Most entrepreneurs and small business owners can make use of a variety of tax deductions that can bring down the amount they will eventually owe to CRA. Broadly speaking, anything that constitutes a reasonable small business expense incurred to generate business revenue can be considered tax deductible. The CRA has a list of common business expenses that you can deduct.
It is recommended that you maintain a record of all receipts to back these expenses, which will prove necessary in case you’re identified for an audit by the CRA. And make sure that you keep your receipts for the proper length of time (for six years in Canada). While you won’t be sending them in when you file your income tax online, the CRA can demand to see them at any time. In terms of timing, the only restriction is that expenses incurred in a business’s fiscal year must be claimed against income earned in that year. Here are some of the most common CRA-approved expenses which you can claim as a small business owner.
Common Business Expenses
- Accounting and Legal Fees
- Advertising Expenses
- Bad Debts
- Interest and Bank Charges
- Fees, penalties or bonuses paid for a loan
- Fees deductible over five years
- Fees deductible in the year incurred
- Interest on loans made against insurance policies
- Capitalizing interest
- Maintenance and Repairs
- Management and administration fees
- Meals and Entertainment
- Office Expenses
- Prepaid Expenses
- Property Taxes
- Rent
- Salaries, Wages and Benefits
- Supplies
- Telephone and Utilities
Home Office Expenses
A lot of entrepreneurs conduct business at home. The good news is the Canada Revenue Agency allows you to deduct expenses relating to your home – if you meet one of the following two conditions:
- You use your home more than 50% of the time when you work
- Your home is exclusively used to conduct work and you regularly hold meetings there
Here, it is pertinent to note that if you are operating a home-based business, you must separate the business portion of expenses from personal expenses. For instance, you cannot deduct all of the mortgage payments on your home or your entire electricity bill. You can only deduct a portion based on the percentage of your home used for business purposes.
Other Tax Deductions for Payroll Employees
- Employer-paid premiums for Canada or Quebec Pension plan contributions
- Employment Insurance
- Workers’ Compensation
- Sickness, accident, disability or income insurance plans.
What is the benefit of claiming expenses?
Claiming business expenses against income from small businesses can considerably reduce tax obligations. As a result, there is more money in your bank account which can be reinvested into your business to encourage continued growth or used for the benefit of your community or employees.
When in doubt, ask an Accountant
It is always recommended to check with your accountant if you are in doubt about the tax deduction potential of a particular business expense. Particularly for individual business owners and construction and food services businesses, being overly aggressive while claiming deductions for business expenses is a sure way to grab the attention of the CRA.
We at Rav Bhatia CPA Professional Corporation are there to resolve your queries no matter what stage your journey is at the moment. Book a free consultation with us. We’d be happy to help you and steer your business towards error-free compliances with our vast array of services.