Small Businesses: As a business owner, how small is your business?
How much revenue does it generate in a year?
What does your business deal with?
All of this is important to determine tax implications for your small business. Whether you are a resident or non-resident of Canada, how much income you generate, how many employees you have hired, and much more is important to determine whether you are eligible for a small business tax deduction!
This guide will give you a gist of each aspect of tax implications on your small business and how to minimize the tax deduction.
IS YOUR BUSINESS CONSIDERED A SMALL BUSINESS?
If your business has less than 100 or between 1 to 99 employees, it is considered a small business and you can evaluate if it is eligible for a small business tax deduction or not. The Canada Revenue Agency will identify your sole proprietorship, partnership, or corporation as a small business if:
- It is controlled by a Canadian Controlled Private Corporation (CCPC).
- It is operated by a Canadian resident and not a non-resident.
- Your business/organization earns less than $ 500,000 in a year.
- Each province has its own legal criteria for small business tax deductions, so it’s important to stay ahead of local tax regulations.
If your business falls under the small business category, you can enjoy huge tax deductions that are not available for large-scale businesses. For further clarity, check out the official notices here.
HOW MANY TYPES OF TAXES DO I HAVE TO PAY?
Generally, your business is supposed to pay both federal and provincial taxes on the income it generates.
- Federal taxes:
- In Canada, small businesses pay corporate income tax. It is generally less for small businesses as compared to large business organizations. As in 2024, if you are eligible for tax deduction, as a small business owner you’ll pay 9% of your taxable income. The general corporate federal tax rate in Canada starts at 38%. However, after the 10% federal tax abatement and 13% general tax reduction, the general corporate tax rate is 15%.
- The goods and services tax varies among each province. Usually, it ranges from 5% to 15% for both GST and HST.
- If you’ve hired employees, you are supposed to pay taxes such as Employment Insurance (EI) and Canada Pension Plan (CPP) contributions.
- Provincial taxes:
- In Canada, each province has its own set of rules and regulations for the payment of taxes. Their rates may vary as well. For now, it is:
Ontario: 3.2%
British Columbia: 2%
Alberta: 2%
Quebec: 3.2%
Manitoba: 0% (for income up to $500,000)
The provincial tax is combined with the federal tax and then paid. It is recommended to stay up-to-date with provincial tax regulations as they may vary every year.
HOW CAN I MINIMIZE TAX DEDUCTIONS FOR MY SMALL BUSINESS?
Did you get flustered knowing all the due taxes you’ve to pay?
Keep calm because the Canadian government has given you a lot of ways you can minimize these tax deductions. They are:
- Incorporate your business:
If you incorporate your business as CCPC, you can get access to numerous small business tax deductions.
- Defer income:
If your business’s income fluctuates, consider deferring income to a future year when your tax rate might be lower.
- Use CCA (Capital Cost Allowance):
Taking advantage of this resource will help you depreciate the value of certain capital assets, such as equipment and property, over time.
- Use income-splitting strategies:
One of the best strategies is to employ your family members in your business to save overall taxes.
- Claim every available deduction:
It is important to make sure you claim all eligible business expenses, such as home office deductions, vehicle expenses, and costs for business supplies.
Using these strategies effectively will help you reduce the amount of overall tax you pay to the Canadian government.
Getting professional help from small business tax accountants in Mississauga will also help you clearly understand the overall tax filing process.
CONCLUSION:
Understanding the tax implications for small businesses in Canada is essential for managing your company’s financial health. If you:
- Meet the eligibility criteria,
- Understand the taxes you must pay, and
- Employ strategies to reduce your tax burden,
you can ensure your small business remains competitive and compliant with Canadian tax laws.
For more information on becoming a certified bookkeeper, check out our guide on How to Become a Certified Bookkeeper: A Complete Guide and learn about the necessity of a personal tax accountant in Canada in our blog post Do I Need a Personal Tax Accountant in Canada?.
If you ever had to look for a small business tax accountant near Mississauga, Ontario, contact Numeracy Accounting Solutions. Our small business tax services in Mississauga are widely spread and have helped 150+ small business owners file their taxes carefully.