TEL: 647.239.4923
Tax Tips for Small Business Owners
Managing taxes effectively is crucial for the success of any small business. Below are essential tax strategies to help you navigate Ontario's tax landscape:
1. Maximize Deductions and Credits
2. Employ Family Members
Hiring your spouse or children can be a legitimate way to split income and reduce the overall tax burden. Ensure that the compensation is reasonable and that family members are genuinely contributing to the business.
3. CONSIDER INCORPORATION.
Incorporating your business can offer tax advantages, such as access to the small business tax rate and potential deferral of taxes. However, incorporation also comes with increased administrative responsibilities. Consult with a tax professional to determine if this structure aligns with your business goals.
4. UTILIZE RETIREMENT SAVINGS PLANS
Contributing to a Registered Retirement Savings Plan (RRSP) not only secures your future but also provides immediate tax benefits. Business owners can deduct RRSP contributions from their taxable income, reducing the tax payable for the year
5. PLAN FOR BUSINESS SUCCESSION
If you plan to sell or transfer your business in the future, early preparation is key. Proper planning can help minimize taxes on capital gains and ensure a smooth transition. Consider strategies like the Lifetime Capital Gains Exemption (LCGE) to reduce taxable amounts upon the sale of qualifying small business shares.
6. MAINTAIN ACCURATE RECORDS
Keeping detailed and organized financial records is essential for claiming deductions and credits. Accurate records support your tax filings and protect your business during audits.
7. STAY INFORMED ABOUT TAX OBLIGATIONS
Understanding your tax responsibilities is crucial. This includes knowing which taxes apply to your business, such as income tax, HST, payroll taxes, and more. The Government of Canada's taxation guide provides an overview of the different taxes that may affect your business and offers information on tools, programs, and services to help you meet your tax obligations.
8. CONSULT WITH A TAX PROFESSIONAL
Tax laws are complex and ever-changing. Regular consultations with a tax professional ensure that your business remains compliant and takes advantage of all available tax benefits. Implementing these strategies can significantly impact your business's financial health. At Nick Accounting LLP, we specialize in providing personalized tax planning and compliance services to small businesses in East Gwillimbury and the GTA. Contact us today to schedule a free consultation and learn how we can support your business's success.
Personal Income Tax-Exempt in Canada
In Canada, certain types of income are tax-exempt, meaning they do not need to be reported on a tax return. Here are the primary tax-free income sources:
1️⃣ Government Benefits (Non-Taxable) 💰
✔ Canada Child Benefit (CCB) – Payments for children under 18.
✔ GST/HST Credit – Federal sales tax rebate for low-income individuals.
✔ Ontario Trillium Benefit (OTB) – Includes energy, property tax, and sales tax credits.
✔ Workers’ Compensation Benefits – Payments for work-related injuries (WSIB).
✔ Social Assistance Payments (T5007) – Reported but deducted on Line 25000
2️⃣ Indigenous Income (Tax-Free Under Section 87 of the Indian Act) 🏞
✔ The income earned on a reserve is 100% tax-exempt.
✔ This includes employment income, self-employment, and some business income if generated on a reserve.
3️⃣ Scholarships, Bursaries, and Grants (Tax-Free for Students) 🎓
✔ Scholarships, fellowships, and bursaries – Fully exempt if attending a qualifying post-secondary program
✔ Canada Student Grants – Tax-free financial aid for students.
4️⃣ Certain Insurance & Compensation Payments 🏥
✔ Life Insurance Payouts – Death benefits from a life insurance policy. ✔ Disability Insurance Benefits – If premiums were paid personally (not by an employer).
5️⃣ Gifts, Inheritances, and Lottery Winnings 🎁
✔ Cash gifts & inheritances – No tax on money received from family or friends.
✔ Lottery & Gambling Winnings – Tax-free, including casino wins & 649 jackpots.
✔ Game Show Prizes – Non-cash prizes (cars, vacations) are tax-free unless received as part of a business or job.
Take full advantage of available deductions and credits to enhance tax efficiency. In Ontario, small businesses can benefit from various tax incentives designed to encourage growth and innovation. For instance, the Scientific Research and Experimental Development (SR&ED) tax credit offers significant savings for businesses engaged in research and development activities.
6️⃣ TFSA & Capital Gains Exemptions 📈
✔ Tax-Free Savings Account (TFSA) Growth – No tax on interest, dividends, or withdrawals.
✔ Principal Residence Sale – No tax on capital gains from selling a primary home.
Deducting Car Lease Expenses for Business Use in 2025
✔ If you lease a vehicle for your business in Canada, you may be eligible to deduct a portion of the lease costs on your taxes. In 2025, the Canada Revenue Agency (CRA) set the maximum deductible leasing cost for passenger vehicles used for business purposes at $1,050 per month (before tax). This limit applies to new leases entered into on or after January 1, 2025.
✔Expenses such as insurance, fuel, and maintenance are not included in the lease amount and must be claimed separately as motor vehicle expenses.
Earned Passive Income in Your Corporation?
You Might Lose Half of It To Tax!
💸 While active business income is taxed at a rate of just 12.2%, passive income, such as interest or dividends, can be subject to a tax rate of up to 50.2%.
😳Why so harsh? Because the CRA wants to stop business owners from using corporations as personal investment shelters.