Small and Home-Based Businesses
The Canadian Income Tax Act has "stop loss" rules that limit a taxpayer's ability to claim losses in certain specific situations.
Interest on money borrowed for investment purposes is deductible for Canadian Income Tax purposes for as long as you own the investment or a replacement investment. Once you dispose of the investment the interest ceases to be deductible.
All amounts that you incur as current expenses related to the business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.
When buying or selling the assets of a business be sure to allocate the purchase price among the different asset types, as this will determine the values for Canadian income tax purposes.
If you operate a business from home you are entitled to deduct the cost of your home office for Canadian Income Tax purposes only if a separate part of your home is used to carry out the business.
An amalgamation under the Canadian Income Tax has the effect of combining 2 or more corporations into a new corporation with no adverse tax consequences to the shareholders or the combining corporations.
Prior to 1995, self-employed businessmen and professionals were allowed to report their income for Canadian income tax purposes on a non-calendar year basis. Starting in 1995 they have been required to report their income on a calendar year basis. Taxpayers were permitted to claim a reserve for the additional income. A decision to leave a professional practice, or close down a business, and become an employee can trigger unexpected taxes payable if part of the 1995 reserve is outstanding.
The Canadian Income Tax Act renders a director jointly and severally liable with his corporation for failure to deduct, withhold or remit income tax, payroll or GST amounts required, along with any related interest or penalty. Legal or accounting fees incurred to challenge a tax assessment are a deductible expense for Canadian income tax purposes.
Assets of a business, or shares of a corporation, can be transferred on a tax deferred basis by a taxpayer to a corporation by electing under section 85 of the Canadian Income Tax Act. Failure to prepare and file the election can result in a tax liability.
If you earn more than $30,000 per annum you are required to register for GST.
If you run a business, your spouse and children can be paid reasonable salaries which become a business expense that is deductible for Canadian income tax purposes.
Offshore income earned by a Canadian resident is fully taxable in Canada and must be reported for Canadian income tax purposes. Failure to do so is tax evasion.
If you have income which is not subject to deductions at source you may have to pay quarterly income tax installments. If you fail to pay the installments when due you will be charged interest.
A loss realized on shares of a small business corporation or debt owed by a small business corporation may give rise to an allowable business investment loss (ABIL), 75% of which is deductible in computing your Canadian income tax liability.
If you're incorporating your existing business you will have to carry out a tax free rollover of the assets into the corporation and elect to defer income tax under section 85 of the Canadian Income Tax Act to avoid an immediate tax liability.
All amounts that you incur as current expenses directly related to your business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated at the prescribed tax depreciation rates. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.
Reasonable expenses for meals and entertainment incurred for the purpose of earning business income are deductible for Canadian income tax purposes. However, only 50 per cent of these costs are allowed as a deduction for tax purposes. The costs of restaurant gift certificates used for promotion are also subject to this limitation.
If you are self employed and work out of your home and move to a new home more than 40 kilometres away, a recent Tax Court decision means that you may be able to deduct your moving expenses for Canadian income tax purposes in the same way as an employee who moves to take a new job or an employment transfer.
For a home based corporation to write off rent related expenses you have to charge "rent" to your corporation. The amount is taxable to you, but will be offset by the equivalent amount which you have paid such as utilities or property taxes.
The purchase price paid for a domain name (URL) may not be immediately deductible for Canadian income tax purposes. It may constitute an eligible capital expenditure (ECE) in which case only 75% of the purchase price can be deducted at a rate of 7% per annum.
If you are starting a business register for GST/HST immediately. This way you can recover all the GST/HST you have paid on your business expenses.
You can only deduct the "self-employment use" or "business use" portion of your automobile expences; it is essential that you track the kilometers you drive for self-employment.
Restrictions have been put on the lease and interest cost in respect of the automobiles.
Capital Cost Allowance (CCA) is considered an "optional" or discretionary tax deduction. You can claim or maximum amounts
To maximize the speed at which CCA is claimed on the cost of your business's leasehold improvements, negotiate your lease to be 4 years with a renewal period of 1 year.