Tax tips and credits for your small business
(NC) As a small business owner, it's important to leverage all of the tax credits available, so do take note of the following tax tips featured in CGA Ontario's Personal Tax Planning Guide:
Business and Self-Employment Expenses
• Self-employment expenses must be documented. There are instances where the tax courts have disallowed what might otherwise have been legitimate expenses because of poor or non-existent documentation. A lack of proof to support the taxpayer's argument in the event of a dispute with the CRA could also lead to the imposition, or upholding, of penalties.
• The salary paid to a family member may allow that individual to become eligible for CPP and RRSP contributions.
• Be vigilant about documenting the work carried out by family members in order to help prove the compensation they received was equitable. Meticulous records should also be kept of related payments.
• Don't forget to include business-storage space in the basement and elsewhere, when determining the proportion of your home used for commercial purposes.
Capital Cost Allowance (CCA)
• Specific costs incurred by employers to improve business premises' access for people who are disabled may be deducted in the year they are incurred and need to be capitalized.
• You do not need to claim all eligible CCA amounts in the year they are incurred if you believe it may be tax advantageous to carry all, or some, of that amount forward.
• Consider purchasing employment-related assets (e.g., automobile, musical instruments, etc.) closer to year end in order to potentially accelerate the timing of CCA claims.
• If a business asset is used to produce income (such as a computer), it might be possible to claim CCA based on the asset's value at the time of conversion. The proportion of a property's commercial and personal use (such as an automobile) might also change, affecting CCA.
• A portion of your business-related web-page development cost might qualify as a capital expense, subject to CCA, if it is incurred to establish an asset of enduring value.
Rental Real Estate and Real Estate Limited Partnerships
• Profits and losses from rental property can affect your RRSP deduction limit, as well as possible entitlement to certain means tested government benefits.
• If you are renting out a property that you also use personally, such as a cottage, be sure that you keep separate, meticulous records of expenses incurred for personal use and rental use of that property. Several factors may be taken into account to determine if rental losses are deductible for tax purposes, including whether or not the rentals are conducted in a commercial manner.
• Paying a salary to your spouse for managing rental property might provide opportunities for income splitting, if the salary paid is reasonable for the work performed.
• If you have a tenant in your home, you have to divide the expenses that relate to the whole property between your personal part and the rented part. To determine what proportion of your home is used for rental purposes, be sure to take all use of your property by the tenant into account, including their use of rooms you share access to.
Scientific Research and Experimental Development Tax Credit (SR&ED)
• Keep detailed records of your SR&ED work. The tax courts tend to favour a meticulous approach toward documenting various steps, results and conclusions to prove the work is attempting to provide a scientific and/or technological advancement.
• You need not have incurred the SR&ED expenditures during the same year in which a related deduction is claimed.
• The salary of a Canadian who is engaged in SR&ED activities outside the country, but which supports eligible activities within Canada, might also constitute an eligible SR&ED expenditure.
• If your instalment has been late or deficient in the past, consider prepaying or overpaying future instalments. The CRA will offset interest on early or excess instalments against interest charged for the same year (although interest on any net balance will not be paid).
Retiring Allowance and Termination Payments
• A severance amount paid to a spouse or common-law partner as a result of working in a family business such as farming may qualify as a retiring allowance regardless of past remuneration, provided an employer/ employee relationship existed over that period and the proposed retiring allowance is considered reasonable by the CRA.
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