Start Smart: Tax Planning Strategies for New Businesses in Alberta

Starting a new business is exciting, but it also comes with certain responsibilities, including corporate tax planning.

Proper tax planning strategies can help you maximize your deductions, minimize your tax liabilities, and ensure compliance with the tax regulations in Alberta.

At Liu & Associates, we are here to help you through the complexities of corporate tax planning so you can focus on what really matters – your business.

In this article, we will discuss essential tax planning considerations for new businesses in Alberta, guiding you toward making informed decisions to optimize your tax situation.

Getting Organized With Taxes

When you are starting a new business, one of the fundamental steps in tax planning is to establish a strong foundation by organizing your financial records effectively.

By following these actionable tips, you can ensure a streamlined tax preparation process and gain valuable insights into your business’s financial health:

Maintain Accurate and Up-to-Date Records: Keep detailed records of your income, expenses, receipts, and invoices. Categorize them appropriately to make it easier to identify deductible expenses and track your business’s financial performance.
Separate Personal and Business Finances: It’s crucial to separate your personal finances from your business finances. Using your personal accounts for business finances can make it difficult to track deductible expenses accurately.
Implement a Reliable Bookkeeping System: Establish a systematic bookkeeping system to ensure consistency and accuracy in recording your financial transactions.
Track and Store Documentation: Keep a record of all relevant tax-related documents, such as receipts, invoices, and bank statements.
Establish a Schedule: Set aside dedicated time every month or quarter to take a look at your financial records and update them if necessary.

By properly organizing your taxes, you can establish a solid foundation for your tax planning strategies, streamline your record-keeping process, and ensure compliance with tax regulations.

Choosing a Business Structure

The choice of your business structure can have significant implications for your tax planning.

In Alberta, you can choose from various options, such as sole proprietorship, partnership, corporation, or a limited liability company (LLC):

Sole Proprietorship: Owned and operated by one individual, with personal liability for debts. Taxes reported on personal tax returns.
Partnership: Business owned by two or more individuals or entities. Partners share profits, losses, and liabilities. Taxes reported on personal tax returns.
Corporation: Separate legal entity from owners (shareholders). Limited liability protection. Corporate income tax is paid on profits. Shareholders are taxed on dividends received.
Limited Liability Company (LLC): Hybrid structure combining the limited liability of a corporation with the pass-through taxation of a partnership. Members report income on personal tax returns.

Each structure has different tax advantages and disadvantages.

Consulting with a tax professional or accountant can provide valuable insights and help you determine the most suitable structure for your business.

Deciding About Investments

Tax planning for your business should include careful consideration of investment decisions, as Alberta provides various tax incentives and credits to support specific activities and industries.

So, when it comes to making decisions about investments, new businesses in Alberta have access to advantageous tax planning strategies.

One such strategy is the Innovation Employment Grant, which aims to foster economic growth by providing support to small and medium-sized businesses engaged in research and development (R&D).

These businesses can receive a grant worth up to 20% of qualifying expenditures, encouraging investment in R&D across all industries.

By complementing the Job Creation Tax Cut, this program specifically benefits early-stage firms that may not be profitable yet, further promoting investment and diversification.

Additionally, the Agri-processing Investment Tax Credit (APITC) offers a 12% non-refundable tax credit to corporations investing $10 million or more in constructing or expanding agri-processing facilities in Alberta.

By incentivizing large-scale agri-processing investments, the program capitalizes on Alberta’s existing competitive advantages and aims to establish the province as the preferred destination for such ventures.

Overall, these tax planning strategies, including the Innovation Employment Grant and the APITC, provide support to businesses of all sizes and at various stages of their business cycles, encouraging investment, innovation, and economic prosperity in Alberta.

Claiming Deductions

Deductions are an essential component of your tax planning strategies and allow you to reduce your taxable income and, consequently, your tax liability.

As a new business, it’s possible that you are eligible for various deductions, including startup costs, office expenses, advertising and marketing expenses, employee wages, and more.

Startup Costs: Deduct expenses incurred during the startup phase, such as market research, legal fees, incorporation fees, and initial advertising costs.
Office Expenses: Deduct costs associated with running your office, including rent, utilities, office supplies, and equipment.
Advertising and Marketing Expenses: Deduct expenses related to promoting your business, such as advertising campaigns, website development, online marketing, and print media advertisements.
Employee Wages: Deduct the wages and salaries paid to your employees, including benefits and contributions to employee benefit plans.
Professional Services: Deduct fees paid to professionals such as accountants, lawyers, and consultants who provide services directly related to your business operations.
Travel and Entertainment: Deduct eligible expenses for business travel, including transportation, accommodation, meals, and entertainment incurred for business purposes.
Business Insurance: Deduct premiums paid for business insurance coverage, such as general liability insurance or professional indemnity insurance.
Home Office Expenses: If you operate your business from home, you may be eligible to deduct a portion of your home expenses, including property taxes, mortgage interest, utilities, and maintenance costs.
Vehicle Expenses: Deduct expenses associated with business-related vehicle use, such as fuel, repairs, insurance, and lease payments.
Interest and Financing Costs: Deduct interest expenses on business loans and credit card interest charges incurred for business purposes.

Familiarize yourself with the deductions available in Alberta and maintain proper documentation to substantiate your claims.

Staying Up to Date About Changes

By actively staying informed about tax law changes, new businesses can adapt their tax planning strategies to stay compliant and avoid potential penalties.

Subscribing to newsletters from the Canada Revenue Agency (CRA) provides a direct source of updates.

In addition to subscribing to newsletters from the Canada Revenue Agency (CRA) and staying informed about tax law changes, it’s highly recommended for new businesses to establish a relationship with a trusted tax professional.

A knowledgeable tax professional can provide ongoing guidance, help you navigate complex tax regulations, and ensure that your tax planning strategies align with the latest updates.

By keeping in touch with a tax professional, you’ll have expert support to address any tax-related concerns or questions that may arise throughout your business journey.

