What are federal personal tax rates for 2022 in Canada?

• 15% on the first $50,197 of taxable income, and

• 20.5% on the portion of taxable income over $50,197 up to $100,392 and

• 26% on the portion of taxable income over $100,392 up to $155,625 and

• 29% on the portion of taxable income over $155,625 up to $221,708 and

• 33% of taxable income over $221,708

What are Ontario personal tax rates for 2023?

• 5.05% on the first $49,231 of taxable income, and

• 9.15% on the portion of taxable income over $49,231 up to $98,463 and

• 11.16% on the portion of taxable income over $98,463 up to $150,000 and

• 12.16% on the portion of taxable income over $150,000 up to $220,000 and

• 13.16% of taxable income over $220,000

What are Quebec's personal tax rates for 2021?

• 15% on the first $45,105 of taxable income, and

• 20% on the portion of taxable income over $45,105 up to $90,200 and

• 24% on the portion of taxable income over $90,200 up to $109,755 and

• 25.75% of taxable income over $109,755

What are British Columbia (BC) personal tax rates for 2021?

• 5.06%: $0 to $42,184

• 7.70%: $42,185 to $84,369

• 10.50%: $84,370 to $96,866

• 12.29%: $96,867 to $117,623

• 14.70%: $117,624 to $159,483

• 16.80%: $159,484 to $222,420

• 20.5%: Over $222,421 and over

What are Alberta's personal tax rates for 2021?

• 10% on the first portion that is $131,220 or less

• 12% on the portion from $131.220.01 up to $157,464, plus

• 13% on the portion from $157,464.01 up to $209,952 plus

• 14% on the portion from $209,952.01 up to $314,928, plus

• 15% on the portion that is $314,928.01 and up

Which federal tax credits are available to businesses in Canada?

• Canadian film or video production tax credit

• Canadian journalism labour tax credit

• Federal foreign business income tax credit

• Federal foreign non-business income tax credit

• Federal logging tax credit

• Federal qualifying environmental trust tax credit

• Film or video production services tax credit

• Investment tax credits, including the Scientific research and experimental development (SR&ED) investment tax credit

• Manufacturing and processing profits deduction

Which Ontario tax credits are available to businesses?

• Apprenticeship Training Tax Credit

• Co-operative Education Tax Credit

• Ontario Book Publishing Tax Credit

• Ontario Computer Animation and Special Effects Tax Credit

• Ontario Film and Television Tax Credit

• Ontario Interactive Digital Media Tax Credit

• Ontario Production Services Tax Credit

• Ontario Sound Recording Tax Credit

• Ontario Business Research Institute Tax Credit

• Ontario Innovation Tax Credit

• Ontario Research and Development Tax Credit

• Regional Opportunities Investment Tax Credit

• Community Food Program Donation Tax Credit for Farmers

• Political Contribution Tax Credit

• Small Beer Manufacturers Tax Credit

What are the benefits of incorporating a business?

• It provides limited liability, which means personal assets of businessman/shareholder are protected

• Tax rates are lower

• Potential tax deferral

• Small business tax deduction

• Ownership interests are easier to transfer

• The life of the corporation can extend beyond that of the founders

• Credibility is boosted in the eyes of partners

• Financing and grants are easier to access

What are the demerits of incorporating a business?

• Higher costs of incorporation

• Significant record-keeping and filing requirements

• Potential double taxation

• Limited use of losses

• Stringent Compliance Regulations

What are the types of incorporation available in Canada?

• Federal corporations

• Provincial corporations

• A federal corporation need extra-provincial registration in the province where it has head office

What are the benefits of receiving payroll/salary as an owner-manager?

