Published: March 26, 2020
Last Updated: April 13, 2020
Canadian Income Tax Planning Tips from Toronto Tax Lawyer
Here are some top income tax planning tips including underutilized deductions and tax help for areas of common dispute with CRA for small businesses and individuals prepared by our top Toronto tax lawyers.
Most Underutilized Deductions
Capital Gains Exemption
Owner-managers shareholders of a qualified small business corporation can utilize the $ 800,000-lifetime capital gains (LCGE) upon disposition of shares.
When a business sells a warranty, guaranteeing the quality of the products or services for a time period beyond the current taxation year, a warranty reserve may be deducted, because it is regarded as unearned income or a future anticipated liability.
Reserve For Future Amounts
Certain business revenue received in the current year may be unearned income for the current tax year, such as fees paid for services not rendered, or goods not yet delivered. As including this unearned income in the current year’s taxable income does not reflect an accurate picture of the business’ actual income, a deduction can be claimed.
Replacement Property Rules
A business can defer the capital gain and depreciation recapture on a former business property that is replaced until the sale of a new replacement property provided it is real property (not personal property), held as capital property (not inventory or rental property), and used by the taxpayer to generate business income.
Private pension plans can be set up for owner-managers, and the contributions are deductible.
Deductions for Home Office
Rent – Percentage of All Business Home Expenses
The space used in a private home for generating business income can be claimed as ‘home office’ expense. The home office must either be the principal place of business or the space must be used only to earn business income on a regular and ongoing basis.
Home office expenses can include a pro-rated proportion based on the area of all non-personal expenses such as rent, mortgage interest payments, utilities, maintenance, property taxes and insurance expenses.
Purchases of office supplies for the home office to earn business income are deductible. Filing cabinets, chairs and desks are capital properties and are depreciable.
The cost and usage expense of a phone can be deducted if it is used in the business. If a personal phone is used for business, a reasonable portion of the expense can be claimed.
Internet expenses for the home office can be deducted. If internet access is shared between the home office space and the personal living space, then internet expense needs to be pro-rated according to the usage of the internet in the office space.
Office Cleaning Expenses
The costs of hiring professional cleaners or purchasing cleaning supplies are deductible.
Common Wrongly Claimed Deductions
Clothing or Uniforms
Most clothing items are not allowable deductions, even if worn exclusively for business. In very rare cases the cost of clothing may be deductible for example by a stage performer who wears exotic and special clothing as a part of the act.
Unless vitamins are held as inventory for sale to generate business income, their costs are not deductible against business income or as a personal deduction. Generally, personal use /consumption items are not deductible unless they are given to clients as gifts.
Common Canada Revenue Agency Disputes
Car Expenses With No Logs
The cost of purchasing or leasing a car, maintenance, insurance, and gasoline are all deductible expenses if the car is used for business purposes. If a car is used for personal use as well as for business use, careful logs must be maintained to document the business use of the car. Logs should reflect the date of business/personal use, a short description of the trip made and the purpose of the trips. CRA will generally try to disallow auto expenses if there is no log.
Business Expenses With No Receipts
All expenses for business purposes must be supported by receipts. Storage and organization of the receipts are paramount to settling disputes with the Canada Revenue Agency.
Salary To Family Members With No Justification
Family members may be hired as employees provided that their remuneration is market-based and the duties performed can be demonstrated. An employment agreement is also helpful.
Toronto Tax Lawyer Tax Planning Help
As Toronto tax lawyers with over 30 years of experience, we can help you with income splitting and other tax planning to make sure you pay the least tax legally possible. Contact our top tax attorneys today.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."