Tax Time Brings Challenges for Canadian Small Businesses

Canadian Small Business tax challenges make having tax strategies even more important for small business owners

Tax Strategies for Canadian Small Business Owners

Mario Toneguzzi, Connect4Commerce contributor

This is the time of year, small businesses and business owners across Canada take a closer look at their financial picture with tax season upon them. We talk to two experts about the tax challenges and strategies for Canadian small business owners.

Tax Challenges for Small Businesses

Brendan Rolfe, Senior Manager of Business Resources for Western Canada for the Canadian Federation of Independent Business | CFIB, said the average small business in Canada is currently in debt of about $100,000.

“So, a lot of businesses are already starting from a deficit this year often due to COVID essentially and the pressures that puts on their business,” he said. “But think about what’s coming down the pipeline for tax increases this year. Federally speaking, CPP and EI have increased and are scheduled to continue to increase . . . Employer health taxes continue to exist in most provinces.

“CFIB has actually been pushing for an increase in those thresholds and we’re hoping that can actually be a decrease for businesses going forward. Any minimum wage increase we view as a tax on small business because we believe there’s better ways to support workers earning that income level such as increasing the exemption level for example. While it’s not a tax, any minimum wage increase, which happens across the country every year, we view as a bit of a tax at the CFIB.”

Other taxes like the carbon tax and property taxes at the municipal level also impact small business. There’s also the alcohol tax coming in April.

Rolfe said it has become more challenging for businesses when it comes to taxes.

“It’s not written in plain English. It’s written by folks who are finance professionals and have been in government for awhile. It may make sense to them in terms of its precise language but for those of us who are a bit of a Luddite in the tax realm, it’s difficult to interpret,” he said.

“Now more than ever it’s important for business owners to connect with somebody who works within taxes and speaks that language who can make those interpretations for them to put into layman’s terms essentially so that they can comply. Most business owners, they want to comply. They don’t want the CRA hounding them for money where if they knew how to comply in the first place then there probably wouldn’t be any kind of debt to speak of. It’s incredibly important.”

Rolfe said there are available Canadian small business tax credits, grants and subsidies to help with costs and every business can access them. It can be found on the government website – the Business Benefits Finder.

Tax Strategies for Canadian Small Business Owners

According to Rolfe, “There’s a few strategies we recommend to small businesses that help with the increased costs as well. One is to return to their business plan or create a business plan, specifically the financial section of it, so that they can forecast what their costs are forthcoming with all these new taxes coming forward and also help with their budgeting.

“Also, connecting with their bookkeeper or accountant to look at what kind of deductions they might be able to make. A lot of business owners are sole proprietors and there are some basic personal deductions they can make in regards to things like mileage for the cars, tools deductions if they are performing tasks for their business and they have to buy tools for that. Home office expenses they can get credits for.”

Joseph Truscott, a Chartered Professional Accountant based just outside of Hamilton, Ontario, who has participated in several committees with the CPA Canada, said there is an endless list of tax savings strategies for business entrepreneurs.

Alternative Minimum Tax

Normally, most Canadians are not subject to the AMT. However, you should be prepared for this tax if you are benefiting from tax deductions or credits. For example, if you used your capital gains deduction (to shelter capital gains on qualified farm property, qualified fishing property, and qualified small business corporation shares), bought flow-through shares, have limited partnership losses, or received significant dividend income, you may be subject to the AMT.

Truscott said the Liberal government has proposed substantial changes to the Alternative Minimum Tax (AMT) system that begins in 2024.

“Your AMT may be higher in 2024 (compared to 2023) if your taxable income is greater than $173,000 and affects all types of income including Capital Gains, Stock Options, Canadian Dividends, etc.,” he said.

“As part of the proposed changes, the rate of AMT is set to increase from the current 15 per cent to 20.5 per cent federally. This aims to ensure that taxpayers subject to AMT pay a higher amount in taxes. Provinces also have AMT, which is generally a percentage of the federal AMT.”

He said individuals affected by the AMT often need to plan their future income to ensure that they recover AMT tax credit in the seven-year carry forward period. Many of the proposed changes will make this planning much more important in this and future years.


Some small business owners have set up trusts to defer taxes and transfer assets to family. Truscott said new trust reporting rules require many trusts to file the annual T3 Tax Return and an Information Summary schedule including trusts that were not previously required to do so for taxation years ending on or after December 31, 2023. This can include bare trusts, in trust accounts and jointly owned assets which did not require disclosure in prior taxation years.

 “There is a further change that now requires Schedule 15 called a Beneficial Ownership Information of a Trust to be included with the Trust Tax Return. Some of the information to be reported for each reportable entity on Schedule 15 includes (1) the name (2) type and classification of the entity (3) address (4) date of birth (5) country of residence and (6) taxpayer identification number,” he said.

 “There are substantial penalties for failing to file the above schedule and the Trust Tax Returns which are due 90 days after the trust’s year end which is typically March 30, 2024 for most trusts.”

Paying Family Members

Businesses can pay family members a reasonable amount for services rendered. “Amounts must be paid in the year and must be reasonable and necessary by your business to earn business income. Wages entitle the individual to be eligible to make RRSP contributions,” said Truscott. Also, a family member can earn as much as $15,000 in 2023 before having to pay any federal tax.

There are many planning opportunities of paying wages to your various family members, he said.

Tax Free Savings Accounts (TFSA’s)

TFSA’s offer Canadian small business owners a flexible tax-sheltered way of saving for the future. According to Truscott, “There are substantial tax benefits of contributing to a TFSA some of which include your TFSA contributions and the income generated are not taxable, you can make tax free withdrawals at any time. However, withdrawn amounts are added back to your contribution room for the following year. There are penalties for excess withdrawals in any year,” he said.

The Tax Free Savings Account dollar limit for contributions is $6,500 for 2023 and there is no deadline for making this contribution. If you are at least 18 years of age and resident in Canada since 2009, you can contribute up to $88,000 in 2023 if you have not previously contributed to a TFSA, said Truscott.

Tax Deferred Retirement Savings for Business Owners

There are significant planning opportunities of making annual RRSP contributions. “Although you have until February 29, 2024 to make RRSP contributions for the 2023 tax year, contributions can be made earlier to enhance the benefits of maximizing the long term growth of your RRSP.  Your 2023 RRSP deduction is limited to 18 per cent of your earned income in 2022 to a maximum of $30,780 assuming you are not a member of a company pension plan,” Truscott said.

Greater contributions can be made to an incorporated company by establishing an Individual Pension Plan (IPP). An IPP allows a business owner (and their family members) to increase their retirement savings and establish long term financial security through tax deductible contributions made by their corporation, he said.

 A IPP is most beneficial for those over 40 years of age and earnings in excess of $100,000, he added.

The key to lowering your tax burden for yourself and for your company is to plan ahead. You need to speak with your accountant or tax professional about tax planning. Have them look at the total tax picture for you and your company as that will provide you with the greatest benefit.

Mario Toneguzzi is a regular contributor to the Connect4Commerce Canadian Small Business News Blog. Mario is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and the only Canadian to be named.)

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