Tax Tips For Small Construction Businesses in Canada: Are You Ready For 2024?
Stay updated with current accounting standards, business compliance, tax preparation tips, and latest news.
21 Dec 2023
You might open a home renovations and remodeling company in Canada and shut down with losses in under a year.
Why?
There are high chances that you haven’t been able to navigate the maze of deductions, credits, and regulations and ended up overpaying taxes. This in turn… hinders a small construction business’s financial growth and leads to its downfall.
Whether you open a custom home building or commercial construction business, you have to find out how your corporation can become a tax saver and not just a taxpayer.
We can help you shield your profits and optimize your financial health as a small corporation in Canada.
With our combined experience of 30+ years in taxation and accounting for SMEs, we’ve compiled a list of essential tax deductions that you can employ in your business and empower your decision-making in 2024.
Thus, without further ado, let’s get started.
Also, don’t forget to book your free 30-minute consultation with a CPA in Surrey, Canada, if you want to save a major chunk on your taxes this year!
Obviously, equipment and tools play a key role in the execution of any project, regardless of whether it is infrastructure or special trade construction work.
However, they are a long-term investment, which is why it is important to recognise their gradual decline in value with time. Thus, depreciation deduction will accurately register and represent the acquisition, usage, and decline in the value of these assets.
Your business will get a more accurate representation.
There are plenty of eligible equipment that fall under this category. For instance, power tools, heavy machinery, and specialized vehicles are often part of excavation, demolition, and other major construction works. Such assets usually have a long lifespan, letting corporations claim a part of their costs every year.
To claim depreciation every year, accurate & proper recordkeeping is a must. Having a record of the purchase date, expected use life, cost etc will serve as documentary evidence for all the deductions you make when inspected by CRA.
Advance your tax planning and preparation efforts by considering the home office deduction. You are eligible based on the following criteria:
Utilizing Tax-Deferred Accounts
Why must Canadian small business owners and employees in the construction business use tax-deferred accounts?
Simple – For the tax-advantaged growth opportunities that allow individuals to accumulate wealth for retirement and other long-term financial goals. Here are some examples:
Preparing for 2024 Tax Season: Key Considerations
Seeking Professional Assistance
Unless you want to spend your nights poring over tax manuals and your days worrying about audits, we suggest you do the smart thing in 2024 and seek professional help.
As a small business owner in the construction industry, here are the benefits you can expect from professionals such as CPAs at CJCPA:
Essential Tax Deductions for Construction Businesses in Canada
Get a detailed explanation of one of the most effective tax strategies for small businesses in Canada for the construction industry. Depreciation Deductions
Obviously, equipment and tools play a key role in the execution of any project, regardless of whether it is infrastructure or special trade construction work.
However, they are a long-term investment, which is why it is important to recognise their gradual decline in value with time. Thus, depreciation deduction will accurately register and represent the acquisition, usage, and decline in the value of these assets.
Your business will get a more accurate representation.
There are plenty of eligible equipment that fall under this category. For instance, power tools, heavy machinery, and specialized vehicles are often part of excavation, demolition, and other major construction works. Such assets usually have a long lifespan, letting corporations claim a part of their costs every year.
To claim depreciation every year, accurate & proper recordkeeping is a must. Having a record of the purchase date, expected use life, cost etc will serve as documentary evidence for all the deductions you make when inspected by CRA.
Business Expenses
Not all Canadian entrepreneurs have construction businesses with grand machines and heavy assets. How can they claim tax deductions for small businesses of such a nature? They can claim a wide range of business expenses that can reduce their tax liability. These expenses directly relate to the day-to-day operations of the business and directly contribute to generating revenue. For example:- Employee Salaries and Wages: Salaries and wages of employees directly involved in construction projects, such as skilled workers, laborers, and administrative staff deductible expenses.
- Rent for Office or Warehouse Space: The cost of renting an office or warehouse space for carrying out operations, including the cost of leasing, maintaining, and utilities for the rented premises is deductible.
- Utilities and Maintenance Costs: Utilities, such as electricity, water, and gas, are also deductible. Maintenance costs for equipment, tools, and vehicles used in construction projects are also eligible.
