The Small Business Deduction in Canada: Everything You Need to Know

June 4, 2022 | Written by: Hassan Iqbal

The Small Business Deduction in Canada: Everything You Need to Know

Do you own a small business in Canada? If that is the case, you may be eligible for the small business deduction. A tax deduction allows business owners to reduce their taxable income by a certain percentage. There are some tips on how to take advantage of this deduction to save money on your taxes! This blog post will discuss the SBD’s and how you can qualify for them.

What is the small business deduction?

The (SBD) is a tax deduction that allows Canadian-controlled private corporations (CCPCs) to reduce their taxable income by a certain percentage. These deductions provide business owners with a reduced tax rate on up to $500,000 of active business profits. To qualify for the SBD, your business must meet the following criteria:

  • You must be a CCPC.
  • Your business must have active business income.
  • Your business’s total taxable income must be less than $500,000.

How can I take advantage of the small business deduction?

There are a few ways to take advantage of the SBD’s to save money on your taxes:

  1. Make sure that your business meets the criteria for the deduction.
  2. Keep track of your expenses and claim them on your tax return.
  3. Seek help from a professional accountant or tax advisor to ensure that you take advantage of the deductions and credits you are eligible for.

Before: Owning a small business can be tough- you have to manage all the day-to-day tasks and keep track of your expenses to claim them on your tax return.

After: Small business owners can take advantage of the SBD to reduce their taxable income by a certain percentage. This deduction provides business owners with a reduced tax rate on up to $500,000 of active business profits. To qualify for the deduction, your business must meet certain criteria, such as being a Canadian-controlled private corporation and having an active business income.

Small business deductions in provinces and territories

The SBD’s are available in all Canadian provinces and territories. However, the deduction amount may vary depending on the province or territory in which your business is located. For example, in Ontario, the small business deductions equal 13.125% of the first $500,000 of active business income.

When we talk about taxes, there are a lot of deductions and credits available to small business owners. However, SBD’s are one of the most popular and beneficial deductions for business owners.

Restrictions to claiming the small business deduction

In addition to the criteria mentioned above, a few other restrictions may apply when claiming the SBD’s. For example, if your business is involved in certain activities, such as professional services or manufacturing, you may not be eligible for the deduction. If you are unsure whether or not your business qualifies for the deduction, we recommend speaking to a professional accountant or tax advisor.

Conclusion

SBD’s are valuable tax deductions that can save your small business significant money on taxes. If your business is eligible for these deductions, speak to a professional accountant or a tax advisor to ensure that you take advantage of all the deductions and credits you are eligible for.

If you have any other questions, don’t hesitate to contact us!

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.

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