When it comes to taxes and small business expenses, the general rule is that if it’s related to earning money for your business, you can claim it at tax time. “If you need it to do business, deduct it, but don’t try to stretch the rules,” says Toronto accountant Larry West. “The Canada Revenue Agency has the last word, so when in doubt, check their website for guidance.” Keep all back up documentation for your expenses to support your claims.
Business Operating Expenses
Every business has its own needs that influence how you spend money to make money. If your revenue depends on the goodwill of your clients, you might buy lunch or gift concert tickets to keep these relationships active.
- Expenses such as these are allowable when it’s a reasonable business practice.
- The Canada Revenue Agency (CRA) allows you to claim only 50 percent for “Meals and Entertainment”, where these would be classified.
If your business depends on delivery vehicles, fuel and repairs are legitimate expenses, as are maintenance costs for a building. But these expenses must involve repairs, not improvements. Lawyers’ and accountants’ fees are an accepted part of doing business so you can claim these costs as business expenses as well, as professional fees.
Home Offices and Office Expenses
“Home offices can be claimed for business use,” says West, “as long as it’s either your main place of business or it’s a space that you use only for earning income and to meet clients on a regular basis.” If you have an office at your shop or store but you bring work home to balance your business and life, the CRA probably won’t allow you to claim your home office space.
- Calculate the percentage of your house that your home office occupies.
- If it’s a shared space, count only the percentage of time it’s used as an office.
Use your result to determine the business percentage of costs associated with it, such as mortgage interest or rent, property taxes, utilities and home insurance. Standard office expenses such as stationery, file folders, staples, pens and markers can be claimed as long as they’re strictly used for business.
Major business purchases like vehicles, furniture, equipment or buildings will benefit your business for years. You can’t claim the full amount of a purchase in the tax year it occurs, rather, you can claim a percentage of the purchase cost each year over the expected life of the item. This is called a Capital Cost Allowance (CCA). The CRA has a list of CCA classes, each with an annual depreciation amount and a definition for purchases that fit the class. Some examples of classes are:
- Class 10 includes computer hardware and some motor vehicles
- Class 38 covers excavation equipment
- Class 43 lists manufacturing and processing equipment
Miscellaneous Business Expenses
Advertising is essential for many businesses and you can claim this expense. All advertising must be directed at a Canadian market. Newspapers, television and radio can be deducted fully, but magazine advertising depends on the content of the publication. If the editorial content of the magazine is less than 80 percent, you can only deduct half your cost to advertise. Bank charges and interest can be claimed against taxes, but there are limits on interest depending on the purpose of the original loan.
The following expenses are deductible:
- Your employees’ salaries
- employer contributions for pensions
- employment insurance
- other benefits to your staff that your small business pays
You should be well on your way to capture every credit to which your small business is entitled!
References & Resources
- Larry West; CPA; Toronto, Ontario
- Canada Revenue Agency: Types of Operating Expenses
- Canada Revenue Agency: Classes of Depreciable Property
Finding the right CCA classes and adding up all your deductible expenses can be tricky, but TurboTax Self-Employed makes it easy.
But, if you feel a bit overwhelmed, consider TurboTax Live Assist & Review, Self-Employed, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service for Self-Employed and have one of our tax experts do you return from start to finish.