The most successful of Canada’s 4.3 million businesses have one thing in common: effective tax planning strategies.
Business tax planning is the process of analyzing a company’s financial situation to identify ways to reduce or defer taxes. Corporate tax planning specifically focuses on minimizing the taxes paid by businesses.
Overall, the aim is to reduce a company’s tax liabilities while keeping compliant with tax laws and regulations. Tax planning is even more important in fairly new industries like digital marketing, tech, and SaaS businesses, where new tax laws are constantly emerging.
At Argento CPA, we help Canadian tech innovators like you navigate the tax landscape with confidence. Let’s discuss some expert planning strategies to keep your business compliant with national and international tax laws.
1. Use Tax Credits and Incentives
Canadian tax laws provide tax breaks, incentives, and credits to businesses in various industries, including digital marketing, SaaS, and tech.
- Foreign Tax Credits: Corporations in Canada with foreign-source income can claim a foreign tax credit for any income taxes they paid to another country to prevent double taxation.
- Research and Development (R&D) Incentives: Programs like the Scientific Research and Experimental Development (SR&ED) provide tax credits and deductions to corporations that conduct research and development activities. Eligible tech and SaaS businesses can get up to 35% of their R&D expenses back in the form of tax credits.
- Tax Deductions: Businesses can also benefit from certain tax deductions, such as depreciating capital assets, deducting business expenses, claiming losses, and using investment credits (applicable in specific industries like clean energy and manufacturing).
2. Leverage Income Splitting
Income splitting or income sprinkling is a tax strategy that involves diverting a portion of your business income to family members who are taxed at a lower rate. For example, businesses can pay a salary or dividend to their spouse or children who are not in the highest tax bracket so that they can save on taxes.
However, to ensure compliance, make sure the salaries are in a reasonable range according to the work or contribution of the family member to the business. Also, consider the Tax on Split Income (TOSI) rules to stay compliant.
3. Use Corporate Losses
A business can use current and past losses to reduce its taxable income. One way to do this is through loss carryovers.
You can carry losses back three years or forward up to 20 years to offset taxes in profitable years. In some cases, losses can even be used within a corporate group.
We’ll help you strategize to maximize the tax benefits of any losses you incur and ensure the strategies are compliant with the rules set by the Canadian Revenue Agency (CRA).
4. Use Business-Use-of-Home Expenses
If you operate a small business from home, you can list your home as your place of business to claim the expenses.
The percentage of your home used for business purposes determines the deductible amount. For example, if you use 25% of your home for business activities, you can claim a quarter of the following expenses:
- Utilities
- House insurance
- Cleaning materials
- Mortgage
- Property taxes
- Capital cost allowance
5. Manage TFSA and RRSP Contributions
Registered retirement savings plans (RRSPs) are retirement saving vehicles, while tax-free savings accounts (TFSAs) help people save money for any purpose. The money you put in an RRSP is tax-deductible, allowing you to get tax relief.
While TFSAs don’t provide upfront tax deductions, they help you grow your investments tax-free. If your RRSP is maxed out, you can put your money into a TFSA. We’ll help you determine the right contribution amounts based on your business income and long-term financial goals.
6. Choose Between Dividends vs. Salary
The way you choose to pay yourself as a business owner – through salary, dividends, or a combination – isn’t just a tax decision. It can impact your cash flow, retirement savings, and overall financial health.
Here’s the breakdown:
- Dividends: Offer a lower tax rate due to the dividend tax credit, plus you avoid CPP contributions. This can be a powerful way to increase your take-home pay.
- Salary: While taxed at a higher rate, salaries are a deductible business expense, reducing your company’s overall tax burden. Plus, they contribute to the RRSP contribution room, so you can save for retirement.
We can analyze your unique business model and develop a tailored compensation strategy that maximizes your tax savings and supports your long-term financial success.
7. Work With Tax Planning Experts
To navigate this complexity, it’s best to work with tax planning services that can assist you in making informed decisions. A quick Google ”tax planning near me” search might be just what you need. These services can help structure cross-border transactions and ensure compliance with relevant tax treaties.
Ensure Effortless Compliance With Expert Tax Management
While tax planning software may be helpful, it can only do so much. Instead, you need dedicated tax planning experts to help you comply with the latest tax regulations in the tech, digital marketing, and SaaS sectors.
That’s exactly what you can expect from us at Argento CPA. We used a blend of advanced technology and expert knowledge to help you create a tax plan that keeps digital marketing agencies, SaaS companies, and tech businesses compliant while maximizing their tax savings.
Book a free call to learn how we can help you create more savings with the right tax planning strategy.