Year-End Tax Planning for Small Businesses – A Complete Guide by a Montreal CPA Firm Near You

Introduction

For small business owners—whether incorporated or self-employed—year-end tax planning is essential. The steps you take before December 31 can reduce corporate or personal taxes, improve cash flow, strengthen financial statements, and prepare your business for CRA reviews. Many business owners wait until tax season, only to discover missed deductions or preventable penalties. This guide outlines the most important year-end strategies for corporations, sole proprietors, partnerships, e-commerce businesses, trades, real estate companies, and service firms across Canada.

Legal and Regulatory Framework

Year-end tax planning is governed by the Income Tax Act, Excise Tax Act (GST/HST), Quebec Taxation Act (QST), payroll legislation, and corporate statutes. Most corporate year-end strategies—asset purchases, bonuses, dividends, loan repayments, and GST/HST adjustments—must be completed before the fiscal year-end. CRA requires proper supporting documentation for all deductions, CCA claims, wages, bonuses, and shareholder loan transactions. Corporations must also comply with T2 filing rules, T4/T5 slips, GST/HST filings, QST filings, and payroll source deductions.

Key Court Decisions

In Canderel Ltd. v. Canada, the Supreme Court emphasized that taxable income must “clearly reflect profit,” reinforcing accurate year-end adjustments. In Fortino v. Canada, CRA successfully assessed shareholder benefits because loans were not repaid or properly documented. In Kosinski v. Canada, CRA denied COGS deductions due to poor record-keeping. These cases show why year-end planning and documentation are essential to prevent reassessments.

Top Year-End Tax Strategies for Small Businesses

1. Purchase Business Assets Before Year-End (Accelerate CCA)

Buying equipment, computers, machinery, vehicles, or tools before year-end allows you to claim Capital Cost Allowance (CCA) sooner. The “half-year rule” still applies, but early purchase accelerates deductions.

2. Pay Bonuses to Owner-Managers

Paying a bonus to the shareholder/employee before year-end moves income from the corporation to the individual, often reducing total tax. Bonuses must be paid within 180 days to be deductible.

3. Declare Dividends if Needed

If bonuses aren’t optimal, dividends may be used to extract corporate profits tax-efficiently. Consider the impact on RRSP room, CPP contributions, and personal tax brackets.

4. Repay Shareholder Loans

If shareholders owe money to the corporation, it must be repaid within one year after the year-end to avoid being added to personal income under Section 15(2).

5. Reduce Corporate Taxable Income

Consider: paying outstanding bills before year-end, purchasing deductible supplies, contributing to employer RRSP plans, prepaying insurance, paying subcontractors, and writing off bad debts.

6. Review GST/HST and QST Accounts

Reconcile ITCs/ITRs, ensure GST/HST has been collected correctly, review e-commerce platform tax settings, and correct any errors before filing deadlines.

7. Optimize Salary vs. Dividend Mix

Adjust owner compensation to maximize tax efficiency, CPP benefits, RRSP contribution room, and corporate small business deduction optimization.

8. Write Off Obsolete Inventory

Inventory overstated = taxable income overstated. Write down obsolete, expired, damaged, or unsellable goods.

9. Review Payroll and Employee Expenses

Ensure all T4/T4A/T5 slips will reconcile. Pay out vacation pay owed, reimburse expenses, and review taxable benefits (parking, auto, allowances).

10. Use the Small Business Deduction Strategically

Confirm your corporation qualifies for the small business rate on the first $500,000 of active business income. Avoid association issues or passive income erosion.

Strategies for Sole Proprietors

Sole proprietors should: pay expenses by December 31, purchase assets before year-end, track home office and vehicle expenses, invoice strategically, remit GST/HST, and consider moving to a corporation if income is growing.

Special Planning for E-Commerce Businesses

E-commerce sellers should: reconcile Shopify/Amazon/Stripe/PayPal reports, adjust COGS and inventory, correct GST/HST settings, review returns and refunds, and prepare T1135 reporting for foreign platforms if required.

Real Estate & Construction Business Planning

Consider: writing off uncollectible receivables, prepaying subcontractors, adjusting work-in-progress (WIP), optimizing CCA for buildings/equipment, reviewing GST/HST on new housing, and documenting vehicle logs for contractors.

Why Documentation Matters

CRA frequently reassesses small businesses for: undocumented expenses, missing receipts, incorrect GST/HST claims, misclassified dividends/bonuses, incorrect shareholder loan balances, and overstated CCA. Good year-end records reduce audit risk dramatically.

Mackisen Strategy

At Mackisen CPA Montreal, we design tailored year-end tax plans based on your business model, revenue, structure, payroll, and industry. We handle salary/dividend planning, CCA optimization, GST/HST reconciliation, inventory adjustments, shareholder loan analysis, e-commerce settlements, and complete year-end T2 filings. Our proactive approach reduces tax, prevents CRA issues, and strengthens financial reporting.

Real Client Experience

A Montreal corporation reduced tax by $18,000 after we optimized salary/dividend and CCA claims. An e-commerce business avoided reassessment after we corrected GST/HST settings before year-end. A construction firm preserved the small business deduction by restructuring associated corporations. A sole proprietor saved thousands by converting to an incorporated structure mid-year.

Common Questions

Is it better to buy assets before or after year-end? Before year-end to accelerate CCA. Should I pay myself salary or dividends? Depends on income, RRSP goals, and CPP planning. Do e-commerce sellers need special planning? Yes—platform reconciliations are essential. Should I hire a CPA for year-end tax planning? Absolutely—especially for corporations.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures your year-end planning is strategic, compliant, and tax-efficient. We help you finish the year strong and enter the next one with clarity and confidence.