Tax relief small business owners should know about.
April 23, 2021
This year has been challenging – especially for small business owners. Between temporary closures and financial strain, you might be wondering when you’ll be able to catch a break. Here’s some tax relief you can count on as a small business owner when you’re preparing your return this season.
Is your business incorporated?
If your business is incorporated, some of the tips in this article won’t apply to you. Find an H&R Block office near you so one of our Tax Experts can help you file a T2 Corporation Income Tax Return, or to schedule a free small business consultation.
Are you self-employed?
You might be self-employed if:
- You’re a freelancer, independent contractor, or gig worker; or
- You have a side hustle (like selling handmade candles on Etsy or running a local dog-walking service).
If you’re self-employed, you’ll need to report your business income on your personal income tax return using the Statement of business or professional activities (T2125 and TP-80).
Deduct your business expenses.
You might be able to claim some of your business expenses to reduce the taxes you owe. Keep in mind, these expenses must be work-related – you won’t be able to claim personal expenses. Here are some common types of expenses that you can claim on the Statement of business or professional activities (T2125 and TP-80):
You can deduct the cost of items your business used 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, such as pens, paper, staplers, and more.
However, you can’t deduct the cost of personal supplies or services. For example, you can’t claim the cost of dry cleaning or hair styling products that you used for yourself, even if you needed to look presentable for your business.
If you have a company car, or use your personal vehicle for work, you can claim some of the costs you paid to maintain it, such as:
- Repairs and routine maintenance;
- Insurance; and
- License and registration fees.
Make sure you keep your receipts and keep a record of the kilometers you drive for work-related reasons (since you can’t claim the kilometers you drive for personal reasons). You’ll need these details in order to deduct your expenses.
If you travelled for work, you might be able to deduct the costs for flights, ground transportation, hotels, and 50% of what you paid for meals.
If you run your business from home, even if it was for the first time this year, you can deduct your home office expenses. Eligible home office expenses might include:
- Home Internet access fees,
- Some of the rent or mortgage interest you paid for your home; and
- Utilities such as electricity and heat.
The amount you can claim depends how much of your home is used for your business. For example, let’s say your home has 4 rooms and one of them is your office. If you want to claim your rent and utilities, you can claim 25% of these costs! However, if you don’t only use your office for business, you’ll also have to lower the amount you can claim by the amount of time you use this room for other reasons. Find an H&R Block office near you to calculate your home office expenses with a Tax Expert.
This isn’t a complete list of the work-related expenses you can deduct. You might also be able to claim what you paid to advertise your business, to pay off bad debts (money other people owe your business but you can’t collect), or up to 50% of meals and entertainment.
Find an H&R Block office near you so one of our Tax Experts can help you figure out all the expenses you can claim on your return to lower your tax payable.
Claim your Capital Cost Allowance (CCA).
Luckily, the government recognizes the value of some things you need for your business won’t last forever. Remember fax machines?
Although you can’t deduct the cost of property such as furniture, equipment, or a building when you buy it, as this property wears out over time, you can deduct a portion of its cost each year to lower the taxes you owe (usually, for as long as you own it). This deduction is called capital cost allowance (CCA).
What’s the Accelerated Investment Incentive measure?
If you bought property after November 20, 2018, and it’s available for use before 2028, the Accelerated Investment Incentive measure might apply to your purchase. This means that the first year you claim the CCA, you’ll be able to claim 3 times the normal CCA rate for your equipment or building, to lower your tax payable by even more. A phase-out period take place between 2023 and 2027, meaning property that’s available for use during this time will be eligible for gradually lower CCA rates until you reach the normal rate again.
Keep in mind, this measure doesn’t change the total amount that’s deductible over the time you own your property. You’ll simply be claiming a larger CCA deduction in the first year and smaller CCA deductions in future years.
COVID-19 relief measures for business owners.
The government introduced measures for Canadian businesses, large and small, to provide you with financial support during the COVID-19 pandemic.
As a small business owner, you might be eligible for an additional $20,000 on top of the $40,000 Canadian Emergency Business Account (CEBA) interest-free loan. You might also be eligible for the Canada Emergency Rent Subsidy (CERS), to cover up to 65% of your eligible expenses – or more, if you had to close your business due to a provincial lockdown. This amount is sent directly to you (not your landlord). Both of these programs are still open for applications.
Some provincial relief measures, such as the Ontario small businesses support grant, are also available for small businesses.
To learn about the tax impact of these relief measures and more, check out this blog on COVID-19 relief measures for businesses.
How H&R Block can help.
The deadline to file your return is June 15. Keep in mind that if you owe taxes, your payment is due on April 30. Check out our small business checklist before filing.
Visit our website to learn how H&R Block’s Small Business services can maximize your deductions and grow your bottom line. Find an H&R Block office near you to schedule your free small business consultation today!