From Susan Ward,
Your Guide to Small Business: Canada.
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Do you operate a Canadian small business? This guide presents all the information you need to know about preparing and filing your Canadian income tax return, from which business expenses qualify as legitimate Canadian income tax deductions through details on completing the T1 Personal and T1 Corporate Income Tax Returns.

Which Canadian Income Tax Return Do I Need for my Small Business?

The Canadian income tax return you need to complete and file for your small business depends on how your business is structured.

If your business is a sole proprietorship or partnership, you report your business income on your T1 personal income tax form. Your small business is you, so to speak, and the T1 income tax return package includes Form T2124 (Statement of Business Activities) and Form T2032 (Statement of Professional Activities), one of which you will use to report your business income.

If your small business is incorporated, you will report your business income on a T2 corporate income tax return. Legally, your incorporated small business is a separate entity and it needs to complete and file its own Canadian income tax return. (Note that you, as another separate legal entity, will also have to complete and file your own separate T1 personal income tax return.)

What Business Expenses Are Legitimate Income Tax Deductions?

Before you sit down to complete your Canadian income tax return or take your tax return and all your relevant forms and documents to your accountant, it's helpful to know which business expenses qualify as Canadian income tax deductions and which don't.

• Maximize Your Business Income Tax Deductions - This first installment of getting ready to file your Canadian income tax covers keeping track of your receipts, small business tax deductions related to the cost of doing business, and income tax deductions for home-based businesses.

• More Ways to Maximize Your Business Income Tax Deductions – Learn the business expense rules for vehicle business expenses, travel-related expenses, employing your child or spouse, advertising expenses, and the kind of business expenses that fall into the Canada Revenue Agency's 'other' category.

• The Canadian Business Expenses Index provides a quick way to find out if a particular business expense qualifies as a legitimate Canadian income tax deduction and what the rules are for claiming that particular business expense.

Canadian Home-Based Business Tax Deductions

• Home Maintenance & Home Ownership Income Tax Deductions – Being a home-based business owner does have some Canadian income tax advantages. Business expenses related to home maintenance and home ownership are two common types of business expenses that home-based business owners overlook.

• 6 Home-Based Income Tax Deductions You Don't Want to Miss – Business expenses related to owning and maintaining your home are only some of the business expenses you may be able to claim if you’re operating a home-based business that qualifies. Here are six of "the best" in terms of reducing the amount of income tax you owe.

• Calculating the Home-Based Business Tax Deduction explains the rules for claiming the business-use-of-home on line 9945 of the T1 tax form and how to calculate the amount of the deduction if your home-based business is eligible.

Other Canadian Income Tax Deductions You Should Know About

• Capital Cost Allowance – No discussion of Canadian income tax and small businesses would be complete without mentioning Capital Cost Allowance. Here's how to make the most of your Capital Cost Allowance Claim. You'll also want to know about changes to the Capital Cost Allowance rates that are effective as of March 19th, 2007.

• RRSPs – Registered Retirement Savings Plans are The Best Income Tax Deduction for Canadian Small Businesses that are structured as sole proprietorships or partnerships. Find out what the RRSP contribution limits are and how to time your RRSP contributions for maximum income tax impact.

• SR&ED – Many small businesses are under the impression that Research & Development tax incentives are something that only larger or incorporated businesses can use, which is not true. The SR&ED Tax Credit Program may apply to your small business, too.

• Gifts to Employees as Canadian Income Tax Deductions – If you're the generous kind of employer who gifts your employees, you'll want to read this piece on the income tax deduction rules for gifting.

Income Tax Articles for Do-It-Yourself People

• Your First Business Income Tax Return provides details on how to fill out the T1 Personal income tax return, the Canadian income tax return you need to complete and file if your business is structured as a sole proprietorship or partnership.

• Top Canadian Tax Software Programs presents what I consider to be the best tax software for small businesses. Most of these can be used to complete T2 corporate income tax returns as well as T1 personal income tax returns.

• Questions always come up when you're working on your income tax return. These Canadian Income Tax FAQs for Small Businesses provide answers for questions ranging from how having a business that made no money in the relevant tax year affects your business through what to do if you can't pay the Canadian income tax you owe.

If an Accountant Is Preparing Your Income Tax

Many small businesses prefer to have an accountant or other certified tax preparer complete their Canadian income tax returns for them rather than doing them themselves. Expertise and saving time are two obvious reasons, but having a tax professional's "seal" on your small business's income tax return can also save worry.

• First things first, if you choose to take this route. Learn How to Find a Good Accountant if your small business doesn't already have one.

• Just taking a drawer full of assorted documents to your accountant is a really bad (and expensive) idea. Getting Your Tax Records Ready for Your Accountant tells which documents your accountant or other certified tax preparer really needs.

Topics covered on the next page of this Canadian Income Tax Guide for Small Businesses include Canadian corporate tax returns, whether or not you should incorporate your business, income tax filing options and strategies to reduce your income tax.