Filing your business’ tax return can get complicated. Consult an accountant to get your taxes sorted out today. To get you started with your 2018 tax return, Danielle’s SOS Financial has prepared some tips for small business owners:
1. Retain your records.
If you run your own business, you are required to retain books and records that relate to a specific taxation year for a minimum of six years after the end of that year. If a particular year is under appeal, books and records for that year should be kept until the appeal is resolved and the time for any further appeal has expired. If a return has been filed late, the records must be kept for six years from the actual filing date. As records over six years old might contain information that is still relevant for tax purposes, you might wish to consult an accountant or the CRA prior to destroying your records.
2. Claim the small business deduction limit.
If your small business is considered a Canadian-controlled private corporation, or a private corporation controlled by Canadian residents, you may be entitled to claim the small business deduction on the first $500,000 of your active business income. The $500,000 business limit must be shared between each associated company and may be allocated among the group at the group’s discretion. For taxation years beginning after March 21, 2016, the small business deduction would be limited to companies that earn “specified corporate income,” which is a company’s income from the provision of property or services to another private corporation where it does not have a direct or indirect interest in that other private corporation.
3. Put your children to work.
If your children work for your business, you can pay them a reasonable salary and deduct it from your business income when preparing your tax return. Note that the salary must be reasonable for the type of work performed. Putting your kids on the payroll could mean deductions on your tax return, and also allow your children to start accumulating RRSP contribution room. Don’t forget to make appropriate payroll withholdings. Remember, CPP premiums are not required until your child turns 18 and that EI premiums are generally not required when the employee and the employer do not deal at arm’s length.
Disclaimer: Tax rules relating to these RRSP tips are complex. This is not intended as tax advice and you should not make tax decisions based solely on the information presented in these tips. You should seek the advice of an accountant before implementing a tax plan or taking a tax filing position.