- Insurance Premiums: Canadians can deduct insurance premiums paid for property, liability, and workers' compensation insurance. It can help protect the business from potential financial losses.
- Professional Fees: All the expenses incurred for professional services, such as legal fees, accounting fees, and architectural fees, are deductible for small business tax. Stay compliant easily.
- Advertising and Marketing Expenses: If you are a small business trying to attract new clients through print ads, digital marketing campaigns, and participation in trade shows, you can claim its cost as well.
Advance your tax planning and preparation efforts by considering the home office deduction. You are eligible based on the following criteria:
- If you have a dedicated workspace in your home exclusively for business.
- The home is the principal place of business where you spend more time working.
- You use the home office regularly to meet with clients, customers, or patients.
Tax Planning Strategies for Construction Businesses
Timing Income and Expenses
Corporate tax planning strategies for Canadian small business owners also include making a strategy of managing when a business should recognise its income and expenses so that it can minimize its tax liability.- Deferring income means delaying the recognition of revenue until the following tax year. You can do this for your construction business by extending billing cycles, delaying invoicing, or postponing project completion until the next year. This will potentially reduce the tax burden if income falls into a lower tax bracket in the following year.
- Accelerating expenses means recognizing expenses in the current tax year, even if they relate to future periods. To do this, you need to prepay rent, utilities, or insurance premiums, or purchase equipment and supplies in advance. This can reduce taxable income in the current year, potentially lowering tax liability.
Maximizing Tax Credits
Are you looking for small business tax planning strategies that are easy to implement? Don’t look anywhere else than the financial incentives given to you specifically for the construction industry by the government. For instance:- Canada Employment Credit (CEC): Offset the cost of hiring and retaining employees with CEC. Decrease your tax bill by claiming a portion of the salaries and wages paid to eligible employees, including apprentices and tradespeople.
- Scientific Research and Experimental Development (SR&ED) Tax Credit: Canadian entrepreneurs can claim a portion of their eligible expenses, such as salaries and wages, materials, and contract research.
Utilizing Tax-Deferred Accounts
Why must Canadian small business owners and employees in the construction business use tax-deferred accounts?
Simple – For the tax-advantaged growth opportunities that allow individuals to accumulate wealth for retirement and other long-term financial goals. Here are some examples:
- RRSPs: You must include RRSPs into year-end tax planning because they are tax-deductible and they reduce an individual's taxable income in the year of contribution. Investments within an RRSP grow tax-deferred until withdrawn in retirement when they are taxed as income.
- TFSAs: Even if TFSAs are not tax-deductible, all investment income and withdrawals are tax-free. So, individuals can use it for short-term goals, such as a down payment on a home or a child's education.
Preparing for 2024 Tax Season: Key Considerations
Staying Informed of Tax Changes
The Canadian tax landscape is constantly evolving, with new legislation and amendments introduced regularly. This is why, the construction businesses need to stay informed of these changes to ensure they are compliant with the latest requirements and maximize their savings with smart tax planning and preparation in the year 2024.Organizing and Maintaining Records
For fool-proof tax planning and preparation, you must have accurate and organized records. For Maximizing Tax Savings for Small Businesses, construction businesses can establish a robust recordkeeping system and tie up with a CPA in Surrey Canada to keep the entire system professional. Here are the documents you need to keep accessible for a worry-free tax return filing in 2024:- Invoices and receipts for all business expenses
- Payroll records and employee documentation
- Tax slips and investment statements
- Depreciation schedules for equipment and assets
- Vehicle mileage logs for business travel
Seeking Professional Assistance
Unless you want to spend your nights poring over tax manuals and your days worrying about audits, we suggest you do the smart thing in 2024 and seek professional help.
As a small business owner in the construction industry, here are the benefits you can expect from professionals such as CPAs at CJCPA:
- Error-free tax planning for Canadian businesses.
- Reducing your tax bill with all eligible tax deductions and credits.
- Ensuring that your business is compliant with all Canadian regulations.
- Making you a tax saver with custom-made strategies.
- Representing your businesses in tax audits and appeals.