Proactively understanding and adapting to new tax requirements not only safeguards your business but also ensures that you can take advantage of any opportunities that arise from evolving tax regulations.

Stay ahead of the game and keep your tax planning strategies up to date.

Tax Planning Strategies Tailored to Your Needs

Effective tax planning is crucial for the financial success of any new business.

By implementing the right strategies, you can optimize your tax position and maximize your savings.

For personalized advice and expert assistance in corporate tax planning and returns, trust the experienced professionals at Liu & Associates.

With their in-depth understanding of the unique challenges and opportunities that new businesses face in Alberta, they can provide tailored and unique solutions to help you navigate the complexities of taxation.

Contact Liu & Associates today to ensure your business starts smart and stays on the path to financial prosperity.

Meal & Travel Expenses for Corporate Tax Filing

Meal expenses are a common tax deduction for many individuals, but determining what is and isn’t taxable can be confusing, especially when it comes to corporate tax planning.

The Canada Revenue Agency (CRA) sets out specific rules and regulations for what can be claimed as a meal expense, and it’s important to understand these guidelines to avoid any tax complications.

In this article, we’ll explore what is and isn’t taxable when it comes to meal and vehicle rates, the difference between meal, travel, and entertainment expenses, the limits to meal expenses, how to claim meal expenses on your tax return, and if any of this differs if you’re self-employed.

Let’s get started!

What’s Taxable and What Isn’t When It Comes to Meal and Vehicle Rates

When it comes to meal and vehicle rates, not all expenses are created equal.

The CRA sets out specific guidelines for what can and cannot be claimed as a deduction.

In general, meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meal expenses with the CRA as long as the travel is for a duration of 12 hours or more.

The CRA also sets out specific rules for vehicle expenses. If you use your personal vehicle for work purposes, you can claim expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use.

For example, if you use your car 50% of the time for work purposes, you can only claim 50% of the expenses.

Is There a Difference Between a Meal Expense, a Travel Expense, and an Entertainment Expense?

It’s important to understand the differences between meal expenses, travel expenses, and entertainment expenses.

Meal expenses are costs associated with food and beverages while traveling or working away from your usual place of business.

Travel expenses are costs associated with travel, such as transportation, accommodation, and meals.

Entertainment expenses are costs associated with entertaining clients or customers, such as tickets to sporting events or meals at restaurants.

How Are Meal and Travel Expenses Calculated?

To calculate meal and travel expenses, you can choose between the detailed or simplified method.

The detailed method allows you to claim the actual amount you spent, while the simplified method uses a flat rate for vehicle and meal expenses.

Keep your receipts if you use the detailed method, but note that the CRA may still request documentation if you choose the simplified method.

Your total travel expenses include travel assistance provided by your employer and any expenses you paid for.

Is There a Limit to Meal Expenses When I File My Taxes?

Yes, there is a limit to meal expenses when filing taxes with the CRA, and it depends on the method chosen to calculate the expenses.

If using the simplified method, the limit is $23 per meal, to a maximum of $69 per day per person.

However, if using the detailed method, the limit is the actual amount spent, with receipts required as documentation.

How Do I Claim Meal Expenses on My Return?

Claiming meal expenses on your tax return can be a straightforward process if you keep accurate records, follow the eligibility criteria set out by the CRA, and enter the information correctly on your tax return.

By taking the time to understand the rules and regulations, you can reduce your tax bill and avoid any complications with the CRA.

Here are the steps to follow:

Step 1: Keep Accurate Records

To claim meal expenses on your tax return, you need to keep accurate records and receipts of all meals and beverages purchased for business purposes.

These records should include the date, location, cost, and business purpose of each meal.

Make sure you keep these records organized and in a safe place.

Step 2: Determine Eligibility

Meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meals as long as the travel is for a duration of 12 hours or more. Make sure your expenses meet the eligibility criteria set out by the CRA.

Step 3: Calculate the Amount

Calculate the total amount of meal expenses you are eligible to claim on your tax return.

Remember to only claim expenses that are incurred for business purposes and that meet the CRA’s guidelines.

Step 4: Enter on Tax Return

On your tax return, enter the total amount of meal expenses you are claiming as a deduction against your income.

Be sure to follow the instructions on your tax return carefully to ensure you are entering the information in the correct place.

Step 5: Keep Supporting Documents

Make sure you keep all supporting documents, including receipts and records of each meal, in case the CRA requests them for verification.

These documents should be kept for at least six years from the end of the tax year to which they relate.

Is Any of This Different if I’m Self-Employed?

If you’re self-employed, the rules and regulations for claiming meal expenses are slightly different.

You can claim meal expenses as a deduction against your self-employment income as long as they are incurred for business purposes and meet the CRA’s guidelines.

However, it’s important to note that you cannot claim meals that are considered personal or private in nature, such as meals with family or friends.

In addition, if you’re self-employed, you can also claim vehicle expenses related to your business.

This includes expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use, similar to when you use your personal vehicle for work purposes as an employee.

Understanding Meal and Travel Expenses for Corporate Tax Filing

Understanding the guidelines and regulations surrounding meal and travel expenses can save you time and money when it comes to filing your corporate tax returns.

By keeping accurate records and receipts and ensuring that your expenses meet the eligibility criteria set out by the CRA, you can claim meal expenses as a deduction against your income.

It’s also important to note the differences between meal, travel, and entertainment expenses and to keep personal and private expenses separate from business expenses.

If you’re still unsure about how to claim your meal and travel expenses, it’s always a good idea to seek the advice of a professional.

At Liu & Associates, we specialize in corporate tax filing and can help you navigate the complicated world of tax regulations.

Contact us today for a consultation, and let us help you maximize your tax deductions while staying compliant with the CRA.

Tax Planning Strategies for Business Owners

When running a small business, it is important to plan ahead and understand your tax obligations.

Understanding small business tax planning strategies can help minimize your tax burden.

But numbers can sometimes be confusing, and you want to focus your time and energy on growing your small business.

We at Liu and Associates understand that, and we’re here to help!

