Tax credits for investments by small Canadian businesses

February 26, 2018 | Written by: Sohail Afzal

Tax Accounting Services Toronto

As a business, you can reduce the amount of taxes that you pay by taking advantage of investment tax credits. An investment tax credit can apply to corporations, sole proprietorships and partnerships. This credit works by allowing business owners to apply a specific percentage to the cost of buying a property or specific business expenditure.

How to Claim an Investment Tax Credit

For individuals, you will need to download and fill a form on the CRA website then claim the appropriate amount on your T1 income tax return. The CRA has one strict rule that you must apply when you are calculating the ITCs. You are required to reduce the capital cost of the property or expenditure if you received or expect to receive any government or non-government assistance for the property or expenditure. This also covers any rebates or input tax credits.

Apprentice Tax Credits

The federal government came up with the apprenticeship tax credits in order to encourage Canadian employers to hire apprentices. For each eligible apprentice, the organization can earn up to 10% of each salary or wages up to a maximum credit of $2,000 annually. This apprenticeship tax credit is also available to individual taxpayers. In order to qualify as an apprentice, you need to be working in a prescribed trade in the first two years of your contract. The prescribed trades are listed at the Red Seal Trade. This type of credit is advantageous because the business can either carry it back three years or forward 20 years. Most businesses avoid using it in order to get the best tax advantage.

Is the Property Qualified for Investments Tax Credits?

Whether you’re running a corporation or sole proprietorship, you can earn investment tax credits on designated activities such as:

  • 1. Manufacturing or processing of goods which will later be sold
  • 2. Exploring, drilling and operating an oil/gas well or extracting natural gas
  • 3. Processing minerals such as iron ore
  • 4. Logging
  • 5. Farming, fishing and field processing

If the business also acquires equipment, machinery or buildings which will be used in any of the designated activities, this could also be considered as a qualified property tax credit. For businesses that lease buildings, there are specific rules that determine if the property will be considered for investment tax credit.

Child care tax credits

Organizations can also claim credits for creating child care spaces whether for their employees or other children. Child care tax credits are up to $10,000 or 25% of the eligible expenditure per space, whichever is less. Eligible expenses for a child care facility may include things like playground structures, furniture, appliances and the building where the facility is located. It could also include the start-up cost of the facility such as architectural fees and inspections. The tax credits will vary depending on your province or territory. It is important to speak to a tax accountant who will help you take advantage of available ITCs and reduce your tax bill as much as possible.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

Article Categories

Contact Us

  • This field is for validation purposes and should be left unchanged.

Recent Articles