When it comes to business taxes, ignorance is not bliss; if you are not aware of the ins and outs of business taxes, and don’t fully comply with the business tax rules, you can end up facing costly penalties.
Here are a few common myths about business tax:
Myth 1 – Making and selling a few things doesn’t qualify as a business.
Canada Revenue Agency define a business as “any activity that you do for profit”, what is and what isn’t a business is not determined by the number of sales you make. So even if you are only making and selling a few things, it is still considered a business and you need to file your business taxes accordingly.
Myth 2 – Small businesses don’t need to collect and/or remit taxes
This is another myth based on the misconception that the size of your business matters when it comes to business taxes. If your business makes more than $30,000 a year, you must register and charge HST. If you are registered and charging HST on your product or service you must remit the taxes you collect.
Myth 3 – You can write off all of your expenses if you are running a home-based business.
While there are some business tax deductions that are specific to home-based businesses, running a home-based business does not allow you to write off all of your expenses. Generally, business tax deductions for home-based businesses are the same for any other business.
Myth 4 – I can write off all the equipment I buy for the business.
This myth is partially true. Equipment you buy to operate your business worth more than $500 is depreciable. Meaning you have to deduct the cost of the item over several years through a Capital Cost Allowance claim. However, you can claim the total cost of the equipment if it is worth less than $500.
Myth 5 – I can write off the cost of meals and/or entertainment as a business expense.
Unfortunately, you can only claim up to 50 percent of the cost of meals and/or entertainment as a business expense.
Knowing the truth about these business tax myths will better prepare you at tax time to comply to the rules and save you from costly penalties.