Here are some tax planning strategies that will help with your small business:

Keep Accurate Records

Keeping accurate records is an essential part of tax planning for a small business.

Here are some tips to help you keep your records accurate and organized:

Choose a Record-Keeping System: Choose a record-keeping system that works for your business, whether it’s a spreadsheet, accounting software, or a combination of both.
Track All Income and Expenses: Keep track of all income and expenses related to your business.
Separate Business and Personal Expenses: This can be done by using a separate bank account and credit card for business expenses and keeping track of personal expenses separately.
Reconcile Accounts Regularly: This involves comparing your records to bank and credit card statements and making sure that they match.
Back Up Your Records: Make sure to back up your records regularly to avoid the risk of losing important information.

By following these tips, you can keep your records accurate and organized, which can help you make informed business decisions and comply with tax laws and regulations.

Take Advantage of Tax Credits and Incentives

There are several tax credits and incentives available to Canadian business owners.

It’s important to note that eligibility requirements and application processes can vary for each of these programs.

Here are some of the most common ones to consider when tax planning for small businesses:

Scientific Research and Experimental Development (SR&ED) Tax Credit

This is a federal tax incentive program that encourages Canadian businesses to conduct research and development activities.

Eligible businesses can claim a tax credit of up to 35% on eligible expenditures.

Capital Cost Allowance (CCA)

This is a tax deduction that allows businesses to write off the cost of assets purchased for their business.

The CCA rate varies depending on the asset, but it can range from 4% to 100% of the cost.

Provincial Tax Credits

Many provinces offer their own tax credits and incentives for businesses. Here are some examples of what is available in Alberta:

Alberta Investor Tax Credit (AITC): This program provides a 30% tax credit to investors who invest in eligible Alberta small businesses. The maximum credit per investor is $60,000 per year, and the maximum credit per business is $5 million.
Interactive Digital Media Tax Credit (IDMTC): This program provides a tax credit of up to 25% of eligible labor and marketing expenses for companies that develop interactive digital media products in Alberta. The maximum credit is $500,000 per year.
Apprenticeship Job Creation Tax Credit (AJCTC): This program provides a tax credit to employers who hire and train eligible apprentices in designated trades. The credit is equal to 10% of the eligible salaries and wages paid to the apprentice, up to a maximum credit of $2,000 per year.

Canada Small Business Financing Program (CSBFP)

This is a federal program that helps small businesses obtain financing by guaranteeing loans made by participating financial institutions.

The program can guarantee up to 85% of the loan amount, up to a maximum of $350,000.

Export Development Canada (EDC)

EDC provides financing and insurance to Canadian exporters. This can help businesses expand their markets and increase their international sales.

Consider Deferring Income and Accelerating Expenses

Canadian businesses can defer income and accelerate expenses by taking advantage of various tax planning strategies. Here are some common strategies:

Deferring Income: Businesses can defer income by delaying the receipt of revenue until the next fiscal year.
Accrued Expenses: Businesses can accelerate expenses by accruing expenses that will be paid in the following year.
Prepaid Expenses: Businesses can also accelerate expenses by prepaying expenses that will be incurred in the following year.
Depreciation: Businesses can also accelerate expenses by taking advantage of depreciation. By depreciating assets over their useful life, businesses can deduct a portion of the cost of the asset each year, reducing their taxable income.

Use Tax Planning Software

Using tax planning software, such as QuickBooks, can offer several benefits when it comes to tax planning for small businesses.

Here are a few key advantages:

Accuracy: Tax planning software is designed to help minimize errors and ensure that tax returns are accurate.
Time savings: Tax planning software can help save time by automating calculations, minimizing data entry errors, and streamlining the tax preparation process
Cost savings: By using tax planning software, businesses can often save money on accounting and tax preparation fees.
Customization: Many tax planning software programs can be customized to meet the specific needs of businesses or individuals.

It’s important to choose a reputable software provider and consult with a tax professional to ensure that the software is being used properly and in compliance with tax laws and regulations.

Seek Professional Advice

As a Canadian business owner, seeking professional tax advice can provide numerous benefits. Here are some reasons why:

Compliance with Tax Laws: A tax professional can help ensure that your business is complying with all relevant tax laws, regulations, and filing requirements.
Minimizing Tax Liability: A tax professional can help identify deductions, credits, and other tax breaks that can help reduce your business’s tax liability. They can also advise on tax planning strategies that can help minimize tax liabilities in the future.
Avoiding Audit Risk: A tax professional can help minimize the risk of an audit by ensuring that your tax returns are accurate and compliant with tax laws and regulations.
Business Structuring: Tax professionals can also advise on the best business structure for your business to help minimize tax liabilities. This can include incorporation, partnerships, or sole proprietorships.
Tax Disputes: If your business is involved in a tax dispute with the CRA, a tax professional can represent your business and provide expert advice on how to resolve the dispute.

Overall, seeking professional tax advice can help your business comply with tax laws, minimize tax liabilities, reduce audit risk, and make informed business decisions.

A tax professional can provide valuable guidance and help ensure that your business’s tax affairs are in order.

Tax Planning for Small Businesses

With tax law constantly changing, a trusted financial advisor like Liu & Associates is vital to directing your specific course.

Let us help you understand how tax planning strategies can help you achieve your financial goals.

6 Important things to know about corporate tax planning in Alberta for 2023

Corporate tax planning involves understanding and utilizing the various tax laws and regulations to minimize tax liability.

Planning ahead for taxes also means keeping an eye on new provisions that could benefit your business while monitoring the tax rules and regulations as they can change. To make sure that your company is utilising the tax breaks available, it’s crucial to consult with a tax expert.

