Start Smart: Tax Planning Strategies for New Businesses in Alberta

Starting a new business is exciting, but it also comes with certain responsibilities, including corporate tax planning.

Proper tax planning strategies can help you maximize your deductions, minimize your tax liabilities, and ensure compliance with the tax regulations in Alberta.

At Liu & Associates, we are here to help you through the complexities of corporate tax planning so you can focus on what really matters – your business.

In this article, we will discuss essential tax planning considerations for new businesses in Alberta, guiding you toward making informed decisions to optimize your tax situation.

Getting Organized With Taxes

When you are starting a new business, one of the fundamental steps in tax planning is to establish a strong foundation by organizing your financial records effectively.

By following these actionable tips, you can ensure a streamlined tax preparation process and gain valuable insights into your business’s financial health:

  • Maintain Accurate and Up-to-Date Records: Keep detailed records of your income, expenses, receipts, and invoices. Categorize them appropriately to make it easier to identify deductible expenses and track your business’s financial performance.
  • Separate Personal and Business Finances: It’s crucial to separate your personal finances from your business finances. Using your personal accounts for business finances can make it difficult to track deductible expenses accurately.
  • Implement a Reliable Bookkeeping System: Establish a systematic bookkeeping system to ensure consistency and accuracy in recording your financial transactions.
  • Track and Store Documentation: Keep a record of all relevant tax-related documents, such as receipts, invoices, and bank statements.
  • Establish a Schedule: Set aside dedicated time every month or quarter to take a look at your financial records and update them if necessary.

By properly organizing your taxes, you can establish a solid foundation for your tax planning strategies, streamline your record-keeping process, and ensure compliance with tax regulations.

Choosing a Business Structure

The choice of your business structure can have significant implications for your tax planning.

In Alberta, you can choose from various options, such as sole proprietorship, partnership, corporation, or a limited liability company (LLC):

  • Sole Proprietorship: Owned and operated by one individual, with personal liability for debts. Taxes reported on personal tax returns.
  • Partnership: Business owned by two or more individuals or entities. Partners share profits, losses, and liabilities. Taxes reported on personal tax returns.
  • Corporation: Separate legal entity from owners (shareholders). Limited liability protection. Corporate income tax is paid on profits. Shareholders are taxed on dividends received.
  • Limited Liability Company (LLC): Hybrid structure combining the limited liability of a corporation with the pass-through taxation of a partnership. Members report income on personal tax returns.

Each structure has different tax advantages and disadvantages.

Consulting with a tax professional or accountant can provide valuable insights and help you determine the most suitable structure for your business.

Deciding About Investments

Tax planning for your business should include careful consideration of investment decisions, as Alberta provides various tax incentives and credits to support specific activities and industries.

So, when it comes to making decisions about investments, new businesses in Alberta have access to advantageous tax planning strategies.

One such strategy is the Innovation Employment Grant, which aims to foster economic growth by providing support to small and medium-sized businesses engaged in research and development (R&D).

These businesses can receive a grant worth up to 20% of qualifying expenditures, encouraging investment in R&D across all industries.

By complementing the Job Creation Tax Cut, this program specifically benefits early-stage firms that may not be profitable yet, further promoting investment and diversification.

Additionally, the Agri-processing Investment Tax Credit (APITC) offers a 12% non-refundable tax credit to corporations investing $10 million or more in constructing or expanding agri-processing facilities in Alberta.

By incentivizing large-scale agri-processing investments, the program capitalizes on Alberta’s existing competitive advantages and aims to establish the province as the preferred destination for such ventures.

Overall, these tax planning strategies, including the Innovation Employment Grant and the APITC, provide support to businesses of all sizes and at various stages of their business cycles, encouraging investment, innovation, and economic prosperity in Alberta.

Claiming Deductions

Deductions are an essential component of your tax planning strategies and allow you to reduce your taxable income and, consequently, your tax liability.

As a new business, it’s possible that you are eligible for various deductions, including startup costs, office expenses, advertising and marketing expenses, employee wages, and more.

  • Startup Costs: Deduct expenses incurred during the startup phase, such as market research, legal fees, incorporation fees, and initial advertising costs.
  • Office Expenses: Deduct costs associated with running your office, including rent, utilities, office supplies, and equipment.
  • Advertising and Marketing Expenses: Deduct expenses related to promoting your business, such as advertising campaigns, website development, online marketing, and print media advertisements.
  • Employee Wages: Deduct the wages and salaries paid to your employees, including benefits and contributions to employee benefit plans.
  • Professional Services: Deduct fees paid to professionals such as accountants, lawyers, and consultants who provide services directly related to your business operations.
  • Travel and Entertainment: Deduct eligible expenses for business travel, including transportation, accommodation, meals, and entertainment incurred for business purposes.
  • Business Insurance: Deduct premiums paid for business insurance coverage, such as general liability insurance or professional indemnity insurance.
  • Home Office Expenses: If you operate your business from home, you may be eligible to deduct a portion of your home expenses, including property taxes, mortgage interest, utilities, and maintenance costs.
  • Vehicle Expenses: Deduct expenses associated with business-related vehicle use, such as fuel, repairs, insurance, and lease payments.
  • Interest and Financing Costs: Deduct interest expenses on business loans and credit card interest charges incurred for business purposes.

Familiarize yourself with the deductions available in Alberta and maintain proper documentation to substantiate your claims.

Staying Up to Date About Changes

By actively staying informed about tax law changes, new businesses can adapt their tax planning strategies to stay compliant and avoid potential penalties.

Subscribing to newsletters from the Canada Revenue Agency (CRA) provides a direct source of updates.

In addition to subscribing to newsletters from the Canada Revenue Agency (CRA) and staying informed about tax law changes, it’s highly recommended for new businesses to establish a relationship with a trusted tax professional.

A knowledgeable tax professional can provide ongoing guidance, help you navigate complex tax regulations, and ensure that your tax planning strategies align with the latest updates.

By keeping in touch with a tax professional, you’ll have expert support to address any tax-related concerns or questions that may arise throughout your business journey.

Proactively understanding and adapting to new tax requirements not only safeguards your business but also ensures that you can take advantage of any opportunities that arise from evolving tax regulations.

Stay ahead of the game and keep your tax planning strategies up to date.

Tax Planning Strategies Tailored to Your Needs

Effective tax planning is crucial for the financial success of any new business.

By implementing the right strategies, you can optimize your tax position and maximize your savings.

For personalized advice and expert assistance in corporate tax planning and returns, trust the experienced professionals at Liu & Associates.

With their in-depth understanding of the unique challenges and opportunities that new businesses face in Alberta, they can provide tailored and unique solutions to help you navigate the complexities of taxation.

Contact Liu & Associates today to ensure your business starts smart and stays on the path to financial prosperity.

Meal & Travel Expenses for Corporate Tax Filing

woman reading text messages on a cellphone while sitting alone at a counter in a cafe enjoying a meal

Meal expenses are a common tax deduction for many individuals, but determining what is and isn’t taxable can be confusing, especially when it comes to corporate tax planning.

The Canada Revenue Agency (CRA) sets out specific rules and regulations for what can be claimed as a meal expense, and it’s important to understand these guidelines to avoid any tax complications.

