Corporate tax deductions are key to reducing taxable income and lowering taxes. In Canada, all businesses have access to many deductions and tax credits, but many businesses miss out on some that could make a big difference. Consult with a corporate tax accountant to understand which deductions can help you save money and get healthier financially. Here are the top tax deductions Canadian businesses often overlook:
1. Capital Cost Allowance (CCA)
Capital Cost Allowance (CCA) is a tax deduction that allows you to recover the cost of depreciable property such as buildings, equipment and machinery. While most businesses are aware of CCA, many don’t maximize their claims. Different asset classes have different depreciation rates and you need to categorize your assets correctly to get the full benefit of this deduction.
For example, accelerated depreciation through Accelerated Investment Incentive allows you to claim more of the depreciation in the year you acquire an asset. This is especially good for businesses that buy new machinery or equipment frequently. Seek professional advice from a corporate tax accountant Toronto on what records you need to keep and how to claim maximum CCA each year.
2. Scientific Research and Experimental Development (SR&ED) Tax Credit
The Scientific Research and Experimental Development (SR&ED) tax credit is one of the biggest tax incentives available to Canadian businesses. This credit is designed to encourage innovation by allowing you to deduct expenses related to research and development (R&D) projects.
Many businesses assume only high-tech or pharmaceutical companies qualify for this credit, but in reality, businesses in many industries can claim SR&ED credits. Any business that undertakes projects to improve existing products, processes or services can qualify. The key is to keep detailed documentation of R&D activities including project objectives, methodologies and results.
3. Apprenticeship Job Creation Tax Credit
Hiring apprentices can give you a skilled workforce and a tax advantage. The Apprenticeship Job Creation Tax Credit (AJCTC) allows you to claim a tax credit of 10% of the wages paid to qualifying apprentices in their first two years of employment up to a maximum of $2,000 per year per apprentice.
Many businesses overlook this credit if they have apprentices in trades such as carpentry, plumbing or electrical work. By claiming the AJCTC, you contribute to the development of a skilled workforce and reduce your payroll expenses.
4. Investment Tax Credit (ITC)
The Investment Tax Credit (ITC) is another way to reduce your tax liability. This credit can be claimed for many types of investments including machinery and equipment used in manufacturing and certain energy saving equipment.
For example, businesses in mining, oil and gas and those investing in renewable energy projects may qualify for ITC. By claiming this credit, you can offset some of the costs of your capital investments.
5. Home Office Expenses
For small businesses or self-employed individuals who work from home, there is a way to deduct business-use-of-home expenses. This deduction allows you to claim a portion of your home expenses such as utilities, maintenance and property taxes based on the percentage of the home used for business purposes.
Many business owners don’t claim this deduction either because they don’t know about it, or they don’t keep track of their home office expenses. But this can mean big tax savings, especially for small businesses or those in the early stages of growth.
6. Bad Debts
Businesses that sell on credit may experience situations where customers don’t pay. In those cases, businesses can claim a deduction for bad debts, which are amounts included in income but not collectible. Writing off bad debts reduces taxable income and can help you recoup some of the losses from non-paying customers.
Conclusion
Canadian businesses of all sizes and industries should be proactive in claiming all the tax deductions available to them. Many deductions such as CCA, SR&ED credits and ITCs can have a big impact on your tax liability. By working with a corporate tax accountant, you can make sure you’re not leaving money on the table and optimize your tax strategy for long term success.