10 TAX Tips: For Small Business Owners

10
TAX
TIPS
For Small
Business
Owners
ABOUT FBC
FBC is a third-generation family company.
We’ve worked with Canadian small business

owners to minimize their income taxes
and maximize their assets for over 65 years.
Our people are at the heart of our business,
and at the heart of the communities we
serve.
We’re not just experts in tax preparation and

financial planning. We have an entire portfolio
of back office support services that help small
business owners save time, improve
operations, make better decisions and hold on
to more of their money.
FBC offers an industry-leading Membership

model, which means we help our Members
year-round with tax planning and ongoing
business consulting.
In this eBook we’ll outline tried-and-true

strategies that we use to help our small
business Members identify tax savings and
optimize tax returns.
This material is provided for

educational purposes only.
Always consult a tax professional like FBC
regarding your specific tax situation.
1 Keep Business and
Personal Accounts Separate
It's easy to lose track of cash transactions.

Instead, use a credit card or debit card to
cross-check your receipts.
It’s a good idea to have a separate

business account and credit card so
you don’t mix personal and business
expenses.
As a bonus, if all transactions are business

related, you can claim any associated
expenses with that card or account. For
example, the annual fee on a points card, or
the interest from a balance carried from one
month to the next, can be claimed if all
transactions are business related.
2 Keep Good Records
If you’re self-employed or a small business

owner, you are required by law to keep a
record of your transactions. If you keep good
records, you will avoid Canada Revenue
Agency (CRA) fines in the event of an
audit. Plus, putting in the work now means
you’ll save time when it comes to filing your
taxes.
Here are five easy ways to organize

your receipts:
1. Save Your Receipts

The CRA won’t accept your bank or credit card statements to justify deductible business
expenses - you need an itemized receipt that corresponds with the transaction. Hang on to
those receipts for at least six years after your last Notice of Assessment, which is as far back
as the CRA will ask to see them in the event of an audit. You can keep the physical receipts
or digital copies.
2. Spend time reviewing your receipts once a month

Sit down for 30 minutes every month to review and categorize your receipts. This keeps
things manageable as the year progresses and keeps you on top of your spending, so you
don’t miss out on any tax deductions. Purchase an accordion folder every year to house all
business receipts. These inexpensive folders are easy to obtain and allow you to organize
your receipts by category and year, so finding a specific receipt is a snap in the future.
2 Keep Good Records
(continued)
3. Back Up Your Receipts
Since receipts tend to fade with time, we

recommend you keep a digital copy of each
receipt. A good practice is to snap a picture of
each receipt on your phone which you can
upload to a central location later.
4. Go Digital
Software like Kashoo allows you to take a

picture and digitize the receipt on the spot, then
you can throw the hard copy in the accordion
folder. If you only need to track expenses,
Mint.com is a good option, and it's free.
5. Get Ahead of Tax Season
Our own app, FBC Tax Advantage, is a free

app that’s part of our Membership model
and gives you the ability to track, manage
and store your tax slips, medical expenses
and charitable donation receipts.
Throughout the year, you can "snap, save

and forget about it", since FBC will attach
the receipts to your tax file and take care of
it for you.
3 Don't Miss Any Tax Deductions
Commonly Missed
Tax Deductions
Accounting, bookkeeping
and tax preparation fees
Branded charitable
donations
Business expenses like a
landline, cellphone or
internet
Home office expenses,
including utilities, house
insurance, repairs, property
taxes and mortgage interest
Charitable donations made
to a registered Canadian
charity through your
business
Interest charged on your
mortgage, business loans or
credit cards may be tax
deductible
Vehicle costs like licence and
registration fees, fuel and oil,
insurance, maintenance and
repairs
Employee salaries
and benefits
4 Top up your TFSA each year
In 2019, the Tax-Free Savings

