Year-End Tax Planning for Small Businesses in Canada — CPA Montreal Near You Explains

Introduction

For small businesses in Canada, year-end tax planning is one of the most effective ways to reduce taxes, strengthen cash flow, optimize deductions, and prepare for CRA compliance. Unlike individuals, small businesses have additional responsibilities such as GST/HST filings, payroll remittances, inventory adjustments, CCA decisions, shareholder compensation planning, and corporate tax strategies that must be executed before December 31. Waiting until tax season is too late for most meaningful tax reductions. This guide explains the most important year-end tax planning steps Canadian businesses should take to minimize taxes, avoid CRA issues, and improve financial performance.

Why Year-End Tax Planning Matters for Businesses

Year-end planning helps businesses:
reduce taxable income
use all available deductions
manage owner compensation strategically
minimize GST/HST and payroll penalties
prepare year-end financial statements
optimize capital asset purchases
improve cash flow for the next fiscal year
CRA expects corporations to maintain accurate, reconciled books before filing. Year-end planning ensures errors are fixed and deductions are supported with proper documentation.

Tip 1: Accelerate Deductible Expenses

Small businesses can reduce taxable income by paying certain expenses before year-end, including:
rent
utilities
insurance
professional fees
marketing and advertising
business subscriptions
contractor invoices
accelerating expenses into the current year increases deductions and reduces tax.

Tip 2: Purchase Capital Assets Strategically

Capital assets such as equipment, machinery, computers, vehicles, and tools qualify for Capital Cost Allowance (CCA). Year-end timing matters because:
CCA allows a deduction even if purchased late in the year
businesses may benefit from enhanced CCA rules such as immediate expensing
purchasing before December 31 accelerates tax savings
Businesses should prioritize assets that directly support operations or replace outdated equipment.

Tip 3: Manage Inventory and COGS Adjustments

Businesses with inventory must perform:
inventory counts
write-downs for obsolete or damaged goods
COGS adjustments
CRA reviews inventory-heavy industries closely, including retail, restaurants, e-commerce, and wholesalers. Proper year-end inventory management reduces taxable income and prevents overstated profit margins.

Tip 4: Review Owner Compensation Strategy

Business owners must decide whether to pay themselves:
salary
dividends
a combination of both
Salary creates RRSP room and reduces corporate income but increases payroll obligations. Dividends avoid payroll but do not generate RRSP room. Year-end planning determines which method minimizes combined personal and corporate taxes.

Tip 5: Pay Bonuses and Salaries Before Year-End

Paying bonuses or wages before December 31 allows the corporation to deduct them this year. CRA rules require:
source deductions to be remitted by January 15
bonuses paid after year-end are only deductible when paid
This strategy reduces corporate tax while rewarding employees or owners.

Tip 6: Make Final GST/HST and Payroll Remittances

Unpaid GST/HST or payroll liabilities create:
interest
penalties
potential payroll examination
Businesses must ensure:
GST/HST returns are filed
installments are accurate
year-end payroll reconciliations (T4/T4A preparation) are planned
Missed remittances are one of the most common CRA audit triggers.

Tip 7: Review Capital Gains and Losses for the Corporation

Corporations may realize gains or losses on:
investments
real estate
business assets
If gains exist, businesses may realize capital losses to offset them. Losses must be crystallized before year-end, and the superficial loss rule applies to corporations too.

Tip 8: Prepare for Tax Installments

Corporations often pay monthly or quarterly installments. Year-end planning includes:
verifying installment accuracy
avoiding installment interest
reassessing next year’s installment requirements
Cash-flow projection improves tax compliance and prevents CRA arrears.

Tip 9: Clean Up Bookkeeping and Reconcile All Accounts

Before filing T2 returns, corporations should reconcile:
bank accounts
credit cards
merchant processors
PayPal, Stripe, Square, Shopify
accounts receivable and payable
loan balances
Shareholder loan accounts must be reviewed carefully because improper withdrawals may be taxed as income.

Tip 10: Optimize Home Office and Vehicle Deductions

Businesses can claim:
a portion of rent, utilities, and internet (home office)
fuel, maintenance, insurance, leasing/depreciation (vehicle)
Logs, receipts, and usage calculations must be accurate to survive CRA review.

Tip 11: Maximize Deductible Business Expenses

Common deductible expenses include:
professional fees
insurance premiums
supplies and tools
software subscriptions
travel and meals (50 percent)
website and e-commerce costs
telephone and internet
CRA denies deductions lacking receipts—year-end is the best time to organize documentation.

Tip 12: Consider Incorporation or Corporate Restructuring

If the business has grown significantly, year-end is an ideal time to evaluate:
incorporation
holding company creation
share reorganization
income splitting strategies subject to TOSI
These changes require planning and cannot be applied retroactively once the fiscal year ends.

Tip 13: Plan for Year-End Meetings with Your CPA

Meeting with your CPA before December 31 helps with:
tax estimation
strategy optimization
book cleanup
audit preparation
financial projection
This prevents surprises during tax season and improves long-term planning.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses implement year-end tax strategies tailored to their industry, cash flow, and corporate structure. We prepare tax projections, CCA planning, owner compensation strategies, GST/HST and payroll compliance checks, and year-end reconciliations to ensure audit-ready books and maximum tax savings.

Real Client Experience

A Montreal contractor saved thousands by optimizing salary/dividend mix. A retailer reduced taxes through inventory write-downs. An e-commerce business avoided penalties after fixing GST/HST issues before filing. A restaurant improved cash flow by planning capital asset purchases and accelerating expenses.

Common Questions

Do year-end expenses reduce taxes? Yes if paid before December 31. Should I pay myself salary or dividends? Depends on income and structure. Do capital purchases help reduce tax? Yes through CCA. Can bookkeeping affect tax planning? Absolutely. Does CRA audit year-end adjustments? Yes frequently.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides strategic year-end planning to minimize taxes, ensure compliance, and set your business up for financial success in the year ahead.