5 Tax Loopholes for Small Business Owners in 2022

Small business owners are always looking for ways to save money, and there’s no better time than the present. In order to do this, you need to find loopholes in the tax code that can help you reduce your tax burden.

Here are 5 of them so that you can make a plan for next year!  

  1. Keep the collected HST 

The majority of small business owners are unaware of the HST quick method used by accounting firms. This method allows you to keep a small portion of HST collected in your pocket.  This is how it works. You charge 13% for the items and services you sell to your clients or consumers. However, you only pay the Canada Revenue Agency 8.8% of your entire sales. As a result, the difference between 13 percent and 8.8 percent is yours to keep. The quickest method is the way to go for small business owners who don't have a lot of expenses to claim HST pay.

  1. Charging rent to your corporation 

Remote workers utilizing home offices for business purposes may recover proportional shares of housing expenses through corporate chargebacks. Qualifying costs like mortgage interest, property tax, utilities, insurance and maintenance relate to the dedicated workspace itself. Companies reimburse home-based employees by applying a simple formula:

Total Home Office Square Footage ----------------------------------- x 100% = Recoverable Percentage Total Home Square Footage

For example, an employee with a 350 square foot office in a 3,500 square foot house would tally 10% (350/3,500 x 100). They can thus submit reimbursement requests to their employer for 10% of total housing bills like rent/mortgage, utilities and maintenance. By parsing business versus personal space usage, remote staff access compensation for workspace costs incurred off-company premises. The approach converts individual rooms into mini-corporate outposts rather than forcing remote staff to fully absorb overhead assisting business needs.

  1. Making significant purchases near the end of the year 

This means, if you need to acquire office equipment, computers, other manufacturing equipment, furnishings, and so on, I'd wait until December to make such purchases. The purpose for this is that even if you just have the asset for a couple of days or weeks, you will receive the full year’s value of depreciation which is a fantastic way to save money on taxes. 

  1. Purchasing a home utilizing your corporation’s money 

If you take money out  of your corporation, the money will be counted as your income for the year in which you take it out. This money will be taxed at your personal tax bracket however there is a way to receive money stored in your firm in  a tax-free manner and may be used to purchase a home. There is an exception that states that an employee of a business may borrow money from the firm in order to purchase a home in which they will live in. Thus, if you want to purchase that $900,000 dream house, there's a method to get $100,000 or more out of your corporation absolutely tax-free to purchase it. 

  1. Tax deferral 

The combined provincial and federal rate for corporate income tax is 13.5%. Your personal rate, on the other hand, may be as high as 52%. That's an almost 38-percentage-point gap. That said, it makes a lot of sense to retain the majority of your money in your corporation, pay a low tax rate, and just take out what you require to pay your living expenses from the corporation. You'll be able to take advantage of the low company tax rate while paying little in personal income taxes. 

It is best to contact an accountant before doing any kind of accounting and taxes things because if you do something wrong in future you will regret.

This article has provided loopholes for small business owners. The five major loopholes are keeping the collected HST, charging rent to your corporation, making significant purchases near the end of year, purchasing a home utilizing your corporation’s money and tax deferral. It is up to you whether or not you want to use these ways in order to save on taxes. 

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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