Bidding adieu to 2024, it’s time to start working on the 2024 tax filing season, as any delays can attract late filing and late payment penalties. Small business owners must do tax planning for themselves and their businesses. There are two primary tax considerations for small business owners:

• Timing the transactions
• Determining the eligibility for tax considerations.

They should determine whether their business or business transaction qualifies for a tax deduction and plan the time to buy and sell assets, pay shareholder loans, and pay dividends and bonuses.  

Small Business Owners’ Checklist For 2024 Tax Planning

Here is a checklist to help you with small business taxation, starting with basic tax considerations, followed by salary and dividends paid to yourself and family members, business-related transactions, and any new taxes in 2025.

Basic Tax Considerations

• Ensure you have no underpaid company tax installments. Unpaid taxes from July 1 to December 31, 2024, will attract a 9% interest.
• Analyse and review your business expense deductions from a critical view. The CRA has made anti-avoidance rules stricter, and unrealistic business expenses are common where the agency looks for tax avoidance.

Considerations on Salary Paid to Business Owners and Family Members

• Is salary eligible for the business deduction? First, ensure the salaries are reasonable and are worth the payroll cost. Underpaying or overpaying salary to yourself or family members than what is reasonable for the services offered could make your business lose the right to deduct salary from taxable income.
• Timing salary and bonus payment: When you pay salary, you must deduct the Canada Pension Plan (CPP) and income tax and remit it to the CRA. You could accrue the salary or bonus in 2024 and defer paying them for up to 179 days after the company’s year-end. This way, the CPP and salary deductions will apply for the 2024 tax year, but the deductions will be remitted to the CRA only when salary or bonus is paid in 2025.
• Balancing salary and business profit: As a business owner, you may tie your salary to the company’s performance. A large salary in a profitable year could help you reduce taxable business income. However, your tax bill could increase. Also, it will reduce the company’s scope to carry back any future business losses and recover corporate taxes paid. These considerations can help you choose the better option for your business.  

Considerations on Dividends Paid to Business Owners and Family Members

• TOSI rule: Dividends could be subject to tax on split income (TOSI) rules, under which the divided income will be taxed at the top marginal personal income tax rate on that amount, even if the individual does not fall under that tax bracket. You can only claim disability tax credits, dividend tax credits, and foreign tax credits against income subject to TOSI. Before making dividend payments, ensure they are not subject to the TOSI rule. It is better to consult a professional tax expert as determining part could be complicated with its various inclusions and exceptions.
• Tax-free dividends: If your business has donated securities or other capital property such as land or other investments, your unrealized capital gain is tax-exempt. You can add the tax-fee capital gain to your corporation’s capital dividend account and withdraw it tax-free. Instead of selling the asset and donating cash, you can make donations in kind and give significant tax-free dividend payouts.

Tax Considerations on Business Transactions

• Eligibility of small business deduction: The small business deduction allows you to pay a preferential corporate tax rate of only 9% on the first $500,000 in business income. However, your business will no longer qualify for SBD if the combined taxable capital employed in Canada reaches $50 million or the passive income for the tax year reaches $150,000. You might want to consider checking the SBD limit of your business as the limit begins to phase out from $10 million in capital employed and/or $40,000 in passive income.
• Timing of repaying shareholder loans: If you have taken a shareholder loan from your company at a lower rate, you need not show it as taxable income in your income tax returns as long as you repay the loan before the end of the next tax year. For instance, you took a $100,000 shareholder loan from the company in September 2024, and your corporation’s tax year ends on December 31. You can repay the loan by December 31, 2025. 
• Apprentice and co-op tax credits: Small businesses could qualify for federal or provincial tax credits for employing apprentices and co-op students. These credits are different for different provinces and change annually. You might want to see if your business qualifies and prepare documentation such as apprenticeship training agreements before apprentices leave your company.
• Timing purchase and sale of assets: If you are considering buying or selling depreciable assets, timing is of the essence. For instance, your tax year is December 31. Buying a depreciable asset in December 2024 could help you claim 50% of the capital cost allowance (CCA) due to the “half-year” rule. This could help you reduce your taxable income for that year. The opposite is true when you want to sell a depreciable asset at a higher price, requiring recapturing of past CCA claims.

Considerations for Changes in Tax Laws

In 2024, the CRA increased the capital gain inclusion rate for corporates to 66.67% for gains realized on or after June 25, 2024. Gains realized before this will have a 50% inclusion rate. This could significantly alter your tax payable. However, the draft legislation has not yet received royal assent. Whether the bill is passed or not, you have to be prepared.

You might also want to learn about the Canadian Entrepreneurs’ Incentive, alternative minimum tax rules, and excessive interest and financing expenses limitation rules introduced in 2024.

Contact Glenn Graydon Wright LLP in Oakville to Help You with Your Tax Considerations

A professional tax expert is updated with the tax laws and can help you navigate the complex tax definitions and determine your eligibility. At Glenn Graydon Wright LLP, our accountants and tax experts can provide services such as tax planning and filing while staying compliant with the ever-changing tax rules. To learn more about how Glenn Graydon Wright LLP can provide you with the best tax planning expertise, contact us a call today at 905-845-6633, or connect with us online, to schedule an initial consultation.