Here are some important things to know about corporate tax planning in Alberta:

1. Corporate income tax rate

Federal and provincial corporate income taxes are levied against corporations in Alberta. Currently, Alberta’s corporate income tax is 8%, compared to the federal rate of 15% .An Alberta business would pay the federal corporate tax rate of 15% on their taxable income, in addition to the provincial corporate income tax rate of 8% which was implemented by the recent Job Creation Tax Cut policy. So, the total corporate income tax rate for an Alberta business would be 23%. It’s important to note that Alberta business may also qualify for additional tax credit and deductions, which could lower their overall effective tax rate. This indicates that Alberta’s business income tax rate is 23% when federal and provincial taxes are combined. Corporations may also be subject to other taxes, such as payroll taxes and sales taxes.

2. Capital gains

Canada taxes capital gains at a lower rate than it taxes other types of income. Currently, the federal capital gains tax rate is equal to 50% of the standard federal corporate income tax rate, which makes the federal capital gains tax rate 7.5%. The provincial capital gains tax rate varies from province to province – it is currently 6% in Alberta.

As a result, Alberta’s combined federal and provincial capital gains tax rate is 13.5%.

Remember – the capital gain is only reflected in the taxable income to the extent of 50%. Thus, only $50,000 of a corporation’s $100,000 capital gain is taxed.

3. Scientific Research and Experimental Development (SR&ED) tax credit

SR&ED is a federal tax incentive program that promotes research and development (R&D). For businesses that engage in SR&ED, the programme offers tax credits as tax incentives.

Businesses in Alberta can claim a refundable SR&ED tax credit of up to 20% of qualifying SR&ED costs. This means that a corporation doing SR&ED may claim a refundable tax credit equal to 20% of the qualified expenses it incurred. If the credit is greater than the taxes owed, the excess goes back to the corporation. The credit can be utilized to lower the corporation’s tax obligations.

A variety of R&D activities, such as basic research, applied research, and experimental development, are supported by the SR&ED programme. Wages, supplies, and some overhead costs are examples of eligible expenses.

All corporations, regardless of size or industry, are eligible for the programme. However, the borrowing rate may differ for small business corporations and private corporations under Canadian management (CCPC).

Important note – this credit cannot be transferred and can only be used by the entity that paid the qualifying costs.

4. Investment Tax Credit (ITC)

Businesses in Alberta can claim a 10% non-refundable Investment Tax Credit (ITC) on specific qualified capital assets. This means that a corporation may claim a non-refundable tax credit equal to 10% of the costs it incurred to purchase particular categories of qualifying capital property. The credit has the potential to lower the corporation’s tax obligations. Any unused portion of the credit, however, cannot be given back to the company.

The following types of capital assets are eligible for this credit:

machinery and equipment for manufacturing and processing
Equipment for experimental development and scientific research
Hardware and software for computers
construction projects and leasehold upgrades pertaining to manufacturing and processing
Clean energy technology

5. Keep good records

To ensure compliance with tax rules and regulations, businesses should maintain reliable records of all financial transactions.

Some tips that we share with our clients include:

Keep any original invoices and receipts for expenses that you intend to deduct from your income.
Sort your records according to tax years and save them securely.
Keep thorough records of all business-related mileage, travel, entertainment, and donation costs
The cost of the property, the date of acquisition, and any improvements done to the property should all be noted in any capital cost allowance (CCA) claims you submit.
Keep track of all costs associated with running your home office, such as the cost of heating, energy, and insurance, as well as the space used for business.

6. Be aware of the deadlines

Deadlines may change over time, and it’s always best to check with the Canada Revenue Agency or a tax professional to confirm the most recent deadlines.

Corporation Income Tax: A corporate income tax return must be filed no later than six months following the conclusion of the corporation’s tax year. A corporation with a December 31 year-end, for instance, would have until June 30 of the following year to file its tax return.
GST/HST: If your corporation is registered for GST/HST, you have one month from the end of the reporting period to file your GST/HST return. Depending on the GST/HST remittance choices made by your corporation, the reporting period may be monthly, quarterly, or annual.
Payroll deductions: If your firm employs people, the 15th of the month after the pay period is the deadline for submitting payroll deductions to the Canada Revenue Agency (CRA), such as income tax, CPP payments, and employment insurance premiums.
Payments in installments: Your firm may be compelled to make payments in installments to the CRA throughout the year if there is a balance owed on its tax return. The 3rd, 6th, 9th, and 12th months of the corporation’s fiscal year each have a 15-day payment due date.
Tax Filing Extension: Your firm may request a tax filing extension if it is unable to submit its tax return by the due date. However, it must be requested prior to the initial filing deadline, and any unpaid taxes must be paid on or before the deadline.

Tax laws and regulations are subject to change and it’s crucial to stay up to date with any changes. Additionally, it is important to work with a professional tax advisor like the team at Liu & Associates to ensure that your corporate tax planning is in compliance with the laws and regulations and to identify potential tax savings.

Contact our corporate tax planning team today to get started.

How Much Should My Business Donate to Charity This Year?

Charitable giving is an amazing opportunity for Canadian businesses to support causes that matter most to them.

Donating to charity is an excellent way for your business to connect with your community and improve team morale among your employees.

It can also have financial benefits as well when it comes to corporate tax planning.

Here is more information on charitable giving and how much your business should donate to charity this year:

How Does Charitable Giving Affect Corporate Taxes?

Tax Deductions

Unlike personal taxes, a donation made by a corporation can be used as a deduction against the business’s income and is treated like any other expense.

When a corporation makes a donation, it can reduce the amount of income that is subject to tax.

Therefore, by making donations that are eligible for tax deductions, you can reduce your business’s tax liability.

However, the value of the tax savings depends on whether the reduction of income is subject to the small business tax rate, general corporate tax rate, or corporate investment tax rate.

How to Calculate

Charitable donation tax credit rates vary from province to province and are based on the rates determined in 2017.

For example, if your business claims a taxable income of $250,000 and makes a donation of $20,000, this is how the tax will be calculated:

Federally:

15% on the first $200 – $30
33% of the lesser of the amount by which the donation exceeds $200 ($19,800) or the amount by which your taxable income exceeds $200,000 ($50,000) – $6,534
29% of the amount of total donations for the year over $200 that is not eligible for the above rate ($50,000-$19,800=$30,200) – $8758
Total: $15,322

Provincially:

10% on the first $200 – $20
21% on the remaining $19,800 – $4,158
Total: $4,178

Therefore, in this example, you can claim $19,500 of the $20,000 charitable donation.

