this lucrative tax planning tip for self employed individuals.

Tip #5 Claim Convention Expenses:

Convention expenses include the cost of the convention, cost to go to the convention like airfare, hotel fees, and food. Now, food is subject to a 50% limitation, such that only 50% of the food cost can be claimed as an expense while attending the convention. A maximum of two conventions can be claimed per year and in order for the convention expenses to be deductible it must relate to your business.

For example, if you are an IT consultant then attending a conference on technology at a convention in Las Vegas would relate to your business, but attending a dental conference if you are an IT consultant obviously wouldn’t. Finally, the convention expenses must be reasonable in nature. So if you have an option to stay at a three star hotel but you choose to stay at a seven star the CRA may disallow the excessive portion.

For more information on tax write-offs available to self employed individuals, check out our blog on how to save taxes for self employed in Canada.

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.

Related Resources