• It provides retirement benefits due to Canada Pension Plan (CPP) contribution

• Salaries and wages are eligible income for Registered Retirement Savings Plan (RRSP) contribution room

• RRSP contribution also reduces taxable income

• Income earned in RRSP is not subject to tax as long as it stays in RRSP

• Salary may favour you when you are attempting to qualify for a mortgage as banks prefer steady and predictable income

• Can also pay salaries to family members if they are actively working in business

• Payroll is a tax-deductible expense that reduces the net taxable income of the corporation

• Claiming other personal tax deductions for expenses is possible. For instance, child care expenses can be used to deduct salary, but not dividends

• Salary can help in bringing business income down to Small Business Limit

• If the amount of profit is small it may be more tax-efficient to pay salary due to basic personal amount

What are the benefits of receiving dividends as an owner-manager?

• You do not go through the stress of registering for payrolls and remitting deductions

• It provides flexibility as you can easily declare a dividend and transfer money from the corporation's account into your personal account

• No CPP contributions, in case of owner-manager salary there's double CPP contribution

• No need of a payroll software to do monthly calculations

• When paying yourself dividends, the only thing you need to worry about is completing and filing your T5s on time once every year

• Dividends often come with a dividend tax credit, making it carry less personal tax liability than business salaries or wages

Is one type of compensation (salary or dividends) better than the other?

• There's no single type of compensation better than the other in all cases

• All relevant factors like, level of income, cash flow needs, projected annual income, age etc. must be considered

• In many cases, a combination of salary + dividends may be the most tax-efficient option

What are the tax-deductible expenses that a small business can claim/write off?

• Expenses must be incurred to earn the business income and they must be reasonable under the circumstances

• Business start-up costs

• Business use-of-home expense

• Business use of vehicle expenses

• Meals & Entertainment

• Health Spending Account (HSA)

• Supplies

• Business tax, fees, licences and dues

• Office expenses

• Travel

• Rent

• Management and administration fees

• Interest and bank charges

• Property taxes

• Telephone and internet

• Utilities

• Insurance

• Bad Debts

• Advertising

• Professional fees (accountant, lawyer)

• Repair & Maintenance

• Capital Cost Allowance (CCA) of assets

What are the various business use of home expenses that I can claim?

• This home should be either your principal place of business or you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients

• Your business-use-of-home expenses can’t be more than your business income

• You can carry forward any expense you weren’t able to deduct in the current tax year to the next tax year, as long as you still meet the business-use-of-home expenses conditions

• Mortgage interest

• Insurance

• Rent/Depreciation

• Property tax

• Heat

• Electricity

• Water

• Maintenance and repairs

• Cleaning materials

• Office Expenses

• Telephone

• Internet connection

What are the various business use of vehicle expenses that I can claim?

• Lease payments/Depreciation (CCA)

• Interest payments

• Insurance

• Secondary business insurance

• Fuel and oil

• Maintenance and repairs

• Registration and licenses

• Parking expenses

• GST/PST paid

What is the basic nature of cryptocurrency from a Canadian tax perspective?

• The CRA generally treats cryptocurrency like a commodity for purposes of the Income Tax Act. 

• Any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances. 

• Similarly, if earnings qualify as business income or as a capital gain then any losses are treated as business losses or capital losses.

How is the value of cryptocurrency determined?

• To figure out the value of a cryptocurrency transaction where a direct value cannot be determined, you must use a reasonable method.

• you could choose an exchange rate taken from the same exchange broker you are using or an average of midday values across a number of high-volume exchange brokers. 

• Whichever method you choose, use it consistently.

Which type of cryptocurrency transactions triggers tax implications?

• In general, possessing or holding a cryptocurrency is not taxable. 

• There could be tax consequences when you do any of the following:

  1. sell or make a gift of cryptocurrency

  2. trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency

  3. convert cryptocurrency to government-issued currency, such as Canadian dollars

  4. use cryptocurrency to buy goods or services

Is income from cryptocurrency business income or capital gain?

• Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. 

• Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income, even if it’s an isolated incident because it could be considered an adventure or concern in the nature of trade.

• If the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain.

• Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. 

