This year has been difficult, especially for small business owners. Between temporary closures and financial constraints, you might be wondering when you can take a break. Here are some tax breaks and supports you can count on as a small business owner when preparing your tax returns this season.
Is your business incorporated?
If your business is incorporated, some of the advice in this article will not apply to you. Find an H&R Block office near you so one of our tax pros can help you file your T2 corporation tax return or book an appointment for a free small business consultation.
Are you self-employed?
You could be self-employed if:
- You are a freelancer, independent contractor, or gig worker; Where
- You have a side business (like selling handmade candles on Etsy or running a dog walking service).
If you are self-employed, you will need to report your business income on your income tax return using the Business or Professional Income (T2125 and TP-80) form.
Deduction of your business expenses.
You may be able to deduct some of your business expenses to reduce your tax liability. Remember that these expenses must be related to your work: you will not be able to deduct your expenses. Here are some types of current expenses that you can deduct on the Business or professional income page (T2125 and TP-80) :
You can deduct the cost of items your business uses to provide goods or services. For example, if you run a plumbing business, you can deduct the cost of cleaning supplies.
You can also deduct the cost of office supplies like pens, paper, staplers, etc.
However, you cannot deduct the cost of supplies or personal services. For example, you cannot deduct the cost of dry cleaning or hair styling products you used for yourself, even if you needed to look presentable for your business.
If you use the company car or your vehicle for work, you can deduct some of the expenses you paid to maintain it such as:
- Routine repairs and maintenance
- Registration and driver’s license.
Be sure to keep your receipts and a record of the miles you drove for work (since you can’t claim a deduction for miles you drove for personal reasons). You will need this information to be able to deduct your expenses.
If you traveled for work, you may be able to deduct the cost of flights, ground transportation, hotels, and 50% of what you paid for meals.
If you are operating your business from home, even if it is for the first time this year, you can deduct your home office expenses. Eligible home office expenses may include:
- Internet access costs at home
- A portion of the rent or mortgage interest you paid for your home
- Utilities such as electricity and heating
The amount you can claim depends on how much of your home you use for your business. For example, let’s say your house has four rooms and one of them is your office. If you want to deduct your rent and utilities, you can deduct 25% of those costs! However, if you don’t use your office solely for business purposes, you’ll also have to reduce the amount you can deduct based on how long you used that room for other reasons. Find an H&R Block office near you to calculate your home office expenses with a tax expert.
This is not a complete list of work-related expenses you can deduct. You can also deduct what you paid to advertise your business, to pay bad debts (money that other people owe your business but you cannot collect), or up to 50% of your meal and entertainment expenses.
Find an H&R Block office near you so one of our tax pros can help you figure out all the expenses you can deduct on your returns and reduce your tax liability.
Claim your capital cost allowance (CCA).
Fortunately, the government recognizes that the value of some assets you need for your business won’t last forever. Remember fax machines?
Although you cannot deduct the cost of things like furniture, equipment, or buildings at the time of purchase, you can deduct a portion of its cost each year as it wears out to reduce the taxes you owe (usually for as long as you own it). This is called capital cost allowance (CCA).
What is the Accelerated Investment Incentive?
If you acquired the property after November 20, 2018, and it is ready to be put into service before 2028, the accelerated investment incentive may apply to your purchase. This means that the first year you claim CCA, you will be able to claim three times the normal CCA rate for your equipment or building to further reduce your tax liability. A phase-out period will take place between 2023 and 2027, which means that property that can be used during this period will be eligible for gradually reduced CCA rates until you reach the normal rate again.
Remember that this measure does not change the total amount you can deduct over the lifetime that you own this property. By requesting a higher CCA in the first year, you will be entitled to lower CCAs in subsequent years.
COVID-19 relief measures for business owners.
The government has introduced measures for Canadian businesses, large and small, to provide them with financial support during the COVID-19 pandemic.
As a small business owner, you may be eligible for an additional $20,000 loan on top of the $40,000 interest-free Canada Emergency Business Account (CEBA) loan. You may also be eligible for the Canada Emergency Rent Subsidy (CERS), which covers up to 65% of your eligible expenses, or more if you had to close your business due to provincial lockdowns. This amount is sent directly to you (and not to your landlord). It is still possible to apply for assistance for these two programs.
Some provincial supports, such as the Ontario Small Business Support Grant, are also available to small businesses.
To learn more, read our blog on COVID-19 relief measures for businesses.
How H&R Block can help you.
The deadline to submit your tax returns is June 15. However, keep in mind that if you owe taxes, your payment is due on April 30. Consult our checklist for small businesses before filing your returns.
Visit our website to learn how H&R Block’s small business services can maximize your deductions and help you achieve better financial results. Find an H&R Block office near you and book an appointment today to take advantage of the free small business consultation we offer!