5 common tax mistakes Canadian SMBs make

Here are five common tax mistakes Canadian business owners make, and how to avoid them.

1. Overlooking available tax credits and deductions

When you’re stretched thin, finding time to learn about government incentives is probably the last thing on your to-do list.

The fix: Credits and deductions are essentially free money because they can reduce the amount of taxes you owe. Start by looking into whether your business is eligible for these:

Small Business Deduction (SBD): For eligible Canadian-controlled private corporations, this reduces the federal tax rate from 15% to 9% on the first $500,000 of active business income.
Capital Cost Allowance (CCA): Businesses can deduct a percentage of certain assets that lose value over time — like equipment and vehicles.
Scientific Research and Experimental Development (SR&ED): This incentive provides tax credits to help offset the costs of qualifying innovation within your business.
Clean Economy Investment Tax Credits (ITCs): If your business is investing in environmentally friendly technologies, it may be eligible for refundable tax credits such as the Clean Technology Investment Tax credit or The Clean Hydrogen ITC.

Lean on your accountant, if you’re working with one, to find out what credits and deductions your business might be eligible for in your province or territory.

2. Mixing business and personal expenses

It may seem like you’re keeping things simple by using the same bank account or credit card for both personal and business expenses, but it actually makes expense tracking a nightmare. It’s not fun sifting through purchases to figure out what goes where. Mixing the two can also make it harder to support your deductions to the Canada Revenue Agency (CRA) if they decide to review your return. Because only business expenses are deductible, poor records can lead to claims or reassessments getting denied.

The fix: To stay compliant, maintain a separate business account and make sure you clearly categorize eligible business expenses such as:

Advertising and marketing
Annual license and accounting fees
Maintenance and operational costs
Business travel or work-related meals out

If you’re incorporated and accidentally use a personal account for a business expense, you can reimburse yourself through your business account to keep the paperwork clean. If you’re a sole proprietor, be sure to track the expense properly, but if you miss a deduction, you can amend a previously filed return.

3. Not Registering for a GST/HST account

In Canada, once your business earns more than $30,000 in taxable revenue over four consecutive quarters (or in one single quarter) you’re required to register for a GST or HST account. Once registered, you must file a return for each reporting period, which the CRA assigns based on your revenue. It’s easy to miss this as your business grows.

The fix: Stay on top your revenue. Clover’s sales tracking system makes it easy to see what you’re earning in real time. And you can check your filing due dates and reporting periods in your CRA account.

4. Not setting enough money aside for taxes

Some SMBs may get caught off guard by the amount of taxes they owe and don’t set aside enough money to pay them.

The fix: Consider keeping money for taxes in a separate account and think of those funds as off limits. If your net tax owing is more than $3,000 annually, the CRA requires you to remit quarterly, but it’s a good idea to pay in installments even if you don’t meet that threshold.

It can be helpful to work with an accountant or tax advisor to calculate how much tax you might owe, so you’re not surprised come filing time. A pro can also help you determine whether a salary or personal owner’s withdrawal is right for your business situation.

5. Inputting data manually

If you’re manually typing sales data into your accounting software, you’re setting yourself up for potential mistakes. Plus, it’s a huge time drain when you’re already stretched thin.

The fix: Use an app to sync your sales data with your accounting software to save time and reduce the risk of errors.

How Clover makes tax time easier

Clover helps SMBs stay tax-ready by automating bookkeeping tasks.

Real-time revenue tracking: easily monitor your revenue so you don’t miss any tax thresholds.
Seamless synching with accounting software: Apps available in the Clover App Market let you synch your sales data with popular programs like Xero or QuickBooks, reducing risk of errors and helping you track tax collected.
Tax-time reporting: Generate tax amount reports instantly to see exactly what you’ve collected by rate or location.
Customized tax rates: C onfigure specific tax rates and fees for different items or order types.

Key takeaways:

Don’t overlook government credits and deductions that can help you save money on your tax bill.
Keep business and personal finances separate to avoid messy record-keeping.
Track your revenue closely so you can register for GST/HST once your taxable sales exceed $30,000 over four consecutive quarters (or in one single quarter).
Set aside enough money for taxes to avoid a surprise come tax time.
Sync sales data with accounting software to avoid introducing errors with manual entry.
Clover can make tax time easier by automating sales tax calculations, helping you monitor revenue milestones and syncing sales data directly with your accounting software.

How can we help?

If you want to learn more about how Clover can help you accept payments, run your business and sell more, please contact your Clover Business Consultant. You can also follow us on Facebook and Instagram.

This information is intended solely for informational purposes and should not be interpreted as legal, financial, or tax advice. Readers are strongly advised to consult with their attorneys, financial advisors, or tax professionals to obtain guidance tailored to their specific circumstances.