Tax Deductions for Small Business Owners

Allan Madan, CA
 Dec 4, 2013
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What are the tax write-offs available to small business owners in Canada? If you are a small business owner in Canada, it’s important to be aware of all possible tax writes offs for your business. Tax write offs will significantly reduce your business’ taxable income and taxes payable.


Home-Office Expenses – Tax Write offs for Small Business in Canada

The most common of the tax write offs for small business owners in Canada are home-office expenses. Home-office expenses include:

  • Mortgage interest on your residence
  • Utilities
  • Property taxes
  • Repairs & maintenance
  • Home insurance

You cannot write-off 100% of those expenses, but you can deduct a reasonable portion. For example, if you have a home-office (such as a den, a basement, a bedroom or a confined space that you use exclusively for your work), then the percentage of your home office expenses that you can deduct is equal to the percentage that your home office space is of the total size of your home. If your home-office space is 15% of the total square footage of your home, then you can deduct 15% of your home-office expenses. Based on my experience, 15% to 35% is not an unreasonable percentage for home office expenses. Note that home office expenses can be deducted by either a self employed individual or a corporation. Before deducting home office expenses, you should consult with an Accountant in Toronto.

Car Expenses – Tax Write offs for Small Business in Canada – Accountant Toronto

Car expenses are a major tax write off for small businesses in Canada. Car expenses include:

  • Capital cost allowance (if you own)
  • Fuel & oil
  • Insurance
  • Lease payments (if you lease)
  • Parking
  • Repairs & maintenance
  • Toll charges
  • Vehicle registration fees

You cannot write off 100% of your car expenses, but you can deduct the business portion. For example, if you drove 20,000 kilometers in the year, and 50% of those kilometers were for business purposes, then you can deduct 50% of your car expenses. In addition, if you own your vehicle then you can write off 30% of the cost of your vehicle each year, which is referred to as Capital Cost Allowance. For example, if your vehicle cost you $30,000, then you could write off up to $9,000 in the first year. Like other car expenses, capital cost allowance must be prorated for the business use portion of your car. When purchasing your next car, you should consult with an Accountant in Toronto, to determine the tax benefits available to you.

Business Expenses – Tax Write offs for Small Business in Canada

Most business expenses incurred by small businesses in Canada are tax deductible. The Canadian Income Tax Act states hat any expense incurred for the purpose of earning income from business, as long as that expense is reasonable, is tax deductible. In other words, business related expenses that you incur (as long as they’re reasonable) are tax deductible. What are some of the common types of business expenses that a small business owner can write-off? They include:

  • Accounting and tax preparation costs
  • Advertising
  • Capital cost allowance (e.g. on equipment purchases and car)
  • Home office expenses
  • Internet
  • Inventory purchases (see Claim a reserve for obsolete, damaged or unusable inventory)
  • Lease payments (e.g. computer lease, equipment lease, car lease, etc.)
  • Legal fees
  • Meals & entertainments (50% only)
  • Rent
  • Salary and wages
  • Sub-contractors
  • Supplies
  • Telephone
  • Tools
  • Website charges
  • Other business related purchases

Speak with an Accountant in Toronto to find out if you’re missing any tax write offs for small business in Canada.

Capital Assets – Tax Write offs for Small Business in Canada

Tax depreciation (i.e. capital cost allowance) is a big tax write-off for small business in Canada. A capital asset is something of tangible value, which will last a long period of time (usually more than 1 year). Capital assets include furniture and fixtures, equipment, computers, etc. These assets cannot be written off in a single year. Instead, capital assets are written-off over a period of time based on the Canada Revenue Agency’s specified depreciation rates, which are as follows:

  • Equipment – 30% per year
  • Furniture & fixtures – 20% per year
  • Software – 50% per year
  • Computers and computer equipment (e.g. scanner, printer, hard drive, monitor, etc.) – 100%
  • Vehicles (car) – 30% per year (see Should I lease or buy a car?)

Computers include laptops, desktops, notebooks, hardware and computer related equipment, such as scanners, printers and faxes. Computers and computer related equipment can be written-off entirely in a single year, as long as the purchase was made from January 27, 2009 to February 2011. If you are looking to purchase computer equipment, now is the time to do it because you can get a significant tax deduction.

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Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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