5 Strategies to Reduce Your Small Business Tax Burden

Dorota Haskins, Chartered Professional Accountant |

Do you often wonder how you can reduce your small business tax burden? Does the amount of business tax you paid last year send shivers down your spine?

You’re not alone! And while you can’t avoid paying taxes, there are strategies that you can use to reduce your small business tax burden.

If you haven’t already put these strategies in place, you still have time this year to take advantage of them to reduce your tax liability.

1) Keep ALL Receipts

It never ceases to amaze me at how many expenses are foregone as a result not collecting receipts for EVERY business expense incurred.

As tedious as it may seem, every single parking stub and gas receipt all add up over the course of a year. As a result, not only does it reduce your annual income tax burden but it also reduces your GST/PST/HST tax filings.

2) Charitable Donations

Corporations can make donations in the same manner as individuals. Donations made by individuals are a non-refundable tax credit and are limited to 75% of income (100% in the year of death). Corporations have the same 75% limitation, however, the donation is a deduction against taxable income. 

For both individuals and corporations, if the donation cannot be used in one year, it can be carried forward for up to five years.

3) Income Splitting

Owners of Canadian small businesses are able to reduce their small business tax burden through the income splitting process.

There are two main ways to split income:

  1. hire family members as employees of the corporation or
  2. issue ownership shares to the family members and then pay then pay them dividends.

It is more beneficial (in most cases) to issue dividends due to there being no limit* to the value of dividends that can be paid out.

There are various rules and restrictions on how to properly put these strategies in place. Therefore, I recommend that you seek professional advice before embarking on this path.

*If passed, a proposed change in legislation will affect the “no-limit” rule on paying dividends to family members. The proposal states that if the amount paid isn’t “reasonable”, then a top-up tax rate will apply. The proposed changes are expected to take effect in 2018, and may ultimately put an end to income splitting. Click here to read more about this announcement.

4) Employee Rewards

Many small business owners I talk to are not aware of the benefits of issuing employee rewards. Rewards can be anything from “employee of the month” to the recognition of exceeding safety standards.

Whatever the case, these costs are fully deductible against the corporation’s taxable income, thereby reducing your tax liability.

Employers are allowed to issue a $500 reward per employee per year. There are however rules on cash and non-cash rewards, so it’s best to consult an accountant regarding such rules.

Rewards increase morale and help retain good employees, so start rewarding them today!

5) Cloud Technology

Cloud technology allows us to be more efficient “on-the-go”. 

So, why not take advantage of these efficiencies in your business?

Advancements in cloud technology have enabled business owners to ditch the expensive mainframe servers and annual maintenance/upgrades.

It has allowed small business owners to make use of state-of-the-art technology at less than half the cost of traditional computing systems.

Businesses who incur these costs claim them as operating expenses which are fully deductible against income, thereby reducing their tax burden.

If you’d like an assessment of your current situation, book an appointment with me today.

Let’s ensure you’re maximizing all deductions available to your business!