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Accessing the CRA Small Business Deduction for your Business

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction that a Chartered Professional Accountant can help you consider. There are also complex exceptions that could get you in trouble in a CRA Audit Toronto, but which a Chartered Professional Accountant can help you navigate.

In 2016 some changes were made to the small business deduction that impacted payments from private corporations to Canadian Controlled Private Corporations. Goods and services provided between private corporations results in ineligible income if there is any related shareholdings or interests in the two corporations. The rules can be very broad and you may be caught without even knowing it. A Chartered Professional Accountant can help you figure out areas of risk and avoid a CRA Audit. The details are not yet clear for the final provisions, but tax professionals identify major issues that can affect many small business owners.

The goal for the changes is to stop high-net worth individuals to lower their family tax rates by using multiple corporations owned by family members to earn income that related to the same business or business operations. Despite this beneficial intention to make the tax system more fair for middle income taxpayers, there may be some inadvertent traps that capture legitimate operations in separate companies owned by related persons. A CRA Audit Toronto can result in your or your family member being denied the deduction and as a result owing taxes, penalties, and interest. Get a Chartered Professional Accountant to review your business dealing with corporations where a family member has any interest to make sure you are safe in case of a CRA Audit Toronto. A little advice now can save you a lot of headache tomorrow.

Accessing the CRA Small Business Deduction for your Business FAQs

What qualifies for small business deduction in Canada?

You should spend money on your business to qualify for the small business deduction on your taxes. Money spent on personal use doesn’t count. For example, you bought a desk for the office of your business. It counts as a business expense and a deduction. However, buying a desk and using it at home isn’t qualified for these kinds of deductions.

What is the small business deduction limit in Canada?

Your limit for a taxation year is $500,000. It’s prorated for the number of days in the year if there are less than 51 weeks. Business limits should be allocated amongst corporations associated in a year and are reduced by the share that the Canadian-controlled private corporation assigns to another corporation. Then, the remaining limit is further reduced on a straight-line basis if the combined taxable capital is between $10 million and $15million.

How much income can a small business make without paying taxes?

Entrepreneurs don’t have the formula that will help calculate how much their business can earn without paying taxes on it. Your annual business income will be combined with other non-business and business income on your tax return. Your potential itemized deductions, filing status, and other allowable deductions will determine your taxable income and resulting tax bracket. You may also have to consider whether an alternative minimum tax will apply to you and erase a portion of your deductions.

pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.

Testimonial

Sam Faris reduced the significant unreported income based on net worth audit to be nil. Sam’s approach in fighting these types of complex audits is unique and sophisticated. He found countless mistakes made by the auditor which were rectified when Sam appealed the audit decision. Instead of owing significant amount of taxes, Sam reduced it to zero. I highly recommend to hire Sam for this type of audits and any CRA problem.”

E.M., Ottawa
pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.