Many Canadians work as employees and are used to filing standard annual income taxes—a relatively straightforward process. However, as a startup founder, it is not so simple. You now have new things and tax tips for startups.
As a Canadian entrepreneur, you wear many hats: CEO, marketer, product whiz. But a tax expert? Probably not. This article is your secret weapon, unlocking the tax tips for startups. Learn how to maximize deductions, avoid costly mistakes, and keep more money in your pocket—all while focusing on building your dream.
6 Tax Tips for Startups in Canada:
1. Pay When Able
You may have been an employee in the past, and taxes were deducted from every pay. That meant you did not have to pay hefty taxes at year-end.
As a startup business owner, that neat arrangement does not apply automatically. You must determine what tax payment best fits your budget. In most cases, you should pay income taxes every month to avoid one large payment. You can set that up with the Canada Revenue Agency (CRA) to make your tax obligations easier to manage throughout the year.
2. Put Nepotism to Good Use
Many startup business owners pay family members a salary that counts as a business deduction. There is absolutely nothing wrong with that. However, the salary must be reasonable for your family’s position at your company. For example, a typical entry-level position should earn a salary below your region’s average.
3. Keep Your Dividend/Salary Mix Balanced
As a startup business, you can withdraw money from your company as a dividend or salary. Paying yourself a healthy salary allows you to maximize your Registered Retirement Savings Plan (RRSP).
You may also designate part of your income as a dividend. That way, you can take advantage of a lower tax rate. Knowing the ideal balance between your dividend and salary can help you keep more money in your pocket.
However, every startup business owner’s circumstances differ. What may be an excellent decision for one person may be less so for another. You can achieve the perfect mix by getting expert tax advice before doing anything.
4. Know Your Legitimate Deductions
You incur startup expenses when you first get your business off the ground. You can claim many of these as legitimate business tax deductions. Some of these items may include the following:
- Business fees and licenses
- Equipment and Technology
- Insurance
- Legal and accounting fees
- Supplies
- Vehicle expenses
5. Keep Track of Everything
One of the biggest tax tips for startups is always being organized. Keep receipts and detailed records from every business expense to income earned. You cannot overstate the importance of keeping good records for the following reasons:
- The law requires you to keep all records for a specific period, generally six years.
- It will make your life less stressful when tax season comes around.
- Suppose the CRA orders an audit on your business. Having organized and complete records will make it much easier to get through it with a whole skin.
6. Keep Informed About Tax Credits
Tax credits can be a boon to your small business startup. Learn about the tax credits you might be eligible for, including the following:
- Canada Caregiver Credit
- Health Spending Account (HSA)
- Disability Tax Credit
- Canada Child Benefit
Final Note: Startup Business Taxes Evolve
While these tax tips for startups are generally helpful, you need to be more proactive. The tax laws in Canada go through changes periodically. It would be best to stay updated with these changes to ensure you don’t get into trouble. Working with a tax professional to advise you on what is best for your business is usually a good idea.
Also Read: Navigating Business Taxes: Common Pitfalls and How to Avoid Them