In this article, we’ll explore what is and isn’t taxable when it comes to meal and vehicle rates, the difference between meal, travel, and entertainment expenses, the limits to meal expenses, how to claim meal expenses on your tax return, and if any of this differs if you’re self-employed.

Let’s get started!

What’s Taxable and What Isn’t When It Comes to Meal and Vehicle Rates

When it comes to meal and vehicle rates, not all expenses are created equal.

The CRA sets out specific guidelines for what can and cannot be claimed as a deduction.

In general, meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meal expenses with the CRA as long as the travel is for a duration of 12 hours or more.

The CRA also sets out specific rules for vehicle expenses. If you use your personal vehicle for work purposes, you can claim expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use.

For example, if you use your car 50% of the time for work purposes, you can only claim 50% of the expenses.

Is There a Difference Between a Meal Expense, a Travel Expense, and an Entertainment Expense?

It’s important to understand the differences between meal expenses, travel expenses, and entertainment expenses.

Meal expenses are costs associated with food and beverages while traveling or working away from your usual place of business.

Travel expenses are costs associated with travel, such as transportation, accommodation, and meals.

Entertainment expenses are costs associated with entertaining clients or customers, such as tickets to sporting events or meals at restaurants.

How Are Meal and Travel Expenses Calculated?

To calculate meal and travel expenses, you can choose between the detailed or simplified method.

The detailed method allows you to claim the actual amount you spent, while the simplified method uses a flat rate for vehicle and meal expenses.

Keep your receipts if you use the detailed method, but note that the CRA may still request documentation if you choose the simplified method.

Your total travel expenses include travel assistance provided by your employer and any expenses you paid for.

Is There a Limit to Meal Expenses When I File My Taxes?

Yes, there is a limit to meal expenses when filing taxes with the CRA, and it depends on the method chosen to calculate the expenses.

If using the simplified method, the limit is $23 per meal, to a maximum of $69 per day per person.

However, if using the detailed method, the limit is the actual amount spent, with receipts required as documentation.

How Do I Claim Meal Expenses on My Return?

Claiming meal expenses on your tax return can be a straightforward process if you keep accurate records, follow the eligibility criteria set out by the CRA, and enter the information correctly on your tax return.

By taking the time to understand the rules and regulations, you can reduce your tax bill and avoid any complications with the CRA.

Here are the steps to follow:

Step 1: Keep Accurate Records

To claim meal expenses on your tax return, you need to keep accurate records and receipts of all meals and beverages purchased for business purposes.

These records should include the date, location, cost, and business purpose of each meal.

Make sure you keep these records organized and in a safe place.

Step 2: Determine Eligibility

Meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meals as long as the travel is for a duration of 12 hours or more. Make sure your expenses meet the eligibility criteria set out by the CRA.

Step 3: Calculate the Amount

Calculate the total amount of meal expenses you are eligible to claim on your tax return.

Remember to only claim expenses that are incurred for business purposes and that meet the CRA’s guidelines.

Step 4: Enter on Tax Return

On your tax return, enter the total amount of meal expenses you are claiming as a deduction against your income.

Be sure to follow the instructions on your tax return carefully to ensure you are entering the information in the correct place.

Step 5: Keep Supporting Documents

Make sure you keep all supporting documents, including receipts and records of each meal, in case the CRA requests them for verification.

These documents should be kept for at least six years from the end of the tax year to which they relate.

Is Any of This Different if I’m Self-Employed?

If you’re self-employed, the rules and regulations for claiming meal expenses are slightly different.

You can claim meal expenses as a deduction against your self-employment income as long as they are incurred for business purposes and meet the CRA’s guidelines.

However, it’s important to note that you cannot claim meals that are considered personal or private in nature, such as meals with family or friends.

In addition, if you’re self-employed, you can also claim vehicle expenses related to your business.

This includes expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use, similar to when you use your personal vehicle for work purposes as an employee.

Understanding Meal and Travel Expenses for Corporate Tax Filing

Understanding the guidelines and regulations surrounding meal and travel expenses can save you time and money when it comes to filing your corporate tax returns.

By keeping accurate records and receipts and ensuring that your expenses meet the eligibility criteria set out by the CRA, you can claim meal expenses as a deduction against your income.

It’s also important to note the differences between meal, travel, and entertainment expenses and to keep personal and private expenses separate from business expenses.

If you’re still unsure about how to claim your meal and travel expenses, it’s always a good idea to seek the advice of a professional.

At Liu & Associates, we specialize in corporate tax filing and can help you navigate the complicated world of tax regulations.

Contact us today for a consultation, and let us help you maximize your tax deductions while staying compliant with the CRA.

Tax Planning Strategies for Business Owners

Small family restaurant owners discussing finance calculating bills and expenses of new small business

When running a small business, it is important to plan ahead and understand your tax obligations.

Understanding small business tax planning strategies can help minimize your tax burden.

But numbers can sometimes be confusing, and you want to focus your time and energy on growing your small business.

We at Liu and Associates understand that, and we’re here to help!

Here are some tax planning strategies that will help with your small business:

Keep Accurate Records

Keeping accurate records is an essential part of tax planning for a small business.

Here are some tips to help you keep your records accurate and organized:

  • Choose a Record-Keeping System: Choose a record-keeping system that works for your business, whether it’s a spreadsheet, accounting software, or a combination of both.
  • Track All Income and Expenses: Keep track of all income and expenses related to your business. 
  • Separate Business and Personal Expenses: This can be done by using a separate bank account and credit card for business expenses and keeping track of personal expenses separately.
  • Reconcile Accounts Regularly: This involves comparing your records to bank and credit card statements and making sure that they match.
  • Back Up Your Records: Make sure to back up your records regularly to avoid the risk of losing important information.

By following these tips, you can keep your records accurate and organized, which can help you make informed business decisions and comply with tax laws and regulations.

Take Advantage of Tax Credits and Incentives

There are several tax credits and incentives available to Canadian business owners.

It’s important to note that eligibility requirements and application processes can vary for each of these programs.

Here are some of the most common ones to consider when tax planning for small businesses:

Scientific Research and Experimental Development (SR&ED) Tax Credit

This is a federal tax incentive program that encourages Canadian businesses to conduct research and development activities.

Eligible businesses can claim a tax credit of up to 35% on eligible expenditures.

Capital Cost Allowance (CCA)

This is a tax deduction that allows businesses to write off the cost of assets purchased for their business.

The CCA rate varies depending on the asset, but it can range from 4% to 100% of the cost.

Provincial Tax Credits

Many provinces offer their own tax credits and incentives for businesses. Here are some examples of what is available in Alberta:

  • Alberta Investor Tax Credit (AITC): This program provides a 30% tax credit to investors who invest in eligible Alberta small businesses. The maximum credit per investor is $60,000 per year, and the maximum credit per business is $5 million.
  • Interactive Digital Media Tax Credit (IDMTC): This program provides a tax credit of up to 25% of eligible labor and marketing expenses for companies that develop interactive digital media products in Alberta. The maximum credit is $500,000 per year.
  • Apprenticeship Job Creation Tax Credit (AJCTC): This program provides a tax credit to employers who hire and train eligible apprentices in designated trades. The credit is equal to 10% of the eligible salaries and wages paid to the apprentice, up to a maximum credit of $2,000 per year.

