As a small business owner or freelancer, you have access to a lot of little known deductions and tax credits. Popular deductions such as the one that lets you deduct the use of your home for business purposes help lower your tax liability. To lower it even further, make use of provincial tax credits available in your area and check out some of the Canada Revenue Agency’s lesser-known small business credits and deductions.
Research and Development Tax Credit
If your small business works to bring new products, materials or processes to market, you may qualify for the CRA’s Scientific Research and Experimental Development tax incentives. Canadian Controlled Private Corporations can claim a 35% refundable credit on qualifying expenses up to $3 million. There’s also a non-refundable 15% income tax credit on qualifying expenses over $3 million. If the CCPC meets the CRA’s definition of a qualifying corporation, it can claim a basic 15% income tax credit refundable to 40%.
Other corporations may be able to claim a non-refundable 15% credit on qualifying expenses. Sole proprietors, partnerships and trusts can claim a refundable 15% credit up to $3 million, but they must apply it against taxes payable first, after which they can get a 40% refund for the balance of the credit. As a basic example, imagine you have $100,000 in qualifying research expenses. You can deduct that amount as a business expense from your revenue, but you can also claim a credit for $15,000.
Apprenticeship Job Creation Tax Credit
The Apprenticeship Job Creation Tax Credit helps offset the cost of having an apprentice. To qualify for this non-refundable tax credit, your 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 industries. You can claim 10% of the wages paid to apprentices, up to $2,000. For instance, if you pay an apprentice $19,000, you can 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, and you can claim a maximum of $15,000 every three years. British Columbia also offers additional provincial credits for apprentices.
Book Publishing Credits
The book industry has taken some hits due to the shift to digital reading, but to help, Quebec, Manitoba and British Columbia offer tax credits to book publishers. To be eligible in BC, your incorporated company must primarily focus on the BC market. In Quebec, pre-production, printing and labour expenses determine your credit, which can be worth up to $437,500. The Manitoba credit requires you to pay at least 25% of your salaries to residents of the province, and it gives you a refundable credit of 40% of eligible book publishing labour costs or non-refundable monetary advances made to authors up to $100,000. Additionally, you can claim 15% of eligible printing costs you incurred after April 12, 2011.
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. You can also claim a number of provincial tax credits for professionals in the film or entertainment industries if your company qualifies. In Nova Scotia, digital animators can get a refundable credit worth up to 65% of the expenses to develop their animation, and media companies can claim a credit for half 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, self-employed business owners can also claim a deduction for PHSP premiums. For example, if you’re self-employed and pay $500 in PHSP premiums, you can claim the entire amount as a business expense or deduction. To qualify as self-employed for the purpose of this deduction, you must make at least half your income from self-employment or have employment income of less than $10,000. This deduction lets you write off not only your personal premiums, but also those of your spouse, common-law partner and other household members.
Manufacturing and Processing Income Deduction
If you build a new manufacturing or processing facility or buy new machinery or equipment in Newfoundland, Prince Edward Island, New Brunswick, Nova Scotia or the Gaspé Peninsula, you may qualify for a 10% tax credit. This also goes for construction and purchases in certain offshore areas. To qualify for manufacturing and processing tax credits, your purchases must pertain to the manufacture or processing of goods for sale or lease. Additionally, these small business credits include a number of capital cost allowances that range in percentage plus deductions for manufacturing and processing labour and capital.
Business Investment Tax Credits
To claim your business investment tax credits, you must meet the requirements of Line 412 of your income tax return. This deduction pertains to many of the above-listed programs, and it lets you use unclaimed credits for the past 10 years. Additional business tax investment credits include one for creating a licensed child care space for your workers and one that lets you deduct investments in a mining operation that allocate certain exploration expenditures to you.
To ensure you claim all your eligible tax credits and deductions, you may want to consult with a tax accountant. Alternatively, regularly updated accounting software such as QuickBooks Online keeps you in the know concerning new refunds and credits. It also tracks all your business expenses so you have a clear record at tax time. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.