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Tax Write-Offs for a Small Business in Canada

What are the tax write-offs for a small business owners in Canada?

If you are a small business owner in Canada, you may want to know which tax deductions will save my business money. Tax write-offs for a small business in Canada will significantly reduce your business’ taxable income and taxes payable.

1.) Home-Office Expenses – Tax Write-offs for a Small Business in Canada

The most common deduction or tax write-offs for a small business in Canada is home-office expenses.

Tax Write-Offs for a Small Business

If you work inside your house you will be eligible for tax write-offs on certain office related 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, 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. It is important to note that you cannot claim a dual purpose room such as your bedroom. The space you claim can only be used for the purpose of business activities.

Example: Vivian is a lawyer and works out of her house. She estimates that 300 square feet out of her 3,000 square foot house is allocated to office space. This means Vivian can deduct 10% of her home office expenses. If she were to incur $5000 of home office expenses (as listed above) during the year she would be able to claim $500 ($5,000 x 10%) on line 9945 of T1 tax form

It is important that your house does not take up too much square footage, or you may not be able to claim the principal residence exemption. The CRA is also considering a mandatory submission of a floor plan to make sure your square footage estimates are accurately portrayed.

Note that home office expenses can be deducted by either a self employed individual or a corporation. Here are 8 home-office tax write-offs.

Before deducting home office expenses, you should consult with an accountant in Toronto.

2.) Car Expenses – Tax Write-offs for a Small Business in Canada – Accountant Toronto

Car expenses are a major tax break and is a commonly used tax write-offs for a small business owners operating 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 expense 100% of your car costs, 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. The following example illustrates a person who purchases a vehicle for $25,000 and the CCA that would be deducted in that year.

Tax Write-offs for a Small Business

Amortization table you can expect to fill out on your business tax return. Showing the purchase of a car in the current year.

Any time you purchase a car for business, an amortization table like the one above will need to be filled out on your T2125 Statement of Business Activities return. In the first year of purchase the CRA allows you to take a half year off the depreciation. It does not matter if you purchased the asset January 1 or December 31, only half is depreciable.

In order to verify that the car is in fact being used for business, the CRA requires that an accurate log book be maintained. There are many apps available through Google Play or the App store which can keep track of your business mileage. Things you should include in your log book are:

- The destination
- Reason for trip
- Distanced covered(Km)

When purchasing your next car, you should consult with an accountant, to determine the tax write-offs for a small business in Canada.

3.) Capital Assets – Tax Write-offs for a Small Business in Canada

Tax depreciation (i.e. capital cost allowance) is a big tax write-offs for a small business . 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:

Tax Write-offs for a Small Business

Computers costs can be deducted at a CCA rate of 55% each year.

- Building – 4% per year
- Furniture & fixtures – 20% per year
- Software – 55% per year
- Computers and computer equipment (e.g. scanner, printer, hard drive, monitor, etc.) – 55%
- 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. After February 2011, the depreciation rate for computers is 55% per year.

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.

4.) Insurance

Insurance is an important part of any successful business. The Canadian Revenue agency also agrees with this assessment and offers policy owners deductions on their tax returns. In this section you will learn which types of insurances  qualify as tax write-offs for a small business owner.

a.) General Business Liability Insurance

A common insurance many businesses should invest in is general liability insurance. This type of insurance protects your business from:

- Injuries to customers, employees, vendors or visitors that occur on your premises.
- Injuries that occur elsewhere as a result of the actions or negligence of an employee
- Third party property damage caused by an employee

Not only does this protect your business from potential lawsuits associated to injuries, it is also fully deductible on your personal return. The premiums paid each month to your insurance company can be claimed on line 8690 of your T2125 Statement of Business Activities form.

b.) Business Property Insurance:

Another important form of insurance your business might want to invest in is property Insurance. Unfortunately general liability insurance does not protect your assets in case of damages. Property insurance will cover all business assets including building and equipment in case of destruction. If your business is run out of your home you will still need to invest in this insurance even if you have home insurance as it does not cover the business portion. Property insurance premiums can be used as tax write-offs for a small busines owners through their personal tax return.