Canada Small Business Financing Program (CSBFP)

This is a federal program that helps small businesses obtain financing by guaranteeing loans made by participating financial institutions.

The program can guarantee up to 85% of the loan amount, up to a maximum of $350,000.

Export Development Canada (EDC)

EDC provides financing and insurance to Canadian exporters. This can help businesses expand their markets and increase their international sales.

Consider Deferring Income and Accelerating Expenses

Man using calculator and calculate bills in home office.

Canadian businesses can defer income and accelerate expenses by taking advantage of various tax planning strategies. Here are some common strategies:

  • Deferring Income: Businesses can defer income by delaying the receipt of revenue until the next fiscal year.
  • Accrued Expenses: Businesses can accelerate expenses by accruing expenses that will be paid in the following year.
  • Prepaid Expenses: Businesses can also accelerate expenses by prepaying expenses that will be incurred in the following year.
  • Depreciation: Businesses can also accelerate expenses by taking advantage of depreciation. By depreciating assets over their useful life, businesses can deduct a portion of the cost of the asset each year, reducing their taxable income.

Use Tax Planning Software

Using tax planning software, such as QuickBooks, can offer several benefits when it comes to tax planning for small businesses.

Here are a few key advantages:

  • Accuracy: Tax planning software is designed to help minimize errors and ensure that tax returns are accurate.
  • Time savings: Tax planning software can help save time by automating calculations, minimizing data entry errors, and streamlining the tax preparation process
  • Cost savings: By using tax planning software, businesses can often save money on accounting and tax preparation fees.
  • Customization: Many tax planning software programs can be customized to meet the specific needs of businesses or individuals.

It’s important to choose a reputable software provider and consult with a tax professional to ensure that the software is being used properly and in compliance with tax laws and regulations.

Seek Professional Advice

As a Canadian business owner, seeking professional tax advice can provide numerous benefits. Here are some reasons why:

  • Compliance with Tax Laws: A tax professional can help ensure that your business is complying with all relevant tax laws, regulations, and filing requirements.
  • Minimizing Tax Liability: A tax professional can help identify deductions, credits, and other tax breaks that can help reduce your business’s tax liability. They can also advise on tax planning strategies that can help minimize tax liabilities in the future.
  • Avoiding Audit Risk: A tax professional can help minimize the risk of an audit by ensuring that your tax returns are accurate and compliant with tax laws and regulations.
  • Business Structuring: Tax professionals can also advise on the best business structure for your business to help minimize tax liabilities. This can include incorporation, partnerships, or sole proprietorships.
  • Tax Disputes: If your business is involved in a tax dispute with the CRA, a tax professional can represent your business and provide expert advice on how to resolve the dispute.

Overall, seeking professional tax advice can help your business comply with tax laws, minimize tax liabilities, reduce audit risk, and make informed business decisions.

A tax professional can provide valuable guidance and help ensure that your business’s tax affairs are in order.

Tax Planning for Small Businesses

With tax law constantly changing, a trusted financial advisor like Liu & Associates is vital to directing your specific course.

Let us help you understand how tax planning strategies can help you achieve your financial goals.

Contact us today to get started!

6 Important things to know about corporate tax planning in Alberta for 2023

A lady signing a contract with a ballpoint pen.

Corporate tax planning involves understanding and utilizing the various tax laws and regulations to minimize tax liability. 

Planning ahead for taxes also means keeping an eye on new provisions that could benefit your business while monitoring the tax rules and regulations as they can change. To make sure that your company is utilising the tax breaks available, it’s crucial to consult with a tax expert.

Here are some important things to know about corporate tax planning in Alberta:

1. Corporate income tax rate 

Federal and provincial corporate income taxes are levied against corporations in Alberta. Currently, Alberta’s corporate income tax is 8%, compared to the federal rate of 15% .An Alberta business would pay the federal corporate tax rate of 15% on their taxable income, in addition to the provincial corporate income tax rate of 8% which was implemented by the recent Job Creation Tax Cut policy. So, the total corporate income tax rate for an Alberta business would be 23%. It’s important to note that Alberta business may also qualify for additional tax credit and deductions, which could lower their overall effective tax rate. This indicates that Alberta’s business income tax rate is 23% when federal and provincial taxes are combined. Corporations may also be subject to other taxes, such as payroll taxes and sales taxes.

2. Capital gains 

Canada taxes capital gains at a lower rate than it taxes other types of income. Currently, the federal capital gains tax rate is equal to 50% of the standard federal corporate income tax rate, which makes the federal capital gains tax rate 7.5%. The provincial capital gains tax rate varies from province to province –  it is currently 6% in Alberta.

As a result, Alberta’s combined federal and provincial capital gains tax rate is 13.5%.

Remember – the capital gain is only reflected in the taxable income to the extent of 50%. Thus, only $50,000 of a corporation’s $100,000 capital gain is taxed.

3. Scientific Research and Experimental Development (SR&ED) tax credit

SR&ED is a federal tax incentive program that promotes research and development (R&D). For businesses that engage in SR&ED, the programme offers tax credits as tax incentives.

Businesses in Alberta can claim a refundable SR&ED tax credit of up to 20% of qualifying SR&ED costs. This means that a corporation doing SR&ED may claim a refundable tax credit equal to 20% of the qualified expenses it incurred. If the credit is greater than the taxes owed, the excess goes back to the corporation. The credit can be utilized to lower the corporation’s tax obligations.

A variety of R&D activities, such as basic research, applied research, and experimental development, are supported by the SR&ED programme. Wages, supplies, and some overhead costs are examples of eligible expenses.

All corporations, regardless of size or industry, are eligible for the programme. However, the borrowing rate may differ for small business corporations and private corporations under Canadian management (CCPC).

Important note – this credit cannot be transferred and can only be used by the entity that paid the qualifying costs.

4. Investment Tax Credit (ITC)

Businesses in Alberta can claim a 10% non-refundable Investment Tax Credit (ITC) on specific qualified capital assets. This means that a corporation may claim a non-refundable tax credit equal to 10% of the costs it incurred to purchase particular categories of qualifying capital property. The credit has the potential to lower the corporation’s tax obligations. Any unused portion of the credit, however, cannot be given back to the company.

The following types of capital assets are eligible for this credit:

  • machinery and equipment for manufacturing and processing
  • Equipment for experimental development and scientific research
  • Hardware and software for computers
  • construction projects and leasehold upgrades pertaining to manufacturing and processing
  • Clean energy technology

5. Keep good records 

To ensure compliance with tax rules and regulations, businesses should maintain reliable records of all financial transactions.

Some tips that we share with our clients include:

  • Keep any original invoices and receipts for expenses that you intend to deduct from your income.
  • Sort your records according to tax years and save them securely.
  • Keep thorough records of all business-related mileage, travel, entertainment, and donation costs
  • The cost of the property, the date of acquisition, and any improvements done to the property should all be noted in any capital cost allowance (CCA) claims you submit.
  • Keep track of all costs associated with running your home office, such as the cost of heating, energy, and insurance, as well as the space used for business.

6. Be aware of the deadlines 

Deadlines may change over time, and it’s always best to check with the Canada Revenue Agency or a tax professional to confirm the most recent deadlines.

