Tax Incentives: The Big Ones, The Small Ones and the Too-Often-Forgotten Ones

Federal, provincial and municipal governments use tax incentives to encourage businesses and individuals to make economically positive decisions. Tax rules have been designed to incent businesses to make investments, create jobs, drive innovation and help people develop skills.

Getting to know the ins and outs of tax incentives can be tricky. Businesses of all sizes and all industries need experienced advisors to guide them on the rules, the latest amendments and the nuances of taking advantage of the tax laws.

A few of the key Canadian tax incentives – big ones, small ones and forgotten ones – are described below. Please remember that each incentive has specific eligibility rules, so you should always consult for full details on eligibility and consult a taxation expert before making strategic decisions.

Investment Tax Credits

CRA encourages businesses to expand by investing in resources that will enhance their productivity and help build the economy. Investment Tax Credits can be used towards the money spent on investments such as:

  • Equipment
  • Machinery
  • Buildings
  • Property

Investment Tax Credits can be claimed by both individuals and corporations within Canada.

Investment Tax Credits are based on a percentage of the investment cost; the specific percentage depends on the factors such as the type of investment, location and industry. Again, businesses should seek professional advice to guide them on the nuances of claiming Investment Tax Credits.

Driving Innovation

Currently, the Government of Canada’s largest single source of support for industrial research and development is the Scientific Research & Experimental Development (SR&ED) Program. As a tax incentive program, SR&ED applies to all sectors and businesses of all sizes. The program gives cash refunds or tax credits for expenses incurred on eligible research and development conducted in Canada that will lead to new, improved or technologically advanced products or processes.

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Creating Jobs

CRA encourages small business to grow and hire more people. As small businesses that grow and hire more people, the Hiring Credit for Small Business (HCSB) provides tax relief. CRA calculates the credit by looking at the increase in your employment insurance (EI) premiums paid compared with last year. Small businesses can receive up to $1,000 credit.

Hiring Apprentices

Similar to the HCSB, the government also encourages businesses to hire apprentices. The Apprenticeship Job Creation Tax Credit (AJCTC) provides a non-refundable credit equal to 10% of the eligible salaries and wages of eligible apprentices. Eligible employee include people working in the first two years of their prescribed trade, registered with a federal, provincial or territorial apprenticeship program. Unused credit may be carried back three years and carried forward 20 years.

Self-Employment Benefits

Do you work for yourself? Self-employment has a host of taxation benefits. If you use your house as your business – a home office for example – you may the portion of the home that is used to conduct business activities. You may claim a portion of:

  • Mortgage interest
  • Property taxes
  • Capital Cost Allowance
  • Utilities
  • Insurance
  • Home maintenance

You may claim a percentage equal to the portion of the home that is used for the business. Items that are entirely for the business – supplies, travel and client entertainment – are fully deductible.

The All-Too-Forgotten Tax Incentives

There are certain tax incentives that, not as common as the ones mentioned above, may go unappreciated or unnoticed in the preparation of the annual return.

Dividend Income

The Dividend Tax Credit saves money over the ordinary tax rates.  At the highest marginal rates, the benefit can be as much as 14% to 17%. Because of the way the dividend tax credit works, it may be beneficial for couples with dividend income to take advantage of tax rules that allow the lower earner to transfer dividend income to his or her higher earning spouse.

Carrying Charges

Carrying charges are the expenses associated with financing charges and investment expenses.

  • Fees paid to financial plans and investment advisors
  • Interest on loans for investment purposes
  • Interest charged on the purchase of Canada Savings Bonds

Many of these expenses can be claimed in your return.

Your First Home

Your first home or condo purchase has a tax benefit – it’s a nonrefundable tax credit that may be claimed in the tax year of the purchase. If you bought your first property a few years ago, but didn’t think to include it in your return, dig up the files and review them. There may still be time.

Your Turn

Has your company encountered any beneficial tax incentives?

What were they? What was the benefit to your long-term objectives?

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