Tax Write-Offs for a Small Business in Canada

If you own a small Canadian business, it is beneficial to claim these 8 tax write-offs, as they will help reduce your business’ taxable income and taxes payable.

1. Home-Office Expenses

The most common tax write-off for a small business in Canada is home-office expenses. If you work from a home office, you will be eligible for deductions on certain home-office related expenses.

Home-office expenses include:

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

A number of home-office expenses that you can write off are determined by the percentage that your home office space is of the total size of your home.

2. Vehicle Expenses

As a small business owner in Canada, you can deduct vehicle expenses.

Vehicle expenses include:

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

A number of vehicle expenses that you can claim are determined as a percentage of your business mileage in the year over your total mileage in the year. For example, if you drove 5,000 kilometers in the year for business purposes and 20,000 kilometers in total for the year, then you can write-off 25% of your vehicle expenses.

You are required, by the CRA, to maintain an accurate logbook in order to verify the amount your car is being used for personal and business purposes.

Tip:
If you own your vehicle, then you can claim depreciation for 30% of the cost of the vehicle each year under the declining balance method. This is referred to as Capital Cost Allowance.

3. Accounting and Legal Fees

Another way of reducing your taxes is by deducting fees paid to your accountant for preparing your income tax return. Similarly, the amount that you spend on legal fees in the ordinary course of operating your business is tax-deductible.

4. Office Rent

Rent paid to your landlord for the use of office space is tax-deductible. Keep a copy of the lease agreement and rent receipts as you will be required to provide these documents should you be audited by the CRA.

5. Advertising

Depending on the advertising method used by your small business, advertising expenses can either be fully or partially written off.

Online Advertising

• Online advertising is fully deductible; including your website’s domain name registration and web hosting

Television and Radio Advertising

• This form of advertising may be fully deductible for Canadian stations
• If you advertise with a non-Canadian broadcaster, then these expenses cannot be written off

Magazine and Newspaper Advertising

• Canadian market-based magazines and newspapers can be fully deductible
• In order to be written off, at least 80% of magazine and newspaper material must be journalistic information
• Advertising cannot take up the majority of content space
• If a magazine or newspaper contains less than 80% journalistic information, then only 50% of the advertising expense may be written off

6. Meals and Entertainment

50% of the amount that you spend on meals and entertainment is tax-deductible. For example, let’s say you decide to take your client out for dinner or to watch a baseball game. 50% of the cost can be deducted from your business income, assuming that you are able to provide a receipt.

Nevertheless, there are certain circumstances where you are able to deduct 100% of the cost of meals or entertainment. This include:

• Staff events or parties (maximum of 6 per year)
• Meals and entertainment that is provided for a registered charity fundraiser

7. Insurance

There are several different types of insurances that qualify as tax write-offs for small business owners in Canada.

Types of Insurance

General Business Liability Insurance

• This insurance protects your business from potential lawsuits associated with injuries and is fully deductible on your personal tax return
• The premiums paid each month to your insurance company can be claimed on line 8690 of your T2125 Statement of Business Activities form.

Business Property Insurance

• Property insurance will cover all business assets such as building and equipment in case of destruction
• Home insurance does not cover your business if you work from home
• These premiums can be used as tax write-offs for small business owners through their personal tax return

Business Interruption Insurance

• It is an add-on to property insurance and covers all or a portion of your business losses that arise from any natural disasters including fires.
• Premiums paid for this insurance can also be written off on your tax return

Life Insurance

• It cannot be claimed as a business deduction unless your life insurance policy is used as collateral for a business loan, in which case you may be able to claim a portion of the premium paid
• For more information on eligible insurance, deductions refer to the CRA’s bulletin on Line 8690 – Insurance

8. Capital Assets

Tax depreciation is a major tax write-off for small businesses in Canada. Capital assets that can be depreciated include furniture and fixtures, equipment, computers, and more. However, they cannot be written off in a single year. Instead, these assets are written off over a period of time-based on the CRA’s specified depreciation rates.

The depreciation rates for 2016 include:

• Building (4% per year)
• Furniture and fixtures (20% per year)
• Software (50% per year)
• Computers and computer equipment (55% per year)
• Vehicles (30% per year); For more information view Is It Better to Lease or Buy a Car in Canada?

Tip:
Make capital purchases right before year-end so you can take advantage of depreciation deductions on purchased assets. In the first year, only half of the CCA can be claimed.

Conclusion:

In conclusion, tax write-offs will ultimately help save you money by reducing your business’ taxable income and taxes payable. Consult your accountant to find our which tax-write offs you could be taking advantage of.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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