Account (TFSA) contribution limit
was increased to $6,000.
If you’re making less income one year, it’s a

great option since there’s no penalty if you
withdraw from the account.
The investment income in the account, and

capital appreciation from stocks and bonds, is
also tax-free.
5 Plan Your RRSP
Contribution 6 Take Advantage
of a Spousal RRSP
When you have higher income, If your spouse is earning less money
consider contributing to a Registered than you are, the spousal RRSP will
Retirement Savings Plan (RRSP), since help even out retirement savings for
contributions are tax deductible. That the both of you.
will help bring down your taxable
income. If you have a lot of money in your
RRSP when you retire, and your
spouse has less, you’ll be paying more
income tax since you are in a higher
tax bracket. If you even it out, less tax
is paid on the same income when you
retire.
Take advantage of a spousal RRSP

7 Know When to Incorporate
It can be financially beneficial to incorporate depending on your

circumstances. Here are a few milestones in your business that could
trigger incorporating:
1. The benefits of incorporation outweigh the costs of incorporation and filing a

separate tax return.
2. Your business is earning more money than you need to live. You could reinvest
surplus profit into the business, allowing you to defer personal taxes on withdrawals.
3. There is an opportunity to reinvest large portions of profits into capital expansion.

An incorporated business will allow you to shield the non-tax-deductible portion used
to purchase capital assets from higher rates of tax.
4. The debt servicing of the business demands a

large portion of profits. This strategy will allow
you to shield a portion of profits used to repay
principal from higher rates of tax.
5. You want greater flexibility upon the closure

or sale of the business. In the event of asset
liquidation when wrapping up the business,
corporate tax rates are more preferable than
graduated marginal personal rates.
Talk to a tax professional to figure out if

incorporation is right for you.
7 Know When to Incorporate
(continued)
Benefits of incorporation
Because an incorporated business is a

separate entity, you are not personally
responsible for debts, obligations or other
acts of the corporation (talk to your tax
professional about exceptions)
Corporations are taxed at a lower rate.
For Canadian-controlled private
corporations claiming the Small Business
Deduction, the net tax rate is 9% (2019)
The business has extended life
There are more opportunities to raise
capital
You can use the lifetime capital gains
exemption if you have capital gains
arising from the disposition of certain
properties (small business corporation
shares and qualified farm and fishing
properties) and meet certain conditions -
the exemption could spare you from
paying taxes on some or all of it
8 Know the Difference Between
Employee and Contractor Work
Small business owners can save on their taxes and avoid administrative work by
hiring contractors rather than employees. However, it’s important to know the
differences between how to treat contractors and employees. If a contractor
decides to argue they are an employee, the CRA may later hit you with unpaid
taxes, penalties, interest, CPP and EI premiums.
We recommend having a written agreement setting out the intentions of both

parties that offers some protection if a contractor changes their mind and argues
that they are an employee. Here are some key differences:
1. Contractors Set Their Terms
Contractors decide how and when to perform the required work. They don’t have anyone

overseeing their activities and they’re free to work when, and for whom they choose, and
may provide his or her services to different payers at the same time. And ultimately, they
can accept or refuse work from you.
2. Contractors Assume the Financial Risk
Employees don’t assume any financial risk and their expenses are reimbursed. However, a
contractor has no guarantee of steady income and may either make a profit or incur a loss.
Their income depends on the value and results of their contracts.
3. Contractors are not Dependent on Your Business
When contractors earn the majority of their income from one client, the CRA could perceive
the relationship as an employer-employee one. The contractor should have several contracts
in place with many different clients, and only earn a fraction of their total revenues from
your business.
If you’re unsure about how to treat your workers and want to avoid any trouble with the
CRA, speak to a tax consultant.
9 Consider a Health Spending Account
A Health Spending Account (HSA) is a tax-

free account for eligible health care expenses,
which means it’s a win-win for you and your
employees.
It can fit into your existing insurance plan to

pay for things not covered (or
partially covered), or it can be a stand-alone
solution by providing you (and your
employees) a reimbursement plan for most
health and dental expenses.
You are suitable for an HSA if you:

