Three Tax Tips for Ontario’s Small Businesses

Tax season has started here are three tips that have important implications for Ontario’s small businesses.

1. What kind of expenses can I claim?

Here are two expenses that you can claim on your income tax return:

Automobile Expenses

If you are required to use your passenger vehicle for business or employment purposes, you are permitted to deduct reasonable expenses for operation and ownership of the vehicle. Such expenses include fuel, licence fees, insurance, repairs and maintenance, depreciation, finance charges, and lease payments. The deductible portion of automobile expenses is based on the proportion of your total kilometres driven in the year for business or employment purposes relative to the total kilometres driven in the year.

To support your automobile expense deduction you should maintain a careful record of your business and employment kilometres driven for the year, including the date, destination, the distance driven, and purpose for each business trip.

Home Office Expenses

In order for you to deduce your home office expenses from self-employment income (business income), then your home office must be your principal place of business or it must be used on a continuous basis exclusively by you to earn business income including meeting clients, customers, or patients as part of your normal business activity.

Deductible home office expenses for a self-employed person includes rent, repairs and maintenance, insurance, property taxes, mortgage interest (not the mortgage principal), heat, light, and other expenses. The deductible portion of these costs is a “reasonable amount” which is typically calculated based on the square footage of the home office as a percentage of the total square footage of the home.

If you believe you might be eligible to claim automobile and/or home office expenses on your personal income tax return, call our firm today, so we can help you to calculate your allowable deduction.

2. I’ve incurred capital losses on shares or debt of my small business in 2015. Is that deductible on my tax return?

Losses from the sale of certain small business corporation shares or debt may be considered “allowable business investment losses” (ABIL), which is a capital loss. Normally a capital loss is only deductible against a capital gain, but an ABIL is deductible against other sources of income (albeit at a 50% inclusion rate). The ability to claim an ABIL may be limited by previous years’ capital gains exemption claims. The CRA will audit the claim of an ABIL; you must be able to prove the amount of the investment, the type of investment and provide evidence of the investment loss.

3. I run my own business. How long do I have to retain my books and records for the 2015 tax year?

If you run your own business, you are required to retain books and records that relate to a specific taxation year for a minimum of six years after the end of that year. If a particular year is under appeal, books and records for that year should be kept until the appeal is resolved and the time for any further appeal has expired. If a return has been filed late, the records must be kept for six years from the actual filing date.

Records include minutes of meetings, accounting records, and source documents such as invoices, receipts, cheques, bank statements, etc. The books and records must be sufficient for the Canada Revenue Agency (CRA) to confirm revenue, expenses and taxes paid. They must also be stored at a Canadian location available for audit.

For any assistance, please call our firm today, 416-987-6005, one of our CPAs will directly contact you.