c.) Business Interruption Insurance

This form of insurance is not sold as a separate policy. It is an add-on to property Insurance and would be a wise investment for a small business. In the event of a natural disaster or fire business interruption insurance will cover you for all earned income expected during the duration your business is closed. Premiums paid for this insurance can be a tax write-offs for a small businesses on their tax return included in the insurance section.

d.) Life Insurance

Life insurance policies or any other personal policies an individual may posses, cannot be claimed as a business deduction. In order for you to be able to claim an insurance policy as a deduction it must be related to your business. There is one circumstance if your life insurance policy is used as collateral for a business loan, you may be able to claim a portion of the premium paid. For more information on eligible insurance deductions check out the CRA’s bulletin on Line 8690 – Insurance

5.) Meals and Entertainment

Tax Write-offs for a Small Business

If you entertain clients for business purpose you can deduct 50% of the cost.

When you entertain clients for the purpose to earn business income it will be tax deductible. This means if you take a client out for dinner or enjoy a live leafs game, 50% of the cost can be deducted from your business income. If you cannot provide a receipt a reasonable amount can be deducted, which CRA states is 50% of $17 per meal or a maximum of $51 per day.

There are certain circumstances where you can deduct 100% cost of meals or entertainment. The following are some examples:

- For a staff or holiday party (allowed 6 per year)
- When meals are provided for a fundraiser where the primary purpose is to benefit a registered charity
- When meals and entertainment are provided as compensation to customers (restaurant or hotel)

Unfortunately golf fees are not tax deductible on your return.

A common practice of business especially in North America is entertaining potential business clients with a round of golf. Unfortunately golf fees are not tax deductible even when entertaining clients.

6.) Accounting and Legal fees

Another two tax write-offs for a small business owner in Canada are accounting and legal fees.

Accounting Fees

If your business requires an accountant to prepare your tax return, you can fully deduct the tax return preparation & accounting fees from your business income.

Legal Fees

If you seek the advice of a lawyer related to a potential lawsuit or other circumstances related to your business, then the legal fees incurred are fully deductible.

If a lawyer is used to purchase a capital asset such as a building or equipment, the legal fees incurred cannot be deducted from your business income. The legal fees are instead added to cost of the capital asset purchased.

7.) Business Expenses – Tax Write-offs for a Small Business in Canada

 

Tax Write-offs for a Small Business

As a small business owner there are many tax write-offs for a small business owner that the government makes available to help you continue to grow.

Most business expenses incurred by small businesses in Canada are tax deductible

The Canadian Income Tax Act states, 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 costs that a small company can expense? 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 to find out if you’re missing any tax write-offs for a small business owner.

About the Author : Allan Madan

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.

If you like this article, kindly +1 and follow Allan Madan on by clicking on these
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Tax Write-Offs for a Small Business in Canada was last modified: November 19th, 2014 by superAmin
This entry was posted in Corporate and business tax and tagged , , , , , . Bookmark the permalink.

About the author

is a Chartered Accountant, CPA and Tax Expert and enjoys working with business owners, individuals and entrepreneurs.

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.

84 Responses to Tax Write-Offs for a Small Business in Canada

  1. I think this site has got some real superb information for everyone : D.

  2. Many thanks from Gilford ;)

  3. TB says:

    If I purchased a new computer for my proprietorship in December 2012, how much of it should I write off for the 2012 calendar year if any? What is the maximum? Thank you.

    • superAmin says:

      Hi TB,

      Computers are generally depreciated at a rate of 55% (Class 50).

      Hope you find this helpful and thank you for your question.

      Allan and his team

  4. Janice miles says:

    Hi Allan I just incorporated my small business this year and had a questions to ask you. I want to pay my self a salary but with the least tax implications. Can I just withdraw my salary from the company or is there a better way to pay myself?

    Thanks

    Janice

    • superAmin says:

      Hi Janice,

      Each option has advantages and drawbacks. It is important to evaluate your particular financial goals before knowing which option is more favorable. The biggest advantage of paying a salary (and bonuses) is that you can deduct this as a business expense, reducing your corporation’s taxable income. However, paying a salary will require your corporation to remit payroll taxes and prepare the necessary tax slips, which can be complicated if you don’t have prior experience.