  • Corporation Income Tax: A corporate income tax return must be filed no later than six months following the conclusion of the corporation’s tax year. A corporation with a December 31 year-end, for instance, would have until June 30 of the following year to file its tax return.
  • GST/HST: If your corporation is registered for GST/HST, you have one month from the end of the reporting period to file your GST/HST return. Depending on the GST/HST remittance choices made by your corporation, the reporting period may be monthly, quarterly, or annual.
  • Payroll deductions: If your firm employs people, the 15th of the month after the pay period is the deadline for submitting payroll deductions to the Canada Revenue Agency (CRA), such as income tax, CPP payments, and employment insurance premiums.
  • Payments in installments: Your firm may be compelled to make payments in installments to the CRA throughout the year if there is a balance owed on its tax return. The 3rd, 6th, 9th, and 12th months of the corporation’s fiscal year each have a 15-day payment due date.
  • Tax Filing Extension: Your firm may request a tax filing extension if it is unable to submit its tax return by the due date. However, it must be requested prior to the initial filing deadline, and any unpaid taxes must be paid on or before the deadline.

Tax laws and regulations are subject to change and it’s crucial to stay up to date with any changes. Additionally, it is important to work with a professional tax advisor like the team at Liu & Associates to ensure that your corporate tax planning is in compliance with the laws and regulations and to identify potential tax savings.

Contact our corporate tax planning team today to get started. 

How Much Should My Business Donate to Charity This Year?

businessman donates to charity on phone while sitting at desk

Charitable giving is an amazing opportunity for Canadian businesses to support causes that matter most to them.

Donating to charity is an excellent way for your business to connect with your community and improve team morale among your employees.

It can also have financial benefits as well when it comes to corporate tax planning.

Here is more information on charitable giving and how much your business should donate to charity this year:

How Does Charitable Giving Affect Corporate Taxes?

Tax Deductions

Unlike personal taxes, a donation made by a corporation can be used as a deduction against the business’s income and is treated like any other expense.

When a corporation makes a donation, it can reduce the amount of income that is subject to tax.

Therefore, by making donations that are eligible for tax deductions, you can reduce your business’s tax liability.

However, the value of the tax savings depends on whether the reduction of income is subject to the small business tax rate, general corporate tax rate, or corporate investment tax rate.

How to Calculate

Charitable donation tax credit rates vary from province to province and are based on the rates determined in 2017.

For example, if your business claims a taxable income of $250,000 and makes a donation of $20,000, this is how the tax will be calculated:


  • 15% on the first $200 – $30
  • 33% of the lesser of the amount by which the donation exceeds $200 ($19,800) or the amount by which your taxable income exceeds $200,000 ($50,000) – $6,534
  • 29% of the amount of total donations for the year over $200 that is not eligible for the above rate ($50,000-$19,800=$30,200) – $8758
  • Total: $15,322


  • 10% on the first $200 – $20
  • 21% on the remaining $19,800 – $4,158
  • Total: $4,178

Therefore, in this example, you can claim $19,500 of the $20,000 charitable donation.

Of course, this is a basic calculation and doesn’t take into account your entire tax situation. 

To best calculate your taxable donations, it is recommended that you speak with an expert corporate tax accountant who can ensure all calculations are accurate.

Limits and Deadlines

Corporations can claim up to 75% of their net income in donations which must be claimed within the business’s fiscal year as an expense.

Sharing Claimable Donations Between Corporations

If you own more than one corporation, you cannot share donations between businesses when it comes to planning and filing your corporate taxes.

Only the corporation that made the donation can claim it.


If a donation cannot be used during the tax year, it can be carried forward for up to five years.

What Donations Are Tax Deductible in Canada?

In order for your business to qualify for the donation tax dedication, you must donate to a qualified charity.

These are charities that are recognized by the CRA and can issue donation receipts for the money your business gives.

You can find a list of registered donees through the CRA.

Some eligible organizations include:

  • Registered charities
  • The United Nations
  • National arts service organizations
  • Registered Canadian amateur athletic associations (RCAAAs)
  • Registered universities outside of Canada (that includes students from Canada)

Donations to US charities are allowed as long as your business has a US income source.

As far as what qualifies as an actual donation, the CRA recognizes donations as voluntary transfers of money or property in which you receive nothing in return.

If your business does receive something in return for your donation, the value of what you receive must be deducted from the amount of the donation.

For example, if your business purchases a $500 table at a charity dinner and the food costs $200, the eligible amount you can claim is $300.

How Much of a Charitable Donation Is Tax Deductible?

man holding a jar full of money

When it comes to claiming donations made through your business, how much of a charitable donation is tax deductible depends on the size of your company.

Small businesses, for instance, must list donations on Schedule 9 of a personal tax return, where they will receive the same tax credit treatment as a personal donation.

However, incorporated businesses have the choice to donate personally or through their corporation.

How Much Should I Donate Based on Revenue?

While there are no set rules as to how much you should donate based on your revenue, it’s important to remember that there are many ways to give charitably to organizations that align with your company’s values and mission.

The size of the donation should not be the only deciding factor – every dollar counts when it comes to supporting a worthy cause.

Overall, tax breaks shouldn’t determine how much your business gives to charity!

Take into consideration your company’s finances and choose an amount that suits your budget.

Should We Match Our Employees’ Individual Donations?

If you’re wondering if you should match your employee’s individual donations, the answer is yes!

Matched giving is an amazing way to involve your employees in your business’s charitable giving by matching the money they raise.

It encourages your employees to engage in supporting a worthy cause, and matching their donations will help them reach their goals and show your support.

Plus, matching your employees’ individual donations will help your company make a large social impact!

Encouraging your employees to donate to a cause doesn’t have to involve fundraising events. You can set up payroll donations or accept personal donations from your team.

And, yes, matched giving counts as a tax-deductible charitable donation – but you can only claim the amount you contribute, not the amount raised by your employees.

How Do We Choose a Cause?

Before you make any charitable donations through your business, it’s important that you choose the right cause to support.

That’s not to say that some causes are better than others, but you want to choose a cause that best aligns with your company, its values, and its employees.

Here are some tips for choosing a cause to support:

Choose a Cause That Supports Your Company’s Values

Think about your company’s core values and whether or not you want to donate to charities related to your business or support the needs of your community.

Just keep in mind that you can do both!

For instance, if you own a restaurant, you could donate to charities that address hunger and nutrition, local food banks, soup kitchens, and school breakfast programs.

It’s also important that you consider the charity’s values as well – do they align with yours?

Take a look at their core mission and see if they share your views and values.

Research the Charity Before Donating

Once you decide which charity you want your business to support, don’t be afraid to ask questions.

Talk to others in your industry and your community for feedback on the charity – have they made a significant impact with their donations?

You can also speak with the executive director of the charity you wish to support.

Consider their strategy and their long-term plan.

Ready to Get Started?

At Liu & Associates, we are dedicated to helping your company’s growth by offering exceptional corporate accounting services.

We can help you plan your charitable donations to optimize your support and tax deductions.

Get in touch with us today to get started!

How Much Should I Donate to Charity This Year?

woman donating to charity on her laptop

Did you know that Albertans gave around $1.47 billion to charities in 2013?

