Tax Saving Tips for Your Business

By Diana Gray

The boardroom was filled to capacity for this hot topic presented by Stephen Lim and Henry Yan of the Ascent Partnership, Chartered Accountants (www.ascentteam.com). Who doesn’t want to learn tax saving tips?!

Using a comprehensive PowerPoint presentation and a hand-out booklet, Henry and Stephen led us through various topics including: 

Using the tax rate schedules, they demonstrated examples of when it is better to incorporate a business for tax saving purposes, and when it is not. Other advantages and disadvantages of incorporating a business were also clarified. As everyone’s situation is different, it was recommended to have the specific advice from an accountant and a lawyer to ensure the best advantage and format is used from a tax and legal perspective.

Regarding allowable deductions, they explained the general rule is that you can deduct any reasonable current expense that you paid in order to earn business income. (The guidelines for specific expenses are listed on the CRA website: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html.) They went on to give specific examples for automobile, home office, travel and conventions, equipment purchases, meals and entertainment.

Of course the key word is “reasonable” expense. When expenses or purchases exceed the reasonable limits, these show up as a “red flag” to Revenue Canada. Stephen and Henry encouraged everyone to keep separate accounts for their personal and business activity and to keep organized records and receipts. In this way, in situations of a Revenue Canada audit, all claims can be verified. They said it is becoming more common for Revenue Canada to conduct small business audits.

Some red flags that may trigger an audit include:  expenses that don’t make sense in light of the business, late filing of returns, businesses operating at a loss for too long, unexplained changes between returns from one year and the next, and ignoring correspondence from CRA. They said the additional taxation, interest and penalties can be quite severe for intentional tax avoidance, so encouraged everyone to keep accurate and up-to-date records and filing returns.

Stephen and Henry invited questions and kindly offered their contact number for any follow-up questions after the session:  604-291-0367.