As a small business owner, this year has presented numerous challenges, including temporary closures and financial strain. Amidst these difficulties, you may be seeking some tax relief for small business owners. Fortunately, there are tax measures available to provide support for small business owners like you when preparing your tax return this season.
Are You Self-Employed? Here’s What You Need to Know about Tax Relief for Small Business Owners
If you fall into one of the following categories, it’s likely that you are self-employed:
- You work as a freelancer, independent contractor, or gig worker.
- You have a side hustle, such as selling handmade candles on Etsy or running a local dog-walking service.
As a self-employed individual, it’s important to note that you are responsible for reporting your business income on your personal income tax return. This can be done using the Statement of Business or Professional Activities (T2125 and TP-80) form.
Maximize Your Tax Deductions: Claiming Business Expenses
When it comes to reducing the taxes you owe as a small business owner, deducting your business expenses can make a significant difference. However, it’s important to note that these expenses must be work-related, and personal expenses cannot be claimed tax relief for small business owners. Here are some common types of expenses you can deduct on the Statement of Business or Professional Activities (T2125 and TP-80) form:
- Supplies: You can deduct the cost of items your business uses to provide goods or services. This includes supplies specific to your trade or profession, such as cleaning supplies for a plumbing business, as well as general office supplies like pens and paper.
- Vehicles: If you have a company car or use your personal vehicle for work purposes, you can claim a portion of the costs associated with maintaining it. This includes fuel, repairs, routine maintenance, insurance, and license and registration fees. Remember to keep receipts and track the kilometers driven for business-related reasons.
- Travel: If you travel for work, you may be eligible to deduct expenses such as flights, ground transportation, hotel accommodations, and 50% of meal costs incurred during your business trips.
- Home Office: If you operate your business from home, you can deduct home office expenses. This includes a portion of your home internet access fees, a portion of your rent or mortgage interest, and utilities such as electricity and heat. The amount you can claim depends on the percentage of your home that is used for business purposes.
It’s important to keep accurate records and maintain supporting documents for all your business expenses. By properly deducting these expenses, you can maximize your tax savings and reduce the amount of taxes you owe.
Boost Your Business Tax Savings: CCA, COVID-19 Relief Measures, and More
- Claim your Capital Cost Allowance (CCA): While you can’t deduct the entire cost of property such as furniture, equipment, or buildings when you purchase them, you can deduct a portion of their cost each year through the Capital Cost Allowance (CCA). This deduction recognizes that these assets wear out over time and helps lower your tax payable. The CCA allows you to gradually deduct the cost of the property for as long as you own it.
- Accelerated Investment Incentive measure: If you acquired property after November 20, 2018, and it became available for use before 2028, you may qualify for the Accelerated Investment Incentive measure. Under this measure, in the first year you claim the CCA, you can deduct three times the normal CCA rate for your equipment or building, resulting in even greater tax savings. From 2023 to 2027, a phase-out period will gradually reduce the CCA rates for property available for use during this time until reaching the normal rate again.
- COVID-19 relief measures for business owners: The government has introduced various measures to support Canadian businesses during the COVID-19 pandemic. As a small business owner, you may be eligible for additional financial assistance, such as:
- Additional $20,000 on top of the $40,000 Canadian Emergency Business Account (CEBA) interest-free loan.
- Canada Emergency Rent Subsidy (CERS) covering up to 65% of eligible expenses (or more if you had to close your business due to a provincial lockdown). This subsidy is paid directly to you, not your landlord.
- Provincial relief measures like the Ontario Small Business Support Grant, which provides support for small businesses.
These relief measures aim to provide financial support and alleviate the challenges faced by small business owners during these unprecedented times. Be sure to explore and take advantage of these opportunities to maximize your tax savings and secure the assistance you need.
