10 ways to pay less tax in Canada for small business owners

• Keeping organized records of your business transactions lets you see if you’re eligible to claim deductions and credits that could bump you down into a lower tax bracket and reduce your overall tax bill.
• The deadline for most self-employed individuals to file tax returns in 2024 is June 15, 2024, but if you owe money, your payment is due on April 30, 2024. 
• If you have a qualifying business investment loss for the tax year you’re reporting, you can deduct half of the total loss from your income and lower your overall taxable income. 
• If your home is your primary place of business and you have a business income, you can claim certain business use-of-home expenses. 
• Contributing to tax-advantaged savings plans like an RRSP or a TFSA helps you save for retirement and lower your tax bill. 
• Don’t forget to always work with a professional Accountant for tax advice.

As a small business owner, taxes can really impact your bottom line. But, with some planning, you can lower your tax bill and keep more of your hard-earned profits. 

Here's how in 10 easy steps. 

Few people find tax time fun, but wading through disorganized paperwork can make it even less so. Keep careful track of all your business transactions, including income, expenses, receipts and invoices.

Canadian federal law requires that you keep accurate records of your business income transactions and expenses, and the Canada Revenue Agency (CRA) has the right to request them at any time. But being organized also lets you see if you're eligible to claim deductions and credits that could bump you down into a lower tax bracket and reduce your overall tax bill.

A clean paper trail also allows you to substantiate your claims if the CRA audits you. Using bookkeeping or accounting software can help you streamline the process, minimize errors and more easily substantiate your claims if the CRA wants to see them later. Scotiabank has partnered with Intuit-Quickbooks , the leading provider of cloud accounting software, to help you track, manage and organize your business. Click here to view the special offer for Scotiabank customers.

Tip: Wondering how long you need to hang on to your tax returns and related receipts? The CRA advises keeping all required records and supporting documents for at least six years from the tax year they relate to.

There are benefits to filing your tax returns early — or at least on time. For starters, you’ll avoid last-minute stress as you face the looming filing deadline. And if you’re expecting a refund, you’ll get it faster.

If you're self-employed, the CRA gives you a bit longer to file your taxes — you have until June 15, 2024. The exception to this date is if you have business expenditures relating mostly to a tax shelter investment. In that case, you must file on or before April 30, 2024.

But in either case, if you owe money, your payment is due on April 30, 2024. If you miss the payment deadline, you’ll face a 5% late penalty and 1% interest each month.

Filing your taxes accurately and on time is crucial to avoid penalties and maintain good standing with the CRA.

Tip: Stay on track with regular reminders to organize financial records and seek out professional accounting help if you need it.

Keeping it in the family can have its advantages. After all, who better understands the passion you have for your business?

Employing family members in your business can also be a tax-efficient strategy.

Hiring a spouse, child or other relative allows you to benefit in two ways: for 2023, the first $15,000 of a family member’s employment is tax-free (the “basic personal amount”), and their salaries count as a tax deduction for your business.

Tip: This approach could put your business in the CRA’s spotlight. It’s vital to have a solid paper trail that proves your family member did legitimate work for reasonable compensation, and that amounts were actually paid.

By law you are required to use a dedicated bank account and credit card for your business, and keep purchases separate from your personal finances. This allows you to track your business expenses and demonstrate their legitimacy if the CRA asks for proof. Scotiabank offers a full suite of banking solutions for your business, including flexible banking accounts and credit cards that help maintain your business vs personal finances separate, specially as your business grows. Learn more about: Personal vs business bank accounts: What's the difference?

Tip: Timing matters when it comes to incurring business expenses. For example, if you can spend money on your business either at the end of this year or the beginning of next year, choose the end of the year to take advantage of your tax deduction more quickly.

You want your business to be profitable but business losses, like non-paying customers, capital losses or theft, can happen.

The good news is, the CRA lets you use that loss to lower your overall taxable income. If you have a qualifying business investment loss for the tax year you’re reporting, you can deduct half of the total loss from your income.  

Work with a trusted tax accountant to understand how tax deductions apply to your situation.

Tip: Is the portion of the loss greater than your total income? You can carry the remaining amount back to a previous year, up to three years — or ahead for up to 20 years.  

Running your business from your home offers some tax benefits.

If your home is your primary place of business and you have a business income, you can claim certain use-of-home expenses. These can include utilities, mortgage interest on your residence, property taxes, repairs and maintenance, or home insurance.

Tip: The CRA outlines how this deduction works — calculate how many hours in the day you use parts of your home for your business, divide it by 24 hours, and multiply the result by the business part of your total expenses. The answer is the household cost you can deduct.

Did you relocate for business purposes this year? Good news: you may be able to claim moving expenses as a deduction on your tax return if you moved at least 40 kilometers to run your business.

You can claim several related costs like transportation, temporary lodging, moving services, realtor commissions and charges for connecting or disconnecting utilities.

Tip: An accountant can save you money by identifying tax deductions you may not know about. Consider working with an accountant familiar with your type of business.

Structure your business in a way that best supports the size of your business and your goals. Consider getting advice from a lawyer, accountant or financial professional who specializes in corporate structures to help you make the best decision.

There are three types of legal business structures: sole proprietorship, partnership and corporation. While each structure offers pros and cons, incorporating your business can offer a tax advantage.

Income earned through a sole proprietorship is taxed at your applicable personal rate, but incorporation allows you to retain profits in your corporation where they benefit from the small business tax rate — about 12%, depending on your province or territory.

Incorporation has other benefits too. You can choose how to distribute the income your business generates and take advantage of tax benefits like charitable donations and income splitting. Not only that, but the lower corporate tax rate also makes it cheaper for you to reinvest profits, and helps you grow your business.

Tip: While you'll be taxed when you eventually withdraw the money from your corporation, you'll have benefitted from tax deferral for that period and likely be in a lower tax bracket — working part-time or retired.

Contributing to tax-advantaged savings plans like an RRSP or a TFSA helps you save for retirement and lower your tax bill. It’s a win-win.

Contributions to an RRSP are tax deductible, offering tax relief and tax-sheltered growth. You’ll have to pay tax when you withdraw from your RRSP, but most people do this when they're in retirement — and in a lower tax bracket. If you draw a salary from your business, this amount is eligible for calculating your RRSP contribution room. Receive dividends? This amount is ineligible.

If you want more flexibility, a Tax-Free Savings Account lets your savings grow tax free — and you can withdraw your money anytime without penalty. The TFSA contribution limit for 2023 is $7,000.

Tips: You can check your RRSP deduction limit on your most recent Notice of Assessment from the CRA. Visit the CRA’s My Account or the MyCRA mobile app to view your past assessment or reassessment notices.

For some, reading about new tax legislation might be like watching paint dry, but it’s important to be aware of updates that may impact your business.

Follow reputable sources of tax information, consult with tax professionals regularly and consider attending seminars or workshops to stay on top of changes — and find opportunities for tax savings.

Tip: Check the latest proposed, announced and enacted business income tax changes for the current year on the CRA website.