As a small business owner or freelancer, you have access to a lot of deductions and tax credits. To help lower your tax liability as much as possible, try to take advantage of popular deductions such as the business use of home deduction, but it’s also helpful to know about some of the Canada Revenue Agency’s lesser-known deductions and credits.
Research and Development Tax Credit
If you do scientific research as part of your business or engage in the experimental development of new products, materials, or processes, you may qualify for the CRA’s R&D tax credit. Canadian Controlled Private Corporations may claim a 35% refundable credit on qualifying expenses up to $3 million. Other corporations, individuals, including individuals in partnerships, and trusts may claim a 15% credit on qualifying expenses. To explain, imagine you have $10,000 in qualifying research expenses. You can deduct that amount as a business expense from your revenue, but you may also claim a credit for $1,500.
Atlantic Investment Tax Credit
Businesses in the Gaspé Peninsula, Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, or the offshore regions of these areas may qualify for the Atlantic Investment Tax Credit. To qualify, you must invest in new buildings or equipment for farming, fishing, logging, manufacturing and processing, storing grain, or peat harvesting.
Apprenticeship Job Creation Tax Credit
The Apprenticeship Job Creation Tax Credit is a nonrefundable tax credit to help offset the cost of having an apprentice. To qualify, apprentices must be in the first two years of their apprenticeship and registered with the federal, provincial, or territorial group that certifies professionals in their industry. You may claim 10% of the wages paid to apprentices, up to $2,000. For instance, if you pay an apprentice $19,000, you may claim a credit of $1,900. In Ontario, you may qualify for an additional apprenticeship training tax credit worth up to $5,000 per apprentice per year. You may claim a maximum of $15,000 every three years. British Columbia also offers additional provincial credits for apprentices.
Child Care Spaces Tax Credit
If you create child care spaces for your employees’ children, you may claim a credit based on those expenses. The credit is worth up to 25% of eligible setup expenses, for a maximum of $10,000 per space created. To explain, imagine you spend $80,000 setting up childcare for three of your employees’ children. In this case, you qualify for a credit of $20,000. However, if you spent $200,000 setting up childcare spaces for three children, you may only claim a credit of $30,000.
Book Publishing Credits
The book industry has taken some hits due to the shift to digital reading, but to help, both Québec and British Columbia offer tax credits to book publishers. To be eligible in BC, your company must be incorporated and primarily focused on the BC market. In Québec, the credit is based on preproduction, printing, and labour expenses, and is worth up to $437,500.
Film and Entertainment Credits
If you produce a film or video and hire Canadians, you can claim a federal tax credit. The credit is worth 16% of eligible wages paid, but you must submit a $5,000 application fee to access this credit. There are also a number of provincial tax credits for professionals in the film or entertainment industries. In Nova Scotia, digital animators may receive a refundable credit worth up to 65% of the expenses to develop their animation, and media companies may claim a credit for half of the cost of developing interactive digital products.
Deductions for Private Health Services Plan Premiums
As an employer, you can write off the cost of private health services plan premiums you pay on behalf of your employees, and your employees don’t have to report those sums as benefits. Additionally, if you are self-employed, you may also claim a deduction for PHSP premiums. For example, if you pay $500 in PHSP premiums and are self-employed, you may claim that entire amount as a business expense or deduction. To be considered self-employed for the purposes of this deduction, at least half of your income must be from self-employment, or the income from employment must be less than $10,000. You can write off your own premiums as well as premiums paid for your spouse, common-law partner, and other members of your household. To ensure you claim all of your eligible tax credits and deductions, you may want to consult with a tax accountant. Alternatively, you may want to use tax preparation software that is updated regularly with new deductions and credits. To ensure you have a record of all your business expenses, consider investing in expense tracking software and accounting software. Without records of your expenses, it can be hard to claim all of your deductions and credits.