Self-Employed and Small Business Tax Breaks

When you run a business, you have many expenses to cover. That’s why leveraging self-employed tax breaks can help optimize tax savings. Here are 10 proven methods to help you pay less tax as a small business owner in Canada.

Maximize work-from-home tax deductions 

If you operate a business from home, you may claim a portion of your household expenses. This includes your mortgage interest or rent, utilities, and property taxes. To determine the amount you can deduct, you’ll need to divide the size of your workspace by the size of your total square footage (or use the number of rooms) and factor in the number of hours you use it for business. 

Other everyday business expenses are vehicle expenses, professional fees, and banking fees. Check out our article, which includes a complete list of tax deductions for small businesses. 

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Claim tax credits 

When you run a business, you may be eligible for various tax credits. There are federal, provincial, or territorial tax credits available based on the industry you work in, such as film production or scientific research. 

For example, corporations can claim the Canada Carbon Rebate is available from the federal government. Additionally, multiple provinces offer tax credits for companies that hire co-op students or trainees. There are also gasoline and fuel-based tax credits that several provinces offer. You can find more information in our article about Canadian small business tax credits.

Use tax-advantaged accounts 

The Registered Retirement Savings Plan (RRSP) provides immediate tax relief by reducing your taxable income while allowing you to save for retirement. Withdrawals are taxed, but typically, those who make withdrawals during retirement are in a lower tax bracket compared to their working years. 

In contrast, the Tax-Free Savings Account (TFSA) provides tax-free growth on your investments. Furthermore, withdrawals are tax-free, which makes them a suitable choice for those who have short-term or medium-term savings goals.

Both investment accounts are powerful tools to help you reduce your taxes while looking after your financial well-being. 

GST/HST registration 

Most businesses that generate $30,000 or more in income within a single quarter or four calendar quarters will likely need to register for a GST/HST number. As a GST/HST registrant, you’ll need to start collecting and remitting taxes on behalf of the government. 

One of the perks is that you may be eligible to claim input tax credits (ITCs) against the GST/HST collected, which means you may owe fewer taxes to the Canada Revenue Agency (CRA). 

GST/HST deadlines

You’ll need to remit GST/HST on a monthly, quarterly, or yearly basis. This will depend on your business type and income threshold. 

Monthly and quarterly filers must pay one month after the reporting period. Annual filers need to file and pay three months after their fiscal year-end. However, if your year-end is on December 31, your payment deadline is April 30, 2025, and the filing deadline is June 15, 2025.

Claiming losses on a business 

There may be times when your business incurs significant losses. This may be due to clients not paying their invoices, theft, or expired goods. Whatever the reason, the CRA allows businesses to use the losses to reduce their tax liability. 

If you have a surplus of expenses that exceeds your income, you can carry the remaining balance back up to three years—or carry forward the losses for up to 20 years. As a result, this helps to lower your taxable income during profitable years. 

Separate personal and business expenses 

To pay less tax as a small business owner, you must keep your finances in order. As such, you should have a dedicated business banking account and credit card. This helps to keep track of your business income and expenses separately. 

Being able to sort through all of your business transactions will make it easier to claim tax deductions and credits when you file your tax return. Plus, if the CRA asks you to show your records, you can easily access them.

Keep diligent records 

Having an organized system of documenting your receipts and invoices is essential. The CRA requires businesses to hold onto their receipts and related documents for six years (in case of an audit). For example, having a digital folder with electronic receipts (or a physical folder with paper receipts) will be useful during tax filing season. 

Additionally, consider using a mileage tracking app to record business-related travel precisely since this is a commonly audited expense. Those who use a vehicle to meet with clients, deliver goods to customers, or are gig drivers may find this beneficial. The Driversnote mileage tracking app can help you automatically track your trips.

Hire a family member

Sometimes, as a solopreneur, you need a helping hand. It may be beneficial to hire a family member and pay them a salary. When you pay them reasonable compensation for their labour, you can shift income to a lower tax bracket while claiming their wages as a deductible business expense. This is also known as income splitting and can help to lower your tax bill. 

Keep in mind that the CRA has specific requirements when it comes to hiring a family member. For example, you must be paying a reasonable salary for legitimate work. It’s important to understand and comply with the rules. 

Hire a tax professional 

If you need guidance on how to pay less taxes, consider seeking advice from an accountant or tax advisor. You can find an expert who specializes in working with self-employed workers such as contractors or freelancers. 

They can assist you with claiming tax deductions and tax credits to ensure you optimize your tax savings and adhere to the CRA rules. This will help to avoid any audits or penalties. Don’t forget that if you hire a tax pro to help you file your taxes, you can write off this as a business expense. 

File your tax return on time 

When managing a small business, tax breaks can be a significant way to keep more money in your pockets. Once you’ve claimed all the tax deductions and credits you’re eligible for, remember that self-employed tax filers must submit their tax return by June 15, 2025. 

However, if you owe any taxes, you must pay the balance no later than April 30, 2025. Otherwise, you may face penalties if you submit after the deadline. 

Hopefully, with these ten strategies, you’ll be able to pay less tax as a small business owner.