Of course, this is a basic calculation and doesn’t take into account your entire tax situation.

To best calculate your taxable donations, it is recommended that you speak with an expert corporate tax accountant who can ensure all calculations are accurate.

Limits and Deadlines

Corporations can claim up to 75% of their net income in donations which must be claimed within the business’s fiscal year as an expense.

Sharing Claimable Donations Between Corporations

If you own more than one corporation, you cannot share donations between businesses when it comes to planning and filing your corporate taxes.

Only the corporation that made the donation can claim it.

Carryover

If a donation cannot be used during the tax year, it can be carried forward for up to five years.

What Donations Are Tax Deductible in Canada?

In order for your business to qualify for the donation tax dedication, you must donate to a qualified charity.

These are charities that are recognized by the CRA and can issue donation receipts for the money your business gives.

You can find a list of registered donees through the CRA.

Some eligible organizations include:

Registered charities
The United Nations
National arts service organizations
Registered Canadian amateur athletic associations (RCAAAs)
Registered universities outside of Canada (that includes students from Canada)

Donations to US charities are allowed as long as your business has a US income source.

As far as what qualifies as an actual donation, the CRA recognizes donations as voluntary transfers of money or property in which you receive nothing in return.

If your business does receive something in return for your donation, the value of what you receive must be deducted from the amount of the donation.

For example, if your business purchases a $500 table at a charity dinner and the food costs $200, the eligible amount you can claim is $300.

How Much of a Charitable Donation Is Tax Deductible?

When it comes to claiming donations made through your business, how much of a charitable donation is tax deductible depends on the size of your company.

Small businesses, for instance, must list donations on Schedule 9 of a personal tax return, where they will receive the same tax credit treatment as a personal donation.

However, incorporated businesses have the choice to donate personally or through their corporation.

How Much Should I Donate Based on Revenue?

While there are no set rules as to how much you should donate based on your revenue, it’s important to remember that there are many ways to give charitably to organizations that align with your company’s values and mission.

The size of the donation should not be the only deciding factor – every dollar counts when it comes to supporting a worthy cause.

Overall, tax breaks shouldn’t determine how much your business gives to charity!

Take into consideration your company’s finances and choose an amount that suits your budget.

Should We Match Our Employees’ Individual Donations?

If you’re wondering if you should match your employee’s individual donations, the answer is yes!

Matched giving is an amazing way to involve your employees in your business’s charitable giving by matching the money they raise.

It encourages your employees to engage in supporting a worthy cause, and matching their donations will help them reach their goals and show your support.

Plus, matching your employees’ individual donations will help your company make a large social impact!

Encouraging your employees to donate to a cause doesn’t have to involve fundraising events. You can set up payroll donations or accept personal donations from your team.

And, yes, matched giving counts as a tax-deductible charitable donation – but you can only claim the amount you contribute, not the amount raised by your employees.

How Do We Choose a Cause?

Before you make any charitable donations through your business, it’s important that you choose the right cause to support.

That’s not to say that some causes are better than others, but you want to choose a cause that best aligns with your company, its values, and its employees.

Here are some tips for choosing a cause to support:

Choose a Cause That Supports Your Company’s Values

Think about your company’s core values and whether or not you want to donate to charities related to your business or support the needs of your community.

Just keep in mind that you can do both!

For instance, if you own a restaurant, you could donate to charities that address hunger and nutrition, local food banks, soup kitchens, and school breakfast programs.

It’s also important that you consider the charity’s values as well – do they align with yours?

Take a look at their core mission and see if they share your views and values.

Research the Charity Before Donating

Once you decide which charity you want your business to support, don’t be afraid to ask questions.

Talk to others in your industry and your community for feedback on the charity – have they made a significant impact with their donations?

You can also speak with the executive director of the charity you wish to support.

Consider their strategy and their long-term plan.

Ready to Get Started?

At Liu & Associates, we are dedicated to helping your company’s growth by offering exceptional corporate accounting services.

We can help you plan your charitable donations to optimize your support and tax deductions.

Get in touch with us today to get started!

What Business Expenses Are Tax-Deductible?

Do you know what tax deductions your business is eligible for?

When tax season comes around, it’s important to make the most out of eligible deductions to save you money and help your business grow!

However, before you start claiming whatever you can for your business, be sure that all deductions are supported by original invoices and paperwork.

Doing so is the best way to avoid an audit or any issues if you are audited.

Eligible Expenses to Claim

As a general rule, businesses can claim expenses that maintain the business and ensure that it is operational.

And there is a lot you can claim! To maximize your business tax return, be sure to take advantage of these tax-deductible business expenses:

Advertising

You can deduct costs for advertising on Canadian radio and television, in Canadian newspapers, and digital advertising.

Bad Debts

If you have already included an accounts receivable as income during the year, you can claim it as a bad debt if it won’t be paid.

Business Start-Up Costs

Tax-deductible business expenses include those that preceded the operation of your business as long as you operated your business in the fiscal period in which the expense was incurred.

Business and Property Taxes

Be sure to deduct any business taxes incurred while running your business as well as property taxes for the building and land where your business is located.

Business Fees and Licenses

Fees, licenses, and dues related to your business are deductible unless the main purpose of the fees is dining, recreation, and entertainment.

Business-Use-Of-Home

If you run your business from your home, you can claim use-of-home expenses such as heat, electricity, insurance, maintenance, and other expenses.

However, you can only claim a percentage that is dependent on the size of your office compared to the rest of your home.

Capital Costs and Allowance

When you acquire a depreciable property (such as equipment, a motor vehicle, a building, etc.), you cannot deduct the cost of the property because its value decreases over time.

Instead, you can deduct the cost over a period of several years

Delivery

If your business is involved in delivery, freight, and express, you can claim certain expenses on your taxes.

