Table of Contents
Why year-end matters
Your Actionable Steps Summarized
Category | Action / Step | Purpose / Benefit | Notes / CRA Reference |
Document Gathering | Collect bank statements, invoices, receipts, payroll records, credit card statements, contracts, purchase orders, P&L statements, auto and home office receipts | Ensures accurate reporting and audit readiness | CRA requires supporting documents for deductions |
Prepay Expenses | Pay for supplies, insurance, subscriptions before year-end | Reduce current-year taxable profit | Expense must be reasonable and actually used |
Defer Income | Invoice late December, schedule payment for January (for corporations) | Push taxable income to next fiscal year, manage tax bracket | Must be real and defensible transactions |
Capital Purchases | Buy eligible equipment before year-end | Claim Capital Cost Allowance (CCA) to reduce taxable income | Follow CRA CCA rules for depreciation |
Employee Costs & Benefits | Contribute to RRSPs, group RRSPs; review employer-paid benefits | Maximize deductible employee costs | Correctly classify taxable vs. non-taxable benefits |
Bookkeeping Review | Reconcile accounts, catch missed expenses, write off bad debts | Accurate income reporting, deduction optimization | Supports audit readiness |
Inventory & Assets | Year-end inventory count; calculate recapture or terminal loss on sold/disposed assets | Accurate COGS and taxable income | Proper distinction between capital and current expenses |
Payroll Compliance | Ensure CPP, EI, and source deductions are remitted on time | Avoid penalties and interest | CRA payroll deadlines must be followed |
Sole Proprietors / Partnerships | Complete Form T2125 for business income and expenses | Proper income and expense reporting | CRA guide for T2125: cra-arc.gc.ca |
Personal Tax Moves | Contribute to RRSP, TFSA top-ups, realize capital losses, donate to charity, check pension adjustments | Reduce personal taxable income, maximize credits | Donations must be made by Dec 31; federal & provincial credits apply |
Record Keeping | Keep receipts, invoices, mileage logs, contracts | Audit readiness and defensible tax positions | Cloud or physical folder system recommended |
Common Traps | Avoid claiming personal expenses, overstating home office claims, mixing capital/current expenses, missing deadlines | Prevent CRA penalties | Be conservative and consistent in claims |
Timing & Strategy | Review financials early, plan with accountant, revisit in January | Optimize tax outcome and minimize risk | Early action ensures defensible choices |
Quick housekeeping: documents to gather
- Bank statements.
- Invoices and receipts.
- Payroll records.
- Credit card statements.
- Contracts and purchase orders.
- Year-to-date profit and loss.
- Any receipts for auto expenses and home office use. Keep digital copies. Keep originals if you must. The CRA expects supporting documents if you are audited.
Four practical moves that often pay
- 1. Prepay reasonable expenses where allowed.
- Pay for supplies, insurance, or subscriptions if doing so makes sense for business operations. For many businesses, prepaying a current-year expense that would otherwise fall into next year can reduce this year’s profit. But be careful. The expense must be reasonable and actually used by the business. Document everything.
- 2. Defer income when you can.
- 3. Accelerate capital purchases if depreciation benefits you.
- 4. Maximize deductible employee costs and benefits.
Business-specific tactics
- Review your bookkeeping. Catch missed expenses. Small missed receipts add up.
- Reconcile accounts receivable. Write off doubtful accounts when justified. A bad debt write-off can be a deduction.
- Inventory counts. Year-end inventory affects cost of goods sold. Get the count right.
- Capital assets. If you sold or disposed of equipment, calculate any recapture or terminal loss. These can affect taxable income.
- Payroll. Make sure CPP, EI and source deductions are remitted on time. Late remittances draw penalties.
Personal moves that save tax
- RRSP room. If you have unused RRSP contribution room, consider contributing. It can lower taxable income. Confirm contribution limits and deadlines with your advisor and CRA records.
- TFSA top-ups. While TFSA contributions do not reduce taxable income, they provide tax-free growth. Consider how withdrawals and recontributions interact with your planning.
- Capital losses. If you hold investments with unrealized losses, you might sell them to realize a capital loss to offset gains. Be mindful of superficial loss rules. Keep clear records.
- Charitable donations. Donations made by December 31 qualify for the tax year. They provide federal and provincial credits.
- Pension adjustments. If you are part of a pension plan, check the impact on your RRSP room before making large contributions.
Record keeping and audit readiness
- Common traps to avoid
- Don’t claim personal expenses as business costs. The CRA watches for this.
- Don’t overstate home office claims. Be conservative and document the formula.
- Don’t mix capital and current expenses incorrectly. Know the difference.
- Don’t miss filing deadlines. Penalties add up and reduce any tax savings you gained.
How Faber LLP helps
Final reminders and timing
- References
Canada Revenue Agency. Claiming deductions, credits, and expenses. cra-arc.gc.ca
Canada Revenue Agency. Completing Form T2125, Statement of Business or Professional Activities. cra-arc.gc.ca