      The biggest advantage of paying dividends from your business’s perspective is the relative simplicity when compared to paying salary. You are not required to make CPP payments and it’s as simple as writing yourself a cheque and updating some corporate documents (i.e.: minute book). However, dividends are not deductible as a business expense.

      From a personal perspective, dividends are taxed at a lower rate than salary. However, dividends do not increase your RRSP contribution room, which will prevent you from contributing to your RRSP.

  5. Jenny says:

    I uses my car for my own business. So what you are telling me is I put on 60,000 km for business last year of which 40,000 was for business. I can therefore deduct 66.67% of my cars expenses?

  6. Travis says:

    I was wondering If I could carry forward my business home expense forward into the future? If so how long do I have to uses this deduction?

    • superAmin says:

      Hello Travis,

      Yes you can carry forward your home office expense. There is no restriction on how many years it can be carry forward.

      Team Allan

  7. Amir says:

    I was wondering if I can deduct my 407 expenses as part of the motor vehicle deduction?

    • superAmin says:

      Hi Amir,

      If you are self employed yes you can deduct them. If you are reimbursed by your boss or company you work for, then no you cannot claim it as a car expense.

      Thanks

      Allan

  8. Jordie says:

    Hello,

    I recently purchased a building and required a lawyer to finalize the transaction. It says legal fees are tax deductible, Does this mean I can deduct them on my company’s tax return this year?

    Thanks

    Jordie

    • superAmin says:

      Hi Jordie,

      Unfortunately legal fees associated with purchasing assets such as a building are not allowed to be deducted. They are included in the business purchase price.

      Hope this helps

      Allan

  9. Shelly says:

    Hi Allan,

    I was wondering, can i still claim expenses such as taking clients out to dinner if I no longer have the receipt?

    Thanks

    • superAmin says:

      Hi Shelly,

      Unfortunately you cannot claim theses expenses. The CRA requires supporting documents when you submit an expense. You can claim these expenses but you do so at your own risk. If the CRA asks to audit your books you will be required to show supporting documentation. IF caught you can be subject to fines and possible legal action.

      Thanks

      Allan

  10. Josh says:

    I am a small business owner but I have a question about RRSPs. I have recently started saving through an RRSP and I am not seeing the results I want. I was wondering what type of Investments should I be holding in my plan?

    Thanks

    • superAmin says:

      Hi Josh,

      For your RRSP you will want to follow the same strategies as any portfolio manager will tell you. You will want to have a balance mix of safety, income and growth. To achieve this you may want to invest in mutual funds that have close to a 50/50 split between bonds and stocks. You should also invest in GICs as well as ETFS to reduce your overall risk. These of course will all remain inside the RRSP accumulating interest over time and rewarding you upon retirement. If you are looking for a more profitable retirement plan you may want to look into Individual pension plans and if your company offers them.

      Regards

      Allan

      • Josh says:

        Hi Allan what exactly is an Individual Pension Plan and how can it help me generate more money for my retirement savings.

        • superAmin says:

          An IPP is a defined-benefit pension plan that is registered with the provincial government as well as the CRA. Defined-benefit pension plans will provide the investor with a specified monthly benefit. This will be distributed to you upon retirement. The amount is predetermined by a formula based on factors which include your income and how many years you have worked. The reason why they produce higher returns is you contribute a greater amount than an RRSP and the plan is usually operated by an actuary who specializes in getting the greatest return when investing. For more information check out tip 6 on how to save tax for the self employed in Canada article.

          Thanks

          Allan Madan

  11. Trinity says:

    I own my own business. I recently went to Chicago to try and enlist a potential client to add to my business. I know certain travel expenses are deductible on my business income tax. I am not incorporated. Please let me know if the travel costs (airfare, hotel) and any meals and entertainment costs I incurred are covered.

    Thanks

    Trinity

  12. Trang says:

    Hi Allan,

    Just started on my own business. My question has to do with business assets that have gone down in value. Can I claim Capital Cost Allowance on items I once used for myself if I’m now using them for my business?