• Any capital losses resulting from the sale can only be offset against capital gains; you cannot use them to reduce income from other sources, such as employment income. 

• You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.

When cryptocurrency transactions are considered carrying on a business?

• The following are common signs that you may be carrying on a business:

  1. you carry on the activity for commercial reasons and in a commercially viable way

  2. you undertake activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory

  3. you promote a product or service

  4. you show that you intend to make a profit, even if you are unlikely to do so in the short term

• Business activities normally involve some regularity or a repetitive process over time. Each situation has to be looked at separately.

• Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

  1. frequency of transactions - a history of extensive buying and selling of securities or of a quick turnover of properties,

  2. period of ownership - securities are usually owned only for a short period of time,

  3. knowledge of securities markets - the taxpayer has some knowledge of or experience in the securities markets,

  4. security transactions form a part of a taxpayer's ordinary business,

  5. time spent - a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

  6. financing - security purchases are financed primarily on margin or by some other form of debt,

  7. advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

  8. in the case of shares/cryptocurrency, their nature - normally speculative in nature or of a non-dividend type.

• The presumption that gains from security transactions are on income account will also be taken by the Department in any situation where it is apparent that the taxpayer has used special information not available to the public to realize a quick profit.

• The gain or loss on the "short sale" of shares is considered to be on income account.

• When the disposition of shares in a corporation is merely an alternative method of realizing income from the sale of a property held by the corporation (e.g. real estate), the gains from the sale of those shares will be included in income as if the property itself had been sold.

What is the tax treatment of trading cryptocurrency for another type of cryptocurrency?

• Generally, when you dispose of one type of cryptocurrency to acquire another cryptocurrency, the barter transaction rules apply. 

• You have to convert the value of the cryptocurrency you received into Canadian dollars. 

• This transaction is considered a disposition and you have to report it on your income tax return. 

• Report the resulting gain or loss as either business income (or loss) or a capital gain (or loss).

How to report stock of cryptocurrency, inventory or capital property?

• To file your income tax return, you need to know how to value your cryptocurrencies. 

• This depends on whether they are considered capital property or inventory. 

• When cryptocurrencies are held as capital property, you must record and track the adjusted cost base so that you can accurately report any capital gains.

• If the cryptocurrencies are considered to be inventory, use one of the following two methods of valuing inventory consistently from year to year:

  1. value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower

  2. value the entire inventory at its fair market value at the end of the year (generally, the price that you would pay to replace an item or the amount that you would receive if you sold an item)

What accounting records and books I am required to maintain for cryptocurrency transactions?

• If you acquire (by mining or otherwise) or dispose of cryptocurrency, you have to keep records of your cryptocurrency transactions. 

• This also applies to businesses that accept cryptocurrency as payment for goods and services.

• Cryptocurrency exchanges have different standards for the kinds of records they keep and how long they keep them. 

• If you use cryptocurrency exchanges, it's suggested that you export information from these exchanges periodically to avoid losing the information necessary to report your transactions. 

• You are responsible for keeping all required records and supporting documents for at least six years from the end of the last tax year they relate to.

• You should maintain the following records on your cryptocurrency transactions:

  1. the date of the transactions

  2. the receipts of purchase or transfer of cryptocurrency

  3. the value of the cryptocurrency in Canadian dollars at the time of the transaction

  4. the digital wallet records and cryptocurrency addresses

  5. a description of the transaction and the other party (even if it is just their cryptocurrency address)

  6. the exchange records

  7. accounting and legal costs

  8. the software costs related to managing your tax affairs.

• If you are a miner, also keep the following records:

  1. receipts for the purchase of cryptocurrency mining hardware

  2. receipts to support your expenses and other records associated with the mining operation (such as power costs, mining pool fees, hardware specifications, maintenance costs, and hardware operation time)

  3. the mining pool details and records

• There are different types of software that are available to track cryptocurrency trades and maintain records.

How does GST/HST apply to cryptocurrency transactions?

