When you write off something on your business’s tax return, it means you are deducting an amount that has been approved by the CRA to reduce your taxable income.
To be deducted from your taxable income, the expense in question must have been reasonably incurred to earn business income. There are many expenses that you’re allowed to write off as a business in Canada.
Here are 10 of the most common tax write offs for small businesses in Canada:
#1 - Vehicle expenses
Businesses can deduct expenses related to operating a vehicle including:
- Parking fees
- Repair and maintenance
- Toll charges
- Vehicle registration fees
- Lease payments
- CCA if you own or finance your vehicle
The amount of each expense that can be claimed is based on the percentage of business use of the vehicle. If for example, the car is only used for business, you can claim 100% of expenses. If the vehicle is a personal vehicle and you drove it 25,000 km and 10,000 km were for business, then you can write off 40% of your vehicle expenses (10,000 / 25,000 X 100).
To show how often the vehicle is used for business, you must maintain a logbook.
#2 - Home office expenses
If you work from a home office, you can claim certain expenses as a deduction from your business income. Eligible expenses include:
- Utilities, such as water, hydro, natural gas, propane for heating, etc.
- Internet costs
- Repair and maintenance
- Rent or property tax
- Home insurance
The amount of each expense that can be claimed is determined by the size of your office as a percentage of your house’s total size. You can measure this by sq footage or number of rooms.
#3 - Accounting and legal fees
The cost of paying professionals, including but not limited to accountants, consultants and attorneys can be claimed as a business expense. You can claim all fees that are related to operating your business.
#4 - Office rent
If you don’t have a home office, and instead rent space to operate your business, you can claim this expense on your business taxes to reduce your taxable income. To claim this expense, be sure to keep a copy of your lease agreement and rental receipts on file in case of an audit.
#5 - Advertising
You can fully or partially write off advertising expenses depending on the advertising used by your business.
- Online advertising – fully deductible.
- Television and radio – fully deductible for Canadian stations only.
- Magazine and newspaper – fully deductible for Canadian based magazines and newspapers so long as at least 80% of the publication is journalistic information. If the publication is less than 80% journalistic information, you can claim 50% of the expenses.
#6 - Meals and entertainment
Canadian businesses can claim 50% of their meal and entertainment expenses. There are some instances when you can claim 100% of the meal and entertainment expenses, including:
- Staff events and parties that meet specific criteria
- Meals and entertainment provided for a charitable event
#7 - Capital assets
The cost of capital expenditures can be written off over several years based on the CRA’s specified depreciation rates. Common capital write offs include:
- Fixtures and furniture at 20% per year
- Computers at 55% per year
- Buildings at 4% per year
- Vehicles (owned not leased) at 30% per year
- Software at 50% per year
#8 - Insurance
There are several different types of insurance. Some of them can be deducted from business income. Others are not eligible. Here are some of the common insurance types and their eligibility for deduction through your business.
- Life – You cannot claim life insurance through a business unless it is being used as collateral for a business loan. If it is being used as collateral, you may be able to claim a percentage of premiums.
- General Business Liability – This type of insurance protects your business and is fully deductible.
- Business Property – Similarly, insurance that covers business assets such as buildings and equipment can be claimed on your business return.
- Home Insurance – if you have a workspace in your home, a portion of your home insurance can be claimed as a business-use-of-home expense.
#9 - Bad debt
If you determine that an account receivable is a bad debt in the year and you had already included it in receivable income, that you can generally deduct the amount.
#10 - Maintenance and repair
You can deduct labour and material costs for minor repairs and maintenance incurred by your business to earn business income. There are, however, some exceptions. Capital expenses are not deductible. Instead, for capital expenses, you will claim a capital cost allowance.
These are just some of the many expenses your business can claim. For help claiming these expenses or for information on other deductions, please contact us today.