    • amadan says:

      Hello,

      When you start using items for your business that you once used for your own personal use, there is a deemed change in the use of the asset. Therefore, the CRA treats the situation as if the “personal you” has sold the asset to the “business you”. The value you attribute to the asset is its fair market value, not what it originally cost you. Let’s say you bought a computer, and it cost you $4,000. Now that it is used, however, it is worth $1,500. Its current value of $1,500 is what you would put on your form T2125 under CCA class 50. The difference between these two numbers is not deductible, because that was the time you were using the computer for yourself.

      Regards,
      Allan Madan and Team

  13. Sora says:

    Hi Allan, I bought accounting software for my business last year. Is this eligible for deduction? If so, at what rate can I deduct it at?

    • amadan says:

      Hello,

      Computer software that you purchase (that is not the operating system) is eligible to be written off evenly over a two year period. Software is included in class 12, and is subject to the half year rule. If you bought accounting software for $500, then you would write off $250 in the year of purchase and the remainder in the subsequent year. When buying computer and software together, remove the price of the software from the overall calculation. It is important that you not include the whole purchase price as computer equipment because it is deductible at a lower rate than software.

      Regards,
      Allan Madan and Team

  14. Selva says:

    If I purchase a service for Social Media expert to advertise my business, can I claim it under advertisements?

  15. Neno Puck says:

    Hi.

    I am starting a business using home equity line of credit (HELOC) money. I already know I can deduct the interest expense, but my question is this. If my business makes $10k in its first year, can I apply that towards my mortgage instead of my HELOC? If so, how long can I do this for? Can I write off the full HELOC expense even if my business makes money?

    • superAmin says:

      Hi Neno.

      The profit from your business is considered “after-tax money”. Therefore, you can do what you want with it. The direct use rule states that interest (where the principal amount of debt is incurred to generate property or business income) is fully deductible against the respective income. You do not have to pay your home equity line of credit, but do make sure you are current with your required HELOC payments.

      If you took out the home equity to try and make taxable money, then you can deduct it. However, you cannot take out the HELOC and use the money for personal use and take a deduction for interest paid. Keep a paper trail to show how you used the borrowed funds.

      Regards,
      Allan Madan and Team

  16. henryc says:

    Hello.

    I am a salaried employee, and I work in sales. My company gives me a monthly car allowance, which is taxed and appears on my bi-weekly paycheques every month. Each year, I deduct car expenses (car washes, oil changes, etc.) at a ratio of roughly 55% work and 45% person use. This ratio varies from year to year, but it does stay consistent.

    This year, I bought a set of snow tires for $1800. I also upgraded the stereo system, which cost me $3500. Should I add the tires and stereo to my tax return?

    • superAmin says:

      Hello Henry,

      You can claim the tires, but the main issue is with the stereo. A stereo is not included in the regular maintenance. If you were self-employed, you could add it as a class of depreciable property. This much more difficult as a salaried employee. Ultimately, you could claim the stereo as an addition to your vehicle’s CCA or an outright repair expense. If you claim it as an outright expense, you run the risk of being reviewed or audited by the CRA. You have to prove that the stereo is required for you to conduct your business and operate your vehicle.
      In addition, you can only depreciate up to $30,000 pre-HST/GST on new passenger vehicles. If your original purchase price was above that, this will not work. If you need any more advice, please do not hesitate to contact me.

      Regards,
      Allan Madan and Team

  17. Greg Odmeg says:

    Hello,

    I have a used 2006 GMC diesel truck. Having just sold it to my company, is it true that I cannot claim CCA on it this year? If this is true, what dollar amount do I use for CCA next year?

    • superAmin says:

      Hello.

      Since you no longer own the truck as of year-end, you cannot claim CCA personally if you were previously entitled to. However, your company can. In the first year, it would be half of the regular rate. If this is the company’s first year, the CCA must be prorated by the number of days in the fiscal year. If you were using the truck for business before the sale, you can claim CCA. However, you will have a disposition. Also, make sure that you are not liable for any transfer taxes.

      Regards,
      Allan Madan and Team

  18. yesar44 says:

    I’ve recently started my own small business and found your article to be very insightful. However, I want more exposure for my business and was wondering how writing off advertising would work (I saw that you mentioned it as a taxable write-off). I’m just looking to do some local advertising in newspapers and there’s a local radio station and community television station nearby that I might inquire about running a commercial of some sort. Are these eligible for a tax write-off?