Out of all the provinces, Alberta taxpayers had the highest median charitable donation amount in the country!

Although there are many reasons you should make a charitable donation, getting relief on your annual personal taxes is one you shouldn’t ignore.

Charitable tax credits can help you reduce your owing tax amount, and we can help you figure it out!

Liu & Associates is here to help you understand how charitable giving affects taxes and how much you should donate to charity this year:

How Does Charitable Giving Affect Taxes?

Charitable donations are non-refundable tax credits and can only reduce the tax you owe – they will not generate a refund for you.

When you make a donation to a charity that is registered with the CRA, a certain percentage of that donation comes back to you as a tax refund (but not a tax credit).

If you don’t owe any taxes, you don’t get a refund, no matter how many donations you have made.

However, your overall tax savings will equal the amount of charitable tax credits that are calculated.

The Charitable Donation Tax Credit is available to individuals who make a donation to a registered charity in the form of money or anything else of value, such as stocks, ecological and cultural gifts, and property.

If you receive something in return for your donation (such as a ticket to a special event), the value of what you received has to be deducted from the amount you donated.

What Donations Are Tax Deductible in Canada?

In order to claim your donations on your taxes, the organization you donate to must be a registered charity.

You can use the Canada Revenue Agency (CRA) website to check and see if a charity is registered.

Eligible donations include money that is donated to a charitable organization, publicly listed securities donated to charitable organizations, and the excess value of non-cash property (over $500).

How Much of a Charitable Donation Is Tax Deductible?

To calculate the total amount of donations you want to claim, look at donations made by December 31 of the applicable year, any unclaimed donations from the past five years, and any unclaimed donations made by your common-law partner or spouse in the past five years.

The Charitable Tax Credit is 15% of the first $200 you donate and 29% on any amount above that threshold.

Under certain rules, you can even claim 33% if you are in a higher tax bracket!

On top of the federal tax rules for charitable donations, each province offers its own tax credits for donations.

In Alberta, the province offers an additional 10% tax credit on the first $200.

Overall, you can claim eligible donations to a limit of 75% of your net income.

How Do I Claim Charitable Donations on My Taxes?

man filling tax form with help laptop caluclator and note at office desk

In order to claim the Charitable Donation Tax Credit, you need to fill out Schedule 9 of your tax return.

To do this properly, you need to keep all of your official donation receipts and any other supporting documents, such as pledge forms, cheques, and bank statements.

Whenever you make a donation, the charitable institute you donated to will send you a tax receipt for the upcoming tax season.

Keeping all of these documents is important since the CRA may request proof of the donations.

Charitable donations are a priority when it comes to CRA post-assessments, and they can often trigger an audit.

To ensure you don’t trigger an audit by claiming your charitable donations, be sure your official donation receipts include the following:

  • A statement that identifies the receipt as official and for tax purposes.
  • The name and address of the charity (that matches their file with the CRA).
  • The charity’s registration number and the serial number of the receipt.
  • The place the receipt was issued.
  • The day or year the donation was received, as well as the day the receipt was issued.
  • Your full name and amount of the donation.
  • A description and value of anything you receive in exchange for the donation.
  • A signature of the individual authorized by the charity to acknowledge donations.

Ultimately, the details on the receipt must match what the CRA has on file.

You should keep these receipts and any other donation records for at least 6 years in case they are requested by the CRA.

How Much Should I Donate Based on My Income?

How much you donate based on your income is a personal decision and depends on your unique situation and circumstances.

However, since there is always a great need for donations in Canada, it’s important to give what you can.

Here are some things you should consider when it comes to deciding how much you should donate:

A Giving Plan

Create a strategy that includes who you want to give to and how much. Think about the causes you are passionate about and find organizations that fit the CRA’s criteria.

Decide How Much to Give

As a general rule, you can start with 1% of your income. This allows you to give what you can, even if there are changes to your income.

If 1% is a comfortable amount for you, you can increase it every year to maximize your charitable giving.

Automatic Giving

When it comes to including charitable donations in your financial planning, it’s easier to give more when you give small amounts at a time.

Once you’re used to donating on a regular basis, incorporating your donations into your budget becomes a seamless process!

Review Your Plan

Every 6 to 12 months, you should take a look at your giving plan and figure out if you are spending too much on donations or if you can give more.

Or perhaps you want to diversify your donations and give to different charities.

Should I Donate Once Annually or Monthly?

Ultimately, it makes no difference on your personal tax return whether you donate once a year or every month.

However, as we mentioned above, donating on a monthly basis is a more congruent way to incorporate charitable giving into your financial planning or budget.

But donating annually can be beneficial if you receive a significant sum of money once per year, such as a tax return.

Whether or not you should donate once annually or monthly is a choice you need to make based on your unique circumstances.

While everyone is encouraged to give, you need to make sure you are doing what is best for your financial health!

No One Has Ever Become Poor By Giving!

The above words were spoken by the young Anne Frank, and we couldn’t agree more.

At Liu & Associates, we appreciate your efforts to make positive changes in the world!

Charitable donations are an amazing way to give back to your community and make a wonderful impact on individual lives.

If making and claiming donations seems like a complicated process, our team of expert accountants is here to help!

We can help you step-by-step when it comes to claiming charitable donations on your taxes to ensure you benefit from your generosity and the taxes are done right.

Book an appointment or contact us today for more information!

What To Know About Being A Landlord in Alberta

couple of tenants shaking hands with landlord, receive house key, making rent deal

Becoming a landlord in Alberta requires a significant amount of responsibility – and a lot of money.

If you’re wondering if it’s worth it to become a landlord, Liu & Associates is here to tell you what it takes.

From how to be a good landlord to how rental income affects your taxes, this guide will help you determine if becoming a landlord is the right choice for you!

Is Being A Landlord Worth It Financially?

Becoming a landlord begins with investing in real estate, which involves factors such as a down payment and mortgage, as well as repairs and maintenance.

You will also have to consider the cost of insuring the property, and it will cost more if you don’t live in the building.

And as we mentioned, there are also repairs and maintenance, which can be a large expense if you purchase a larger building with many units.

As a landlord, you can’t ignore minor issues to avoid spending money. If a tenant needs something fixed, you have to fix it.

Plus, in between tenants, you may have to invest in fixing up a unit before you rent it again.

Now that we’ve talked about the ways in which being a landlord will cost you money let’s consider if becoming one is financially worth it!

As a landlord, you can earn a passive income in rental real estate, meaning that you don’t have to earn money simply by working for it.

Yes, you are responsible for maintenance and upkeep, but collecting rent requires no effort!

It’s also important to note that becoming a landlord offers you certain tax breaks you can use to offset the cost of repairs and renovations.

If you’re smart with your rental money, you can easily earn a guaranteed monthly income by becoming a landlord in Alberta.

How to Be A Good Landlord

Being a good landlord doesn’t mean becoming best friends with all of your tenants.

It requires that you balance care with business sense in order to ensure tenants are satisfied and continue to rent from you.

Here are some key traits of successful landlords:


Being a landlord means keeping track of many moving parts, from leasing to new tenants to dealing with maintenance requests and more.

This involves paperwork, such as forms, rental receipts, and repair receipts.

Having a structured system is key to staying organized as a landlord, so make sure you know where all your important documents are kept and develop a way to keep track of everything.

Communication and Understanding

While you can definitely consider being a landlord a business, you have to remember that you are renting to real human beings who call their units home.

In order to create positive relationships with your tenants, you have to communicate with them clearly.

This means responding to their questions and concerns as soon as you possibly can, as well as notifying them in advance if you are planning any maintenance or making changes to the rental policies.

You also have to be flexible when it comes to rules and policies – to a certain point.

Avoid being a pushover, but give your tenants reasonable leeway if giving in will solve more problems than it will cause.

For example, if your tenant contacts you because they have to pay the rent a couple of days late, a late rental payment is far better than the process of evicting a tenant, repairing the unit, and re-renting it.


Whether you choose to be a flexible landlord or you prefer to stick to the rules, consistency with tenants is essential.

They should know what to expect from you as soon as they sign the lease and move in. 

Holding different tenants to different standards can lead to resentment and tension, causing a high turnover rate.

Clearly state your policies in the rental agreement, and make sure this agreement is the same for all tenants. If you make any changes to the policies, apply the changes to each tenant.

How Rental Income Affects Taxes

close up of woman calculating rental income taxes on laptop and calculator

If you are thinking about becoming a landlord, it’s crucial that you understand how rental income in Alberta works.

All net rental income collected in Alberta must be reported as income on your tax return.

This does not include any deductions for expenses such as insurance premiums, property taxes, and utilities.


And, yes, you can make certain deductions on your taxes by being a landlord!

Here are some deductions you can make:

  • Property taxes
  • Insurance premiums
  • Utilities
  • Capital Cost Allowance (CCA)
  • Rental loss
  • Capital expenses
  • Current expenses

Some of these tax terms can be confusing, but to put it simply, you can capital expenses cannot be claimed as deductibles because they have a lasting benefit to your property.

However, they can be added to the tax cost of your property and claimed as a CCA over several years.

Current expenses often require regular maintenance so that they can be claimed as a deductible.

For example, if you add a deck to your rental property, the cost of the deck is considered to be a capital expense.

However, sanding and refinishing the deck is a current expense and can be claimed.

Filing Taxes

As a landlord, you can claim your rental income as a sole proprietor and not a business or partnership. If you do, you can claim the income on your personal taxes by filling out Form T776.

You can claim your expenses on this form as well.

Just make sure you keep all of your receipts from rent and expenses to ensure you file everything properly and avoid triggering an audit.

Becoming a Landlord in Alberta – Is It Worth It?

Here at Liu & Associates, we believe that with the right financial organization strategies, you can easily enjoy the benefits of becoming a landlord in Alberta!

But the only way to guarantee success as a landlord is to speak to a licensed tax professional.

Our team has the knowledge and expertise to help you maximize your earnings and tax return as a landlord.

Get in touch with us for more information!

What To Know About Rental Income in Alberta

In Canada, rental income is the income you earn from a rental property that you own and rent to someone else.

Typically, rental income comes from renting apartments, houses, and rooms but also includes office space and other commercial properties.

In this article, we are going to discuss everything you need to know about rental income in Alberta as an individual (not a business or trust).

While earning an income rental seems like a quick and easy way to make more money, there are many factors that you have to take into consideration, such as how to determine your rental rate and how to claim your rental income on your taxes.

We’ll also look at the benefits and risks of earning a rental income, as well as tips on how to save money on your rental income.

Determining Your Rental Rate

It can be difficult to determine what you should charge for rent. You want to ensure the cost is not too high so your rental property remains attractive.

However, you don’t want to price your rent too low and miss out on the additional income.

Check the Current Property Value

In order to calculate your rental rate, begin with the current property value (not the same price it was initially purchased at). This will give you an idea of how much the property is worth in comparison to other rental properties in the area.

Do Your Research

You should also look at comparable rentals in the area for similar properties by browsing rental listings that are the same size with the same number of bedrooms. You should also take the condition of the other properties into consideration.

Use This Formula

Now, take the current property value and multiply it by 1%.

For example, if the value of the property is $200,000, then 1% is $2000. This is a baseline rental rate you can then compare to the similar properties you researched.

Other Factors

There are other factors you should consider when determining your rental rate, such as:

  • Maintenance costs
  • The demand for rental property
  • Demographics
  • Price-to-rent ratio (affordability when it comes to renting versus buying in the area)

Taxes on Rental Income in Alberta

When you collect rental income in Alberta, you must report that income on your tax return. Rental income is taxed at a marginal rate similar to interest income and can range from 25% to 48%.

Keep in mind that only your net rental income is taxable. This does not include deductions made for expenses such as property taxes, insurance premiums, and utilities.

What Can I Deduct From My Taxes?

You can also claim capital cost allowance (CCA) against your rental property and other assets used for earning rental income, like tenant improvements and new appliances.

CCA claims are depreciable, meaning that you must deduct the cost of your capital investment over a number of years.

If your rental expenses exceed your rental income, this is considered a rental loss and is usually deductible against your other sources of income.

However, there are some limits on claiming a rental loss, and CCA deductions cannot be used to create or increase a rental loss.

Not all expenses are deductible when it comes to your rental income, even if they relate to your rental property. These are known as “capital expenses” and refer to expenses that have a lasting benefit to your property.

For example, you cannot claim the cost of replacing your roof or adding a deck to your rental building.

However, even though these improvements can be claimed as deductibles, they can be added to the tax cost of your property, which allows you to claim the expense as a CCA over the course of several years.

Expenses that are considered deductible are known as “current expenses” and include expenses used to maintain, repair, or otherwise restore your property.

For example, building a fence is considered a capital expense and cannot be claimed – but sanding and repainting an old fence is a current expense, and the cost can be claimed.

Current expenses should be claimed in the year they were incurred instead of spread over time.

How Do I Know If It’s a Current or Capital Expense?

Figuring out whether your expenses are current or capital can be confusing. Is it a maintenance job or long-lasting improvements? Is re-wiring a home a current or capital expenditure?

This is why it is recommended that you speak with a qualified tax advisor before you carry out repairs, maintenance, or renovations to ensure that you make the proper claims on your taxes.

How do I file my taxes when I claim rental income?

If you are claiming rental income as a sole proprietor and not a business or partnership, you can include this income in your personal taxes by filling out Form T776.

You can also claim expenses on this form as well.

Be sure to keep all receipts from rent and expenses when preparing your personal tax return.

Benefits of Gaining Rental Income

friendly landlord shakes hands with new tenants

There are a number of advantages to buying a property and renting it to tenants. Here are some of the key benefits:

Fewer Taxes

As we discussed above, you can claim certain expenses from your rental income, thus reducing the taxes you owe.

You can claim expenses such as mortgage interest, property taxes, insurance, maintenance, upgrades, property management fees, and utilities (if they are included in the rent).

Passive Income

Owning a rental property pays out on a monthly basis. This recurring income requires relatively little effort to earn and is a great way to make money on the side or create additional financial security.

The rental income you collect will offset the mortgage cost of your building, putting more money in your pocket!

Of course, you do have to factor in cash flow and prepare for inevitabilities such as cleaning up when a tenant moves out and repairs.

Property Appreciation

In today’s housing market, it seems tempting to sell your house and cash in on the rocketing house prices. However, once you sell your home, you can no longer benefit from any future appreciation.

Instead, you could rent out your home to secure your property and wait for the right time to sell.

Plus, having tenants ensures that issues with your home are noticed immediately and can be fixed in a timely manner.

Risks of Gaining Rental Income

Of course, there are some disadvantages and risks to gaining rental income that needs to be taken into consideration:


When you own rental property and rent to tenants, you become a landlord. Despite your due diligence when choosing renters, you could end up with a difficult tenant.

For example, you could end up with a tenant that pays their rent late, demands unnecessary repairs, leaves the water running, keeps the heat on while away, etc.

You could also end up with an unsavory tenant that destroys your property.

While the majority of tenants in Alberta are respectful, you could end up with one that costs you money and decreases the income you make from their rent.

Repairs and Maintenance

When you own a rental property, minor and major repairs will arise. You may be able to save money by doing the work yourself, but larger issues may require a professional contractor.

As a landlord, you should expect to face regular maintenance and repair issues. From broken toilets to rotting stairs, it is your responsibility to ensure that the property is safe and livable.

If the building you invested in requires a lot of work, you can expect to pocket less of the rental income.

Your Assets Become Concentrated

If you’re looking to purchase a rental property as an investment opportunity, it’s important to consider that doing so will concentrate your assets.

Rental properties are non-liquid and non-diversified assets and can be exposed to risks from significant declines in tenant demand and local property values.

Tips for Saving on Rental Income

When you own a rental property, you are running a business that can be affected by the rise and fall of revenue and expenses.

Here are some tips for saving rental income so you can put more money in your pocket while creating a safe and comfortable environment for your tenants.

Keep Up With Regular Maintenance

Regular maintenance is a preventative measure that will protect your investment and keep your tenants happy (happy tenants reduce tenant turnover and increased costs).

Plus, regular maintenance will help you avoid more costly issues in the future.

Reduce Tenant Turnover

Speaking of tenant turnover, having tenants continuously coming and going is going to cost you more out of pocket for cleaning and updating – and you may lose out on rent as you advertise and vet a new tenant.

The key to reducing tenant turnover is keeping your tenants happy. Create an open environment of communication so you can learn about issues and solve them in a timely manner.

Fixing issues is far cheaper than the cost of turnover.

Reduce Property Expenses

Even though rental income is considered a passive income, there are many property expenses that come with being a landlord.

From heating bills to electricity bills, snow removal, and garbage removal, there are many financial responsibilities. However, you can always find ways to reduce these expenses.

For instance, you can improve the energy efficiency of your property by using less expensive alternatives such as LED lights and modernizing the heating system.

Maximize Your Tax Deductions

Ensure that you are maximizing your tax deductions and offsetting your expenses against your tax bill!

This is perhaps the best way you can save on rental income – and all it takes is one call to a professional tax accountant.

Rental Income Frequently Asked Questions

Do you have more questions? We have more answers! Check out these frequently asked questions:

Do rental income tax laws vary from province to province?

As long as you are renting out your property as an individual (and not a trust or partnership), the tax rules apply across all provinces of Canada.

Can claiming rental income trigger an audit?

Typically, rental income is not a common audit trigger but constantly claiming losses from a rental property will catch the attention of the CRA.

If you find yourself facing recurring losses from your rental property, be sure to keep careful records to show the CRA that you are doing everything you can to turn a profit.

Do I have to claim rental income from family members?

Yes, if your family member is paying you rent, this income must be reported on your tax return.

However, if you rent property to a family member below fair market value, you may be able to claim an acceptable loss and avoid paying taxes on this income.

As a landlord, can I increase the rent at any time?

In Canada, you cannot increase the rent during any fixed-term rental agreement. If your tenant is not on a fixed-term agreement, you cannot raise the rent during their first year of tenancy.

Can I increase my rental income to any amount?

The ability to raise rent depends on the province you are in. In many provinces, the amount of the increase is controlled by the government.

However, in Alberta, there are currently no controls on rent increases, but it can only be increased if there has been no rent increase in the previous 12 months (or since the start of the tenancy).

Rental Income in Alberta – We Can Help!

Although this guide is a great introduction to rental income in Alberta, the only way to guarantee that you fully benefit from earning a rental income is to speak to a licensed tax professional.

Our team at Liu & Associates has the knowledge and expertise when it comes to Albertan and Canadian tax landscape.

We can help you sort out your rental income and expenses so you can maximize your tax return.

Let’s chat today!

Avoiding a CRA Audit When Self-Employed

woman sitting at home office desk with cup of coffee

Tax audits can be a stressful ordeal.

The CRA conducts audits based on risk assessments and considers self-employed individuals to be risky when it comes to filing taxes.

Rest assured that many self-employed individuals who experience audits have done nothing wrong – they simply caught the attention of the CRA, who wants to ensure that tax legislation and compliance are maintained.

However, there are ways that your small business can properly file its taxes and avoid a CRA audit!

Reasons Self-Employed Individuals Get Audited

As someone who is self-employed, there are things that can trigger an audit with the CRA.

Before we look at how to avoid an audit, let’s look at these common audit triggers:

You’re Self-Employed

Sometimes being self-employed is enough to trigger an audit!

When you don’t receive a T4 slip from an employer, the CRA cannot check your income against an official document to look for mistakes and accuracy.

Because you are reporting your income, the CRA may assume that the records are not accurate and will audit your income to check for errors.

Your Tax Return Has Changed Significantly

If you claim way more or way less than you did in previous years, the CRA may flag your account and conduct an audit.

There are many reasons a self-employed income can vary (COVID, supply chain issues, more time to dedicate to your business, etc.), but if you know you are filing a significantly different amount, then be prepared for an audit.

Your Claims Seem Excessive

Being self-employed means you can claim various expenses on your tax return, such as your home office or vehicle.

However, if the CRA thinks you are claiming more than you are eligible for, they will conduct an audit to review your expenditures.

For example, it’s unlikely that you would use your vehicle solely for business, so claiming the entire cost of your car is going to raise eyebrows at the CRA.

You Continually Claim Business Losses

If you are continually claiming business losses each year and reducing income from other sources, the CRA will conduct an audit to verify whether or not your business is actually a commercial enterprise.

How to Keep Proper Tax Records

Close-up Of A Businessperson's Hand Calculating Invoice At Workplace

The first step in avoiding a CRA audit when self-employed is to keep proper tax records!

This includes organizing your records, invoices, receipts, and other financial documents for at least six years.

You can use record-keeping software such as QuickBooks to help manage your tax records, but here are some other self-employed tax tips for organizing your documents:

  • Keep your business and personal accounts separate to keep things simple and efficient.
  • Use spreadsheets to log claims such as mileage on your vehicle and purchases for your business.
  • Use a file folder to organize your receipts. If the receipt doesn’t fully describe your purchases, make a note.
  • Make backups of any digital information. If using paper copies, make digital backups.
  • Dedicate time each week to work on your bookkeeping. Don’t leave your tax preparation to the last minute!

By improving your financial record-keeping, you can avoid a CRA audit, and if you do get audited, you will have all the necessary information organized and ready to go!