Insurance

All ordinary commercial insurance premiums can be deducted as a business expense including any amounts incurred on buildings, equipment, and machinery.

Auto insurance claims are made under vehicle expenses.

Interest

When it comes to tax-deductible business expenses, you can deduct interest on money borrowed for business purposes.

Professional Fees

If you employ the services of an accountant, lawyer, or other eligible professional, you can claim those fees.

Maintenance and Repairs

You can deduct the cost of labor and materials when it comes to minor repairs or maintenance done to your business property.

Meals and Entertainment

This business tax deduction applies to meals and entertainment during business-related travel or events. It also applies to long-haul truck drivers who can deduct 80% of their food costs.

Motor Vehicle Expenses

If your business utilizes a motor vehicle to earn income, you can deduct related expenses.

Office Expenses and Supplies

When you run a business, you can claim the costs of office supplies such as pens, paper, and any supplies required to provide your goods and services.

Office expenses do not include capital expenditures.

Prepaid Expenses

Under the accrual method of accounting, you can claim expenses you paid ahead of time such as warranty, contracts, taxes, and workers’ compensation liability.

Rent

If you rent your business property, you can deduct rent for the land and building.

However, if you are claiming rent as a home business expense sense, this is done under business-use-of-home.

Salaries and Benefits

As a business with employees, you can deduct gross salaries and other benefits such as CPP (Canada Pension plan) and EI (Employment Insurance) premiums.

Utilities

Tax-deductible business expenses for utilities include telephone, gas, oil, electricity, water, and internet – as long as you incurred the expense to earn an income.

Ineligible Expenses You Cannot Claim

While there are many tax-deductible business expenses, there are some that you cannot claim on your business taxes:

Clothing purchases including special gear
Reimbursed maintenance and repair costs
Political contributions
Governmental penalties and fines
Personal purchases

Recent Changes to Deductions (If applicable)

One recent change made by the CRA in 2017 eliminates the ability to claim allowance on eligible capital property.

Property that would have been considered eligible capital property is now considered to be depreciable property and can be claimed under “capital cost allowance.”

FAQs

How do I claim items and services that I use for both home and work, like my cell phone or vehicle?

You will have to figure out the portion that is used for business, create a percentage using the total use, and deduct that from your business taxes.

For example, if you use your cell phone for 25 hours per week for business and 90 hours total for the household, this would equal 27% so you would deduct that percentage of your cell phone bill.

I do all of my business taxes and invoicing online. Do I need to keep paper copies?

While you don’t necessarily need physical copies of this information, you will need to have access to them for at least six years in case you are audited.

How do I deduct business equipment I bought for my staff?

Depreciable equipment, such as laptops, is considered capital costs. You can deduct the value of the equipment over a number of years – this is known as a capital cost allowance (CCA).

I have an office at both my business and my home. How do I claim this?

Typically, you would claim your main office on your business taxes but this would be a great question for a professional accountant who can give you an answer based on your unique situation.

Need More Help Understanding Business Tax Deductions?

Liu and Associates are here to help?

Our team of professional and knowledgeable accountants can guide you through filing your business taxes to ensure you get the best return possible and avoid any inconvenient audits.

Let’s chat today!

Tax Guide for Small Businesses

Paying your taxes as an individual is one thing but once you start running a small business, it’s a whole different game!

There are many aspects of a small business to take into consideration when it comes to filing your taxes from what you can deduct to how to manage employee payroll.

But don’t worry, we have you covered! Liu & Associates is a knowledgeable accounting firm with years of experience filing small business taxes.

Let our expertise guide you through the process with this tax guide for small businesses:

Common Deductions for Small Businesses

While there are many deductions you can take advantage of as a small business, there are the common ones you should take into consideration.

Keep in mind that a small business accountant can help you explore all possible deductions for your small business and maximize your tax return!

Rent and Property Taxes

You can claim property taxes that you pay on your business building. However, if you work from home, your property taxes need to be claimed under home office or business-use-of-home expenses.

Likewise, if you rent your business property or home, you can claim this amount as well. Keep in mind for at-home business situations, you can only claim a percentage of your home office compared to the total space of your home.

It’s important to keep a record of rent receipts, lease agreements, and property tax receipts in case you are audited by the Canada Revenue Agency.

Repairs and Maintenance

As a small business, you can also claim expenses related to repairs and maintenance but these need to be carried out in order to increase your business earnings.

Labor costs related to repairs and maintenance are capitalized expenses, meaning that you can only claim a percentage of those costs over a period of time via amortization or depreciation.

Repairs reimbursed through your insurance company cannot be claimed on your small business taxes.

Salaries and Wages

You can deduct the salary and wages you pay to your employees as well as other payroll-related expenses. A small business accountant in Edmonton, such as Liu & Associates, can help you ensure these amounts are properly claimed.

Vehicles

If your small business makes use of a company vehicle, you can write off expenses related to the vehicle such as fuel, oil, insurance, lease payments, parking fees, repairs, maintenance, and registration fees.

These are considered capital cost allowances (CCA) because a vehicle is considered depreciable property.

When you claim expenses related to your company vehicle, the amount your claim is proportional to the amount of business mileage compared to total mileage throughout the year. For this reason, you will have to keep a log detailing both business and personal use of the vehicle.

Home Office Costs

When you run your small business from your home, you can claim deductions on expenses related to your home office space including mortgage interest, utilities, property taxes, home insurance, repairs, and maintenance.

The amount you can write off depends on the size of your office compared to the size of your home.

Accounting Expenses

Fortunately, you can also claim accounting expenses when it comes to your small business taxes.

Having a small business accountant in Edmonton is beneficial since you can claim accounting-related fees on your income tax while ensuring your finances are properly handled!

Important Tax Dates and Deadlines for Canada

If you are self-employed, you do not have to submit your taxes by April 30, which applies to individual tax returns. Instead, you have until June 15th.

For sole-proprietors or partnerships, you must have your taxes submitted by the beginning of May if your fiscal year matches the calender year. Otherwise, your small business taxes are due six months after the end of your fiscal year.