    • amadan says:

      Advertising and promotion of your small business do qualify as a tax deduction by the CRA. For newspaper ads and television/radio station ads, they have to be Canadian run and operated.

      You can deduct all of the cost of your advertisement in a news publication if the publication’s content contains more than 80% of original content compared to their advertising content. If they have less than 80% of original content compared to their advertising content, then you can deduct 50% of the advertising costs.

      However, your advertisement must be towards a Canadian market. If you advertise towards Canadians with a foreign broadcaster, you will not be eligible to claim any advertising deductions.

  19. Chrysanthos Konstantinos Pachis says:

    Hey Allan,

    For the first time, my business well be writing off some damaged and obsolete equipment this year. We have a list of everything of everything we bought, but how would I go about writing off the equipment I no longer need?

    • superAmin says:

      Hello.

      Equipment that is damaged, obsolete, or worthless can be taken off your records. This will increase your expenses, and lower your tax liability. With your list, you should mark all equipment that is:

      1. Obsolete
      2. Worthless, or damaged beyond repair
      3. Damaged, but still usable.

      For the first two, write the full value of the of the equipment for write-off. For the last, list the reduction in value for write-down. For example, let’s say you have a computer you bought for $2000. This computer is sitting in a closet, because it’s obsolete. In this case, you can expense the full $2000. If it was damaged, and the value is $300 less, you can list the $300 as an expense. This will reduce the book value to $2700. The total of all these write-offs and write-downs can be taken as an expense on your return. The assets are then reduced in value.

      Regards,
      Allan Madan and Team

  20. Cheryl says:

    I own a small business which operates out of my home. It is to my understanding that I can write off home-office expenses such as office space. Can this cost still be written-off if my office is in a home that I am renting?

    • superAmin says:

      Yes you can still deduct this expense even though you are working out of a home that you are renting. As mentioned though, you cannot write off 100% of this expense. The process of finding the amount that you are able to deduct from a rented house or apartment is the same as how you would find it for a fully-owned home. The amount you can deduct is equal to the percentage of the rent and maintenance costs that are used towards the business.

  21. Francis Baker says:

    Hello,
    Can I rent out my primary residence to family? I paid off my condo, but I can’t sell it. I am worried, therefore, about being hit with a tax I can write off. I also wish to write of strata fees. Do I have to live elsewhere if I rent to a spouse, or adult child?

    • superAmin says:

      Hello,

      You are able to rent to anyone. There is no requirement to take a capital deduction against a residence that is partly used as a rental property. If no capital allowance cost is taken, the capital gains exemption on the principal residence is not at risk.

      Regards,
      Allan Madan and Team

  22. Ravi Shanka says:

    Hey Allan,

    I recently started a home decorating business. I am trying to prepare for filing taxes for next year. I want to make sure my record keeping is up to date, and I am saving for all appropriate expenses. However, I am not sure what I can write off. Are there strong guidelines around what I can and cannot write-off?

    • superAmin says:

      Hello,

      I am assuming that as you just started the business, you are running a sole proprietorship. As someone who works for themselves, you will need to keep detailed records. Mileage, vehicle expenses, advertising expenses, utilities, supplies, and repairs all must be kept. If you work from your home, you may be entitled to a pro-rated portion of your rent, real estate tax, mortgage, utilities insurance, and other home-related items.
      You may also be able to depreciate your home, and the equipment you purchased for the business. For more information, please read the article above. If you need more information, please don’t hesitate to contact me directly.

      Regards,
      Allan Madan and Team

  23. Jin says:

    Hello,

    Just a quick bit about myself. I work from a home office Monday to Friday. During this time, I work 9-5 in sales for a .com company. I am also a 50% owner in a small e-commerce business that I run out of my home. Finally, I also own a rental property about 1.5 hours away. Currently, I write off a portion of my home expenses (mortgage interest, utilities, insurance, etc.). My work provides a T220. I also write off vehicle expenses, incurred in the upkeep of my rental properties.

    Can I write off additional expenses, since I run a business out of my home as well? Will this complicate my tax situation? