Don’t Miss These Deductions On Your 2023 Tax Return

As small businesses gear up to file their 2023 tax returns, it’s important to know which deductions to look for. Knowing about common and new deductions can save money and reduce your ongoing tax burden.

Knowing the common deductible expenses and changes to the tax code can help you save money on your 2023 returns and plan for 2024 spending and tax obligations.

Common Small Business Tax Deductions

Businesses who qualify can take the Small Business Deduction. The Small Business Deduction is the most common deduction small businesses use.

The Canada Revenue Agency (CRA) lowers the overall tax rate for businesses that meet the following criteria:

• Based in Canada, though it may conduct business across borders
• Private corporation
• Less than $10 million in taxable capital employed in Canada, including shareholder equity, loans, advances, surpluses and reserves

The credit applies to the first $500,000 of taxable capital deducted from active business in Canada.

There are other common tax deductions small businesses can take. Tax-deductible expenses generally fall into one of three categories:

1. Items used exclusively in your business’s operations
2. Expenses incurred within the space in which you conduct business, such as utility costs in rented office space
3. Things used while conducting your business

Deductions Many Small Businesses Miss

• Start-up costs, including machinery, equipment and supplies, along with fees for legal advice or accounting services
• Marketing and advertising costs, such as business cards, flyers, trade show fees, or the cost of ads on Canadian television and radio shows
• Office supplies, such as pencils and pens, stamps, stationery and cleaning supplies
• Business supplies that your business uses to provide its goods and services
• Rent provided for the space you use for the business, including land and buildings
• Utility charges, such as heat and electricity, along with insurance, maintenance, mortgage insurance and property taxes
• Telephone and internet charges
• Home office expenses, for the percentage of your home that is used exclusively for your business

What You Can’t Claim

In addition to knowing what you can deduct, it’s smart to understand what expenses you can’t claim, including:

• Wardrobe and clothing
• Parking tickets and fines
• Commuting costs
• Club and gym membership fees
• Life insurance premiums

Alternative Minimum Tax Changes

There are many changes to 2023 tax returns that could apply to your small business and personal returns.

One of the most notable changes is to the alternative minimum tax law (AMT). The alternative minimum tax ensures that high-income taxpayers still pay a minimum amount of tax, even when their income includes sources that are tax-exempt.

The proposed changes to the AMT would shift the exemption from the first $40,000 of income, with the balance subject to a 15% tax rate, to the first $173,000 with the balance is taxed at a 20.5% rate. Most provinces have their own AMTs based on a portion of the federal AMT.

In addition, capital gains are now fully included in the AMT calculation at 100%, compared to the previous 80% rate. Additional trusts, including Graduated Rate Estates and Qualified Disability Trusts, are now eligible.

Capital gains on donated property are now taxed at 100%, while donations of securities or employee stock options are now taxed at 30%. Capital loss carryovers are now deducted at 50%, down from 80%.

Other deductions, including employment and moving expenses, are now deductible at 50% instead of 100%.

For business owners, the AMT changes could mean an increased tax liability for high-income individuals due to the change in the tax rate, donation rule changes, and potential exposure for those who receive stock-based compensation.

New Tax Rules for 2023 Returns

In addition to the changes to the AMT, here are some of the other changes that could apply to your small business and personal returns.

• Adjusted Tax Brackets. Due to the dramatic inflation rates in the past year, the federal government has changed the tax brackets, each with increased thresholds. The new brackets and tax rates are:
  • Up to $53,359 (15%)
  • Up to $106,716 (20.5%)
  • Up to $165,430 (26%)
  • Up to $235,675 (29%)
• Change to Home Office Deductions. During the COVID-19 pandemic, the federal government made it easier to claim home office deductions in the 2020-2022 tax years. However. The flat-rate method no longer applies, meaning taxpayers need to use the detailed method, which requires more documentation
• Basic Personal Amount (BPA) Change. The BPA is the income a person in Canada can earn without being subject to federal income tax. In 2019, the federal government announced that the BPA would increase annually until it reached $15,000 in 2023. However, the rate will be adjusted for inflation, with the 2024 level set at $15,705. There are also provincial BPAs that vary by province and territory
• Tax-Free Savings Account (TFSA) Dollar Increase. The TFSA limits continue to increase, from $6,500 in 2023 to $7,000 in 2024. Individuals can contribute to a TFSA as soon as they turn 18; any unused amounts from previous years can carry over
• Registered Retirement Savings Plan (RRSP) Limit Increase. The RRSP contribution limit increased in 2023 to $30,780, an increase of $1,570. Note that the RRSP contribution level is still capped at 18% of total income

Payroll Changes for 2024

• Employment Insurance (EI) Premium Increases. As of January 2024, the EI premium rate has been set to $1.66 per $100 of employee earnings, up from $1.63, and $2.32 per $100 for employers, up from $2.28. The maximum employee contribution is $1,049.12 plus an employer contribution of $1,468.77.
• Canada Pension Plan (CPP) Premium Increases. As of January 2024, the CPP premium rate remains at $5.95 per $100 of employee earnings with a matching employer contribution. The maximum employee contribution is $3,867.50 plus an employer contribution of $3,867.50. Self-employed individuals pay both portions on filing their personal tax returns. In addition, on earnings above $68,500 up to $73,200 there is an additional 4% contribution, plus employer portion, required as an enhanced CPP contribution.

When looking to save money on your tax returns, it’s a good idea to have a professional help with the preparation and planning. Tax laws are complicated and constantly changing.

Book a free consultation and get advice on how to make sure you aren’t missing out on deductions and paying more tax than you need to. .

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.