Responsibilities for Payroll and Employees

If your small business has employees, you are required to collect and remit deductions from your employee’s pay as well as make contributions in addition to employee deductions.

You must also report your employees’ earnings and pay tax on the income you earn.

Deducting Employee Tax from Payroll

As an employer, you are required to deduct income tax as well as CPP (Canada Pension Plan) contributions and EI (Employment Insurance) premiums. You must also match the CPP amounts deducted and contribute to your employees’ EI premiums.

The amount of deductions and contributions depends on the employee’s income. To find out how much you have to contribute or deduct, you can always refer to a small business accountant in Edmonton to help you with corporate tax planning or contact the CRA.

Reporting Employee Earnings

When reporting employee earnings, you are required to fill out special forms to report salaries, wages, and taxable benefits. You must also fill out a T4 to provide to your employees by the end of February for their individual tax returns.

Deadlines

When remitting income tax that has been deducted from your employees’ pay, the deadline is generally the 15th of the following month. If the 15th falls on a weekend, payment is due by the next business day.

If you do not remit these deductions on time, penalties may apply.

However, some small businesses are allowed to do this on a quarterly basis but you have to apply for this program through the CRA.

Getting Help From an Accountant or Bookkeeper

When it comes to corporate tax preparation for small businesses, there are a lot of moving parts and not filing your taxes correctly can result in penalties and interest.

This is why it’s important to have a small business accountant in Edmonton by your side! Our team at Liu & Associates can help you prepare your small business taxes from start to finish.

Our expertise means that your finances will remain in order throughout the year, ensuring that tax time is a breeze!

If you’re ready to get started, feel free to contact us today. Our dedicated team is ready to answer all of your questions regarding small business taxes.

We look forward to hearing from you!

Corporate Tax Planning: 5 Things To Know

When you own a corporation, proper tax planning plays an essential role when it comes to making strategic decisions.

The main goal is to increase your business’s tax efficiency and remain competitive in your industry.

Incorporating proper tax planning into your regular operations ensures that your company is run legitimately. It also allows you to reduce your tax costs and benefit from higher earnings.

Unlike personal tax returns, which are relatively simple to prepare, corporate taxes are complex, and not planning them properly, or trying to do them yourself, could result in costly mistakes.

What is Corporate Tax Planning?

When it comes to planning your corporate taxes, it involves more than estimating your end-of-year tax liability to know how much you should budget to pay your taxes.

Proper planning involves looking at your entire financial situation so that you can pay the least amount of taxes possible.

It takes into account expense planning, the timing of purchases, and how you pay yourself as well as dedication and credit opportunities.

Corporate tax planning also helps you choose the best investment and retirement plans to complement your business’s financial strategy and filing status.

1. You Can Take Advantage of Grants and Subsidies

The government offers grants and subsidies to help corporations receive rebates when buying depreciable property. This allows you to subtract the amount of the grant or subsidy from your property’s capital costs.

For instance, there is the “input tax credit” which is a form of government assistance that allows you to deduct the amount of the credit from the cost of a company vehicle.

There are other incentives you can apply for from non-government agencies when it comes to purchasing a depreciable property.

You can always contact our team of professional accountants at Liu & Associates for more information about grants and subsidies for corporations.

2. You Can Save Money and Grow Your Company

As we mentioned above, one of the main objectives of corporate tax planning is to reduce the amount of tax your business pays by taking advantage of as many deductibles as possible.

When you know your tax liabilities, you can then reinvest your savings back into your business to facilitate its growth!

Corporate tax planning also provides insights into your business so you can assess the bigger picture such as whether or not the structure of your business needs to change and where your potential profit areas are.

3. How You Pay Yourself Can Save You On Taxes

When you own an incorporated business, you need to determine the optimal mix of dividends and salary to pay yourself.

In some cases, dividends may receive preferential tax treatments or allow you to pay yourself tax-free.

In others, it could be more beneficial to pay yourself a salary.

There are many factors that affect this decision that is based on your business’s unique operations. Again, an expert accountant can help guide you when making this decision.

4. There Are COVID-19 Relief Funds You Can Tap Into

While many COVID-19 relief programs offered by the government have ended, there are still others available that you can take advantage of when planning your corporate taxes:

THRP (Tourism and Hospitality Recovery Program): This program provides support to businesses in the tourism industry when it comes to wages and rent.
HBRP (Hardest Hit Business Recovery Program): The HBRP provides up to 50% of rent and wage support for eligible businesses.
Lockdown Support: If your business has to close due to a public health lockdown and causes significant revenue loss, you can apply for this subsidy.

If you do take advantage of COVID-19 relief funds, keep in mind that some of these benefits are considered to be taxable income.

5. An Expert Accountant Can Make the Process Easier

The process of filing a corporate income tax return is significantly more complicated than filing a personal tax return. Hiring an accounting firm will give you peace of mind that the process is handled correctly.

Accountants do more than simply handle money. They are professionally trained in tax preparation and have a full understanding of tax laws and how to organize your corporate income.

Plus, accounting experts know what additional tax credits your business can take advantage of in order to secure you a larger return!

So when it comes to planning your corporate taxes, there are innumerable benefits to having a professional accountant organize your finances to help your business save and grow.

Plan Your Corporate Taxes With a Tax Professional

Investing in a professional accountant can help you save money and avoid costly mistakes including penalties and tax audits.

For more information on how you can get started with your corporate tax planning, contact our expert team at Liu & Associates.

Tax Implications of the Canadian Emergency Wage Subsidy (CEWS)

The COVID-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of losing revenue and long-term closures. Luckily, in Canada, the government stepped in and offered the CEWS in order to help businesses keep their heads above water.

Now that these relief programs are in full swing, many individuals and business owners are wondering how this benefit money is going to affect their 2020 income tax return. The simple answer for business owners is: The CEWS is taxable income. When it comes to filing time, this money will be included in your business’ income. However, there is more to claiming the CEWS than simply including it in your taxes.