• Where a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the cryptocurrency at the time of the exchange.

• If your business accepts cryptocurrency as payment for taxable property or services, the value of the cryptocurrency for GST/HST purposes is calculated based on its fair market value at the time of the transaction.

• Keep all records that show how you calculated the fair market value.

What is the capital gains deduction limit?

• An eligible individual is entitled to a cumulative lifetime capital gains exemption (LCGE) on net gains realized on the disposition of qualified property. 

• This exemption also applies to reserves from these properties brought into income in a tax year.

• For 2020, if you disposed of qualified small business corporation shares (QSBCS), you may be eligible for the $883,384 LCGE. 

• Because you only include one half of the capital gains from these properties in your taxable income, your cumulative capital gains deduction is $441,692 (1/2 of a LCGE of $883,384).

• For dispositions of qualified farm or fishing property (QFFP) in 2016 to 2020, the LCGE is $1,000,000. 

• Because you only include one half of the capital gains from these properties in your taxable income, your cumulative capital gains deduction is $500,000 (1/2 of a LCGE of $1,000,000).

• The limit is indexed to inflation, using the Consumer Price Index data as reported by Statistics Canada.

• Because the capital gains inclusion rate in 2020 is 1/2, only 50% of the capital gain from a disposition of property is taxable.

• In a year, you can claim any amount of the deduction you want, up to the maximum allowable amount you calculated.

• Lifetime capital gain exemption is calculated based on:

  1. Annual gains limit

  2. Cumulative gains limit

  3. Cumulative net investment loss

Who is eligible to claim the capital gains deduction??

• You have to be a resident of Canada throughout 2020 to be eligible to claim the capital gains deduction. 

• For the purposes of this deduction, the CRA will also consider you to be a resident throughout 2020 if you meet both of the following conditions:

  1. you were a resident of Canada for at least part of 2020

  2. you were a resident of Canada throughout 2019 or 2021

• Residents of Canada include factual and deemed residents.

Which capital gains are eligible for the capital gains deduction?

• The capital gains deduction can be applied against taxable capital gains included in 2020 income that arose from:

  1. dispositions of qualified small business corporation shares

  2. dispositions of qualified farm or fishing property

• reserves brought into income in 2020, from either of the above 

What type of shares are Qualified Small Business Corporation Shares (QSBCS)?

• At the time of sale, it was a share of the capital stock of a small business corporation

• It was owned by you, your spouse or common-law partner, or a partnership of which you were a member:

• Throughout the 24 months immediately before the share was disposed of, no one owned the share other than you, a partnership of which you were a member, or a person related to you

• Throughout that period of the 24 months immediately before the share was disposed of, it was a share of a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the corporation were:

  1. used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation;

  2. certain shares or debts of connected corporations

• .So, the criteria says at the time of sale 90% of assets should be used in active business and 2nd requirement is that during the period of 24 months preceding sale 50% of assets should be used in active business

• Under the second exception, a treasury share will not be deemed to have been owned by an unrelated person prior to its issuance where the share was issued to a person or partnership as part of a transaction or series of transactions in which the person or partnership disposed off the property to the corporation that consisted all or substantially all of the assets used in an active business carried on by that person or partnership, or of an interest in a partnership all or substantially all of the assets of which were used in an active business carried on by its members. 

• This provision effectively allows an individual or partnership to incorporate a business and then immediately sell the shares without waiting for the applicable holding period to run. 

• In most cases, it should not be a concern that the resulting shares are inventory, despite an intention to sell them shortly after acquiring them, since s. 54.2 will deem them to be capital property. 

What is a Small Business Corporation?

• A Canadian-controlled Private Corporation (CCPC) in which all or most (90% or more) of the fair market value of its assets:

  1. are used mainly in an active business carried on primarily in Canada by th corporation or by a related corporation;

  2. are shares or debts of connected corporations that were small business corporations; or

  3. are a combination of these two types of assets.

