Filing taxes is complicated enough for the average Canadian. For business owners, it’s getting even more complex. “One theme we’re seeing in changes to business taxation is towards more reporting complexity, which makes the compliance more costly for business owners,” Luigi De Rose, national private business tax leader at PwC Canada, said in an interview with Yahoo Finance Canada.
“We’re seeing that with a lot of changes happening in our tax system.”
Navigating the changes, as well as hundreds of deductions and credits that business owners may be able to take advantage of, is critical for business owners.
“There are more than 400 credits and deductions available. It’s hard to know them if you’re not working in taxes on a daily basis,” H&R Block tax expert Yannick Lemay said in an interview.
“And these don’t include the expenses you can claim as a business owner. There are many expenses specific to your business that will reduce your taxable income on your tax return.”
The most important thing for business owners – which also applies to individuals – is to start early, says Lemay. “Do not wait until the last minute,” he said.
“There’s a lot of information you will need for your taxes, especially as a business owner, so you want to get on it early … it will definitely make things easier when it comes to filing your taxes.”
While the deadline for most individual taxpayers is on April 30, self-employed tax returns are due on June 15. However, taxes owed by those who are self-employed must still be paid by April 30. For corporations, taxes must be filed within six months of the end of their tax year, which corresponds to its fiscal period.
One change that many business owners are likely grateful not to have to worry about this year is the increase to the capital gains inclusion rate. The Liberal government proposed hiking the tax rate for capital gains for corporations, trusts and individuals from one-half to two-thirds. For individuals, the tax would have applied on gains of more than $250,000. Although the capital gains legislation never passed, the Canada Revenue Agency (CRA) had planned to enforce the change until it reversed course in January, delaying the move until next year.Mark Carney’s victory in the Liberal leadership race has put the final nail in the coffin for Ottawa’s controversial plan to hike the inclusion rate on capital gains.
The proposed change has nonetheless caused confusion among business owners, says Lemay, as many still received tax slips that mentioned June 25, the date when the change was supposed to go into effect. And while the change to the inclusion rate is no longer happening, the proposed increase to the Lifetime Capital Gains Exemption limit is still slated to take place – from $1 million to $1.25 million.
Another change may also impact gig workers who earn income through companies such as Uber, Lyft, and Skip the Dishes. This year, these platforms are required to submit to the CRA the total income an individual has made through the app.
This is the first year that the CRA has implemented this requirement, and while it doesn’t change how gig workers should file their taxes, it’s important that they know that income needs to be reported.
“Some people believe that they don’t have to report all their business income if they are not meeting the threshold of $30,000 where you need to register for GST and HST,” Lemay said.
“That’s not true. All income is reportable in your tax return, so this may make a difference for people who were not aware that they should declare their gig income.”
When it comes to those additional tax complexities, De Rose points to new rules around how corporations calculate the amount of interest and financing expenses that can be deducted from taxable income, known as excessive interest and financing expense limitations.
“There are a whole bunch of rules and exceptions that need to be met, and calculations that need to be done,” De Rose said.
“That’s just one example of the additional complications that taxpayers need to administer when doing their tax filings.”
Given the many complexities business owners face at tax time, De Rose recommends they hire a professional firm to assist with tax compliance.
“It’s not something you should do lightly, or by engaging someone who does tax on a part-time basis,” De Rose said.
“The rules are complicated and the potential penalties are significant, so it’s worth the investment to hire a professional to help you manage your tax burden.”
Correction: A previous version of this story stated the capital gains hike would be applied only to gains of more than $250,000 for corporations and trusts. That exemption applies only to individuals. The story has been updated.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on X @alicjawithaj.
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