Read on to learn what the CEWS is, how it will affect your return and what to do if your business is audited in relation to this wage subsidy:

What is the CEWS?

In order to help businesses during the COVID-19 shutdown in 2020, the Canadian government offered the Canadian Emergency Wage Subsidy (CEWS) to help cover part of their employee’s wages due to drops in business revenue.

The subsidy was designed to help employers re-hire workers, prevent further job loss and ease their business back into normal operations.

The CEWS was available to taxable corporations such as individuals, non-profits, registered charities and other eligible entities and was provided over a 12 week period, divided into three qualifying periods.

Is the CEWS Taxable?

The CEWS, as a wage subsidy, is considered to be government assistance and therefore must be included in the employer’s taxable income.

The amount of CEWS received by an employer for a qualifying period will be included in the employer’s income.

Employers will be entitled to a deduction for the amount of remuneration paid to employees but the amount of CEWS received will reduce any remuneration expenses eligible for tax credits calculated on the same remuneration.

Eligible remuneration for the CEWS includes salary, wages, fees, commissions and other remuneration such as taxable benefits – basically, anything subject to income tax withholdings.

However, this excludes retiring allowances and stock option benefits.

Claiming the CEWS on Your Income Tax Return

When it comes to the wage subsidy, there are no special withholding requirements on behalf of the employer.

All amounts paid to employees through the CEWS are considered regular employment income that is subject to regular withholdings such as income tax, CPP (Canada Pension Plan) contributions and Employment Insurance Premiums.

To accommodate for government relief programs during the COVID-19 pandemic, the Canada Revenue Agency (CRA) has published new T4 reporting requirements for the 2020 tax year.

The CRA will be using a new code system to identify employment income made to eligible employees during particular CEWS periods.

Therefore, employers will be required to provide additional information in order to help the CRA validate payments under the CEWS, CERB (Canada Emergency Wage Subsidy) and the CESB (Canada Emergency Student Benefit).

This information, in addition to reporting regular employment income in Box 14/Code 71, employers will need to use these new codes in the “Other Information” section at the bottom of the T4 slip according to the period in which they apply:

T4 Code 57 – Periods 1 and 2 – March 15 to May 9, 2020
T4 Code 58 – Periods 3 and 4 – May 10 to July 4, 2020
T4 Code 59 – Periods 5 and 6 – July 5 to August 29, 2020
T4 Code 60 – Period 7 – August 30 to September 26, 2020

The CRA may release new codes to cover the additional periods in the extended CEWS program.

These new T4 requirements apply to all employers, not just those who collected the CEWS.

When it comes time to prepare your 2020 taxes for your business, Liu & Associates will be available to help you navigate this new filing process.

Contact Our Team

Preparing for a CEWS Audit

Beginning in September of 2020, the CRA began issuing audit request letters to businesses who had been claiming the CEWS.

Their intent with these audits was to identify the types and levels of non-compliance in preparation for larger-scale audits.

When performing a CEWS audit, the government is looking to make sure the relief benefits went to companies that were eligible for them.

These “mini-audits” required that companies provide the government with pertinent information within a timeline of 10 days.

While larger-scale audits may end up operating differently, it is worth it for you (and your business) to always have the following information ready and available:

Documents from the employer’s minute books (i.e., anything related to the CEWS claim).
2019 tax information (revenues, general ledger, revenue journal entries).
2020 tax information (same as above)
Information used to compute the CEWS revenue decline percentages.
General payroll information (source deductions, contracts, proofs of payment, etc.).
Information related to other subsidies/government programs (i.e., Temporary Wage Subsidy).
A signed copy of the CEWS Attestation Form.
Documents that support any exceptions or elections utilized for CEWS.
Remuneration exclusions.
Qualifying revenue exclusions.

These requirements can be complex and extensive and failure to provide full compliance can result in a “gross negligence penalty” – which can be up to 50% of the difference between the amount of CEWS claimed and the amount of CEWS entitled.

If your business does receive an audit letter in relation to the CEWS, it is highly recommended that you consult an expert accountant to help you identify and organize CEWS calculations, claims and filing processes.

To get more information on how to handle a CEWS audit, please contact our expert accountants at Liu & Associates.

Don’t Leave Anything to Chance

While the CEWS was a life-saver for many businesses, it is certainly going to cause some challenges and confusion at tax time.

Don’t leave the health of your business to chance! It is recommended that you consult with a tax expert to ensure that your taxes, especially in relation to employee remuneration, are filled out properly and accurately.

Feel free to contact Liu & Associates with any questions you may have!

When Do I Have to Submit My Corporate Taxes?

It’s a common questions among new business owners: How soon after my business’ year end do I have to file my corporate taxes? Read on for Liu and Associates breakdown of Canadian corporate tax filing deadlines.

Canadian Corporate Tax Returns

The basic rule when it comes to filing your Canadian corporate tax return is that you must submit your return no later than six months after the end of your business’ tax year. This means that each business’s T2 return date will differ depending on their fiscal year end.

Example
If your business’ year end is September 30, your Canadian corporate tax return would be due by March 30.

What Happens If My Year End Lands in the Middle of the Month?

If your year end falls on say, September 16, your due date would be March 16. The six month rule applies just the same.

My Filing Deadline Falls on a Saturday – Now What?!

If your filing deadline falls on a Saturday, Sunday or public holiday, as long as you send your claim on the first business day after the filing deadline you’ll be safe from any penalties!

Note: If you’re hoping to receive a tax refund, you must file your return no later than three years after the end of a tax year.

Alberta Provincial Corporate Tax Returns

Alberta based businesses have to file a separate provincial corporate tax return because Alberta administers their own corporate tax collection. For more information, visit the Treasury Board and Finance website. While filing deadlines are similar to CRA requirements, it’s good to familiarize yourself with both systems to avoid any fines or penalties.

Don’t Leave It Up To Chance

If you are confused or have questions about your corporate tax filings, don’t wait to ask! The experts at Liu & Associates LLP offer corporate tax services to ensure everything is done right and on time. Call us today!