What is a Canadian-Controlled Private Corporation (CCPC)?

• A CCPC is a corporation that:

  1. Is not a public corporation

  2. Is resident in Canada

  3. Is not controlled directly or indirectly by a public corporation and/or non-resident

  4. Its shares are not listed at a stock exchange

  5. It has not filed an election under ITA 89(11) to be considered non-CCPC

Q: What are the tax obligations for small business owners in Canada?

A: Small business owners in Canada are responsible for complying with various federal and provincial tax laws. This includes filing and paying income taxes, HST/GST, and payroll taxes. In addition, they may also be required to collect and remit sales taxes, and make contributions to employment insurance and the Canada Pension Plan.

Q: How often do small business owners need to file taxes?

A: The frequency of tax filing depends on the type of tax. For example, HST/GST must be filed and remitted on a quarterly or monthly basis, while corporate income tax is typically filed annually. Payroll taxes must be remitted to the government on a regular basis, such as every month or every pay period.

Q: What happens if a small business owner does not file or pay taxes on time?

A: Failing to file or pay taxes on time can result in penalties and interest charges. In severe cases, the Canada Revenue Agency may pursue legal action, including fines or even imprisonment for tax evasion.

Q: Can a small business owner outsource their tax obligations to a professional?

A: Yes, small business owners can choose to outsource their tax obligations to a professional, such as a chartered professional accountant (CPA). This can help to ensure that all tax obligations are fulfilled accurately and on time, and can provide peace of mind that the business is in compliance with tax laws.

In conclusion, understanding and fulfilling tax obligations is an important part of running a successful small business in Canada. By staying informed and seeking professional support when needed, small business owners can minimize the risk of penalties and ensure compliance with tax laws.

Q: How Canadian businesses should prepare for tax filing season?

A: Small businesses in Canada can prepare for tax filing season by taking the following steps:

• Keep accurate records: Maintain detailed records of all income and expenses throughout the year.

• Stay informed: Stay up-to-date on tax laws and regulations, and seek advice from a CPA if necessary.

• Organize documents: Gather all relevant tax documents, including receipts, invoices, and bank statements.

• Review tax credits and deductions: Review available tax credits and deductions and make sure to claim any that apply to your business.

• Plan ahead: Develop a plan for how to manage taxes throughout the year, including setting aside funds for tax payments.

• Consider seeking professional help: Consider working with a CPA firm to ensure accurate tax filing and to take advantage of their expertise in tax planning and compliance.

By taking these steps, small businesses can be better prepared for tax filing season in Canada and minimize the risk of errors, penalties, and other problems.

Q: How can Canadian businesses save on taxes?

A: 1. Take advantage of tax deductions and credits: Small businesses in Canada are eligible for various deductions and credits that can reduce their taxable income and help them save on taxes. These include the Canadian small business deduction, the scientific research and experimental development tax credit, the GST/HST credit, and the digital media tax credit. 

2. Take advantage of the small business tax rate: Canadian small businesses are eligible for a lower corporate tax rate than large businesses. This can help your business save a significant amount on taxes. 

3. Take advantage of capital cost allowance: Small businesses can write off certain capital expenses, such as machinery and equipment, over a period of time. This can help your business save on taxes by reducing your taxable income.

4. Take advantage of the home office deduction: Small business owners who work from home are eligible for a deduction on their home office expenses. This can help reduce your taxable income and help you save on taxes. 

5. Take advantage of employee stock options: If your business offers employee stock options, you can defer taxes on the income generated from those options. This can help you save on taxes in the short-term and the long-term. 

6. Take advantage of tax-deferred savings: Small businesses can use tax-deferred savings plans to reduce their tax liability.

7. Hire family members: Hiring family members can help small businesses save on taxes, as their wages are usually not subject to employment insurance or CPP contributions.

8. Create an incorporated business: Incorporating a business can help reduce its overall tax liability by allowing it to take advantage of certain tax deductions, such as the small business deduction.