Frequently Asked Questions
How do I pay less tax? This is the question most commonly asked by entrepreneurs. Unfortunately, there is no all-encompassing simple answer. However, there are many legitimate techniques and deductions that business owners can use to lessen their income tax burden. Some of these techniques have their benefits and disadvantages, and therefore the most advantageous blend is different for each business. See our Special Tax Services section and the questions below for some of the more common techniques that we employ.
What government assistance is available for my Canadian research or development?
There are many Canadian government agencies that grant money or reimburse expenses for qualifying research and/or development. Some examples are Western Economic Diversification and the National Research Council. Revenue Canada also has a tax credit program for qualified Scientific Research and Experimental Development or SRED. This program refunds 35% of SRED expenditures.
I am several years behind on filing taxes, what should I do?
The first step is to talk to a qualified professional about the course of action that is best for you. Although it may seem like a daunting task, we can help you plan a step by step approach that can help you get back on track. The end result will be the peace of mind that comes with knowing a realistic plan is in place to deal with the problem.
Should I incorporate my business?
Generally speaking there are more tax planning opportunities for Canadian businesses which are incorporated than for those which are unincorporated. There are some modest additional expenses to being incorporated, therefore it is a rule of thumb to wait until your business is a 'going concern' before incorporating.
Can I write off medical expenses in my business?
Yes. If you are or are not incorporated you may deduct the premiums of certain types of health plans. If your business is incorporated you can set up a Private Health Services Plan. You should confirm with your tax consultant what specific expenses are deductible and which are not.
Can I write off my home office in my business?
If you use a portion of your home as either your principal place of business or solely as a place of business you can usually deduct a proportion of expenses.
Can I write off my automobile in my business?
There are alternative methods to deduct your legitimate automobile expenses in your corporation or proprietorship. For either, a Canadian taxpayer can deduct the proportion of automobile expenses that relate to business usage. Alternatively, a corporation may pay a tax-free allowance per kilometer to an employee or shareholder for business use of a personally owned vehicle. The maximum allowance is set in tax legislation and changes from time to time.
Occasionally, taxpayers use their corporations to purchase automobiles, which are mainly for personal use, and they think it is O.K. to fully deduct the expenses as business expenses. This, however, attracts what are called taxable 'stand-by' and 'usage' charges, which are undesirable and inherently punitive. Therefore, it is often unadvisable for a corporation to purchase a vehicle that will be used personally.
Do I have to contribute to CPP and EI?
Normally, salaried employees including shareholders of incorporated businesses must contribute to CPP and if applicable also to EI. Unincorporated business owners must pay both the employer's and the employee's share of CPP.
For incorporated businesses there are alternative methods of remuneration that do not attract these payroll taxes. See Employees Profit Sharing Plan as discussed in our Special Tax Services section, as an example.
It should be noted that there are advantages and disadvantages of not contributing to EI and CPP and you should discuss your situation with a qualified tax consultant before taking action.
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