Incorporated Business vs. Non-Incorporated

Even as a self-employed individual, you can incorporate your business in order to separate your business from your personal finances.

Otherwise, when you run a non-incorporated business, you are personally responsible for the results of the business – good and bad.

However, when you incorporate your business, you are responsible for preparing quarterly and annual reports for the CRA.

This can involve extensive paperwork, so keeping good records as an incorporated business is essential.

Non-incorporated businesses don’t require such a heavy load when it comes to preparing taxes, and your business and personal taxes can be filed in one individual tax return.

Get to Know your Tax Deductions

Earlier, we mentioned how excessive deductions can trigger an audit. To avoid a CRA audit when self-employed, let’s look at the type of tax deductions you are eligible for:

Business Operating Expenses

  • Start-up costs
  • Delivery and shipping costs
  • Accounting fees
  • Advertising costs
  • Tax preparation services

Home Office Expenses

  • Home office cost (the percentage of your home your office space occupies compared to your rent/mortgage, utility costs, etc.)
  • Telephone and internet (the percentage of hours used for business versus personal)
  • Cleaning supplies
  • Office supplies

Vehicle Expenses

  • Gas
  • Insurance
  • Repair Costs
  • Parking Fees

(Keep in mind that if you use your vehicle for both business and personal use, you will have to calculate the deduction costs based on how often you use your car for business and how many kilometers you use for business.)

Other Deductions

Don’t miss out on these additional tax deductions for self-employed individuals!

  • Bank fees on your business bank account
  • Private health plans

Keep a Backup Fund (Just in Case)

As a self-employed worker, you do not get to enjoy having a regular income like waged and salaried workers.

For this reason, it’s important to keep a backup fund just in case!

Start by establishing an emergency fund by looking at your budget and seeing how much you can afford to put aside.

Not only will an emergency fund help you in a pinch, but it may come in handy for paying your taxes.

You should keep any balances on your credit cards below their limits and consider applying for a personal line of credit. These can be great buffers should you run into any financial hardships.

When it comes to being self-employed, financial hardships can occur for many reasons, such as:

  • Irregular income
  • Tech breakdowns
  • Late payments from clients
  • Burnout (you don’t get paid vacation, sick leave, or mental health days when you’re self-employed!)

Ultimately, having a backup means you can address any sudden financial issues in your business and avoid a CRA audit.

Accounting Services in Edmonton For Self-Employed Individuals

Avoiding a CRA audit when self-employed is considerably easier when you have a professional and knowledgeable accountant by your side!

Get in touch with Liu & Associates today to learn more about how our team can support your small business and help you organize your taxes to avoid a stressful audit.

Let’s talk!

Common Audit Triggers in Canada

Businesswoman Analyzing Taxes With Magnifying Glass

Here at Liu & Associates, we know that audits are no fun. Whether you are an individual or run a business, this can be a stressful situation.

The CRA does not select audit candidates at random. Instead, they use a system of risk assessment that flags returns considered to be “high risk.” 

Fortunately, there are certain audit triggers you can avoid in order to circumvent a tax audit. Here are the most common ones in Canada:

Unusual Deductions or Changes

When you file your taxes with the CRA, they will look for consistencies in your return compared to other years.

If they notice a dramatic change in your income, credits, or deductions, your return could be flagged for an audit.

When it comes to avoiding a tax audit involving significant changes, be sure to document all activity so you can justify these changes to the CRA.

Excessive Claims

While being able to write off expenses on your taxes can be a relief, you have to be careful about ensuring that you are making claims you are actually eligible for.

For example, if you have a home office, you can’t claim that your office takes up half of your six-bedroom home. This is unrealistic and may trigger a CRA audit.

Likewise, unless you own a snowplow or other vehicle used strictly for business, you can’t write off 100% of your family car. The CRA will take notice of this claim and question why you are writing off an entire vehicle used for personal reasons.

When it comes to claiming deductions on your personal tax return, speak to a professional accountant to find out what you are eligible for. As long as you only claim what you are entitled to, you’ll have nothing to worry about if you are audited.

Unreported Income

When you’re employer issues you a T4 slip stating your earnings, they also send one to the CRA. Therefore, the CRA will know if you don’t report your total income.

This can get tricky if you receive transactions that involve cash. Be sure to keep a record of all cash transactions and claim this income when you file your taxes.

Being Self-Employed

Freelancer businesswoman has tablet and cellphone in hands and laptop on table with charts on screen.

When you work for yourself and do not receive a T4 statement of income, the CRA may consider you a high-risk taxpayer because your income is not officially documented and automatically taxed.

The CRA looks at it this way: If you do not have taxes taken from your income, there is an increased chance that your taxes could be incorrectly reported.

As long as you keep detailed records of your income as a self-employed individual, you simply have to provide these documents to the CRA if you face an audit.

Repeat Losses

If your business shows repeat losses, especially those that occur to offset other gains or earnings, you can expect an audit by the CRA.

Avoiding an audit, in this case, involves your ability to demonstrate that you had a “reasonable expectation of profit.” Otherwise, you could be denied all of your expenses.

Prior Tax Audits

Unfortunately, if you have faced a tax audit in the past, the CRA will likely audit you again because they consider you a risk factor.

While there’s no set-in-stone rule when it comes to auditing individuals who have been previously audited, the CRA will typically re-audit individuals who routinely make errors and omissions on their tax returns.

Plus, if you didn’t pass your previous audit with flying colors or owed/undeclared a lot of money, the CRA will come back and audit you again.

Tips for Avoiding a Tax Audit

No one wants to face a tax audit. This ordeal can be stressful, but if you are careful with your tax return, you can avoid one altogether.

Here are some tips for avoiding a tax audit:

  • Keep accurate records. The audit process typically begins when the CRA notices an error or incongruency. By keeping accurate records, either by hiring an accountant or using accounting software, you can ensure that your taxes are accurate and filed properly.
  • File your taxes on time. Although filing late taxes doesn’t necessarily trigger an audit, creating a history of compliance can help you avoid one.
  • Use your CRA My Account. You can register for a CRA My Account and keep all of your tax information and account balances in one place. This will greatly help you avoid an audit!
  • Amend your return. If you file your taxes and then realize you have made a mistake, amend your return immediately. It can help you steer clear of an audit but just don’t amend your taxes too frequently – you want to maintain that history of compliance.
  • Fill in all information. Even if you have to put in $0, make sure you fill out everything on your tax return. An honest mistake or omission may draw the attention of the CRA.

What Should I Do If I’ve Been Selected for a Tax Audit?

If you have been selected for a tax audit, you must comply with your auditor. You will receive an initial notice that indicates what types of records the CRA requires during the process.

This is why keeping good records is essential when it comes to your taxes. Hopefully, you can easily fill any holes noticed by the CRA with the proper documentation.

However, if they are asking for information you do not have or you are confused by the process, it would be beneficial to seek the professional services of an expert accountant.

They can help you organize your records, obtain missing information, and file for an audit appeal if applicable.

An Ounce of Prevention is Worth a Pound of Cure

Let our experts at Liu & Associates take care of all your tax needs.

Whether you are an individual or own a business, we can help you stay organized, understand taxation laws, and avoid a tax audit altogether!

Contact us today to get started.