Ways to reduce income tax is a hot topic this time of year.  Eavesdropping on conversations between business owners will yield a multitude of suggestions but there is nothing better than the tried and true methods – they are tried and true for a reason.

1.  Save receipts –  This may seem logical but is often overlooked.  A credit card statement is not sufficient evidence of the expense for many reasons.  A purchase at a gas station may be for gas but could also be cigarettes or lottery tickets, which are not deductible.  If you are a GST registrant, evidence that GST has been paid on the purchase is also necessary.

2.  Designated business bank account and credit card – When payment is made out of the business account or with the business credit card it is unlikely the expense will be forgotten. If you use your personal account or credit card, it is easy to forget the expense was business related.  If you are using your own account, write a note on the receipt so you don’t forget it was for business.

3.  Tracking mileage – An auto log really is the only way to be certain the percentage claimed is reasonable.  It only takes moments to track especially using tools such as Magical Miles available on itunes.  In the event of an audit, you’ll find that you will sleep easier when you have evidence to support your claims.

4.  Gifts – Who doesn’t love receiving a gift from a business associate?  Giving is a great way to promote your business and strengthen business relationships.  Just be reasonable.  The basic criteria for deducting a business expense is that it must be ‘necessary to produce business income’ and ‘reasonable in the circumstance’.  Quite vague I agree, but at the same time somewhat unbinding.  When giving gift certificates keep track of who they have been given to.  If given to employees, the gift cards may be considered a taxable benefit.

5.  Keep current – This is hands down one of the most important things to do in your business.  It will also mitigate the chance of being flagged by CRA and other government agencies.

Tax rules are constantly changing.  Just as with health, it is important to review your tax situation at least annually with your tax professional.  Ask about recent tax changes and recent tax cases that could impact your tax plan.  Adapting to changes is the key to business success.

Diane Skidmore

D. Skidmore & Co CGA