1. Own a business
2. Pay medical bills
3. Pay income tax/receive T4 income
How Does an HSA Work?
Using an HSA begins when the employee makes a purchase or has a partially paid
expense by another insurance plan. The HSA provider then coordinates the process
from receipt of the employee’s claim to funding the reimbursement (up to the
appropriate limit as set by your business).
Once the claim has been processed, your company receives an invoice for the
service (submitted expense plus an administrative fee) as a business expense and the
employee receives the reimbursement tax free.
10 Always file a tax return
and file on time
You can access money under various

government programs only by filing a return.
For example, if you want to claim the GST, HST

credit or Canada Child Benefit, the net income
declared on your tax return determines the
amount you receive.
Always file on time - the sooner you file,

the sooner you get your refund.
The CRA starts charging compound daily

interest the day after the tax filing deadline.
If you file your taxes late, you'll have to pay a
penalty of 5% of the balance owed plus 1% for
each month you are late, to a maximum of 12
months.
If you are late multiple years, the penalty can

increase to 10% plus 2% for each month your
return is late, to a maximum of 20 months.

If you’re incorporated and paying installments,
there is installment interest, along with
penalties.
CONTACT FBC
Questions or concerns?
FBC Membership
Call us at 1-800-265-1002, ask a question on
our live chat at www.fbc.ca, or email us at Tax Preparation
[email protected]. We’ll come to you to complete
your tax return at a time
convenient for you
FBC delivers more value to small businesses
than the traditional accounting approach Tax Planning
All Members have a personalized
through our industry leading, year-round
tax plan to maximize tax savings
Membership model. today and over the long run
Tax Consultation
We understand that business
questions may arise at any point
in the year, not just at tax time.
Unlike other firms, FBC
Membership includes year-round
access to our team of experts at
no extra cost
Audit representation
We provide audit representation
on any challenges to your
returns for income tax or
GST/HST
This material is provided for educational purposes only.

Always consult a tax professional like FBC regarding your specific tax situation.

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10

FBC is a third-generation family company.

We’ve worked with Canadian small business

We’re not just experts in tax preparation and

FBC offers an industry-leading Membership

In this eBook we’ll outline tried-and-true

This material is provided for

It's easy to lose track of cash transactions.

It’s a good idea to have a separate

As a bonus, if all transactions are business

If you’re self-employed or a small business

Here are five easy ways to organize

1. Save Your Receipts

2. Spend time reviewing your receipts once a month

3. Back Up Your Receipts

Since receipts tend to fade with time, we

Software like Kashoo allows you to take a

5. Get Ahead of Tax Season

Our own app, FBC Tax Advantage, is a free

Throughout the year, you can "snap, save

In 2019, the Tax-Free Savings

If you’re making less income one year, it’s a

The investment income in the account, and

Take advantage of a spousal RRSP

It can be financially beneficial to incorporate depending on your

1. The benefits of incorporation outweigh the costs of incorporation and filing a

3. There is an opportunity to reinvest large portions of profits into capital expansion.

4. The debt servicing of the business demands a

5. You want greater flexibility upon the closure

Talk to a tax professional to figure out if

Because an incorporated business is a

We recommend having a written agreement setting out the intentions of both

1. Contractors Set Their Terms

Contractors decide how and when to perform the required work. They don’t have anyone

2. Contractors Assume the Financial Risk

3. Contractors are not Dependent on Your Business

A Health Spending Account (HSA) is a tax-

It can fit into your existing insurance plan to

You are suitable for an HSA if you:

How Does an HSA Work?

You can access money under various

For example, if you want to claim the GST, HST

Always file on time - the sooner you file,

The CRA starts charging compound daily

If you are late multiple years, the penalty can

This material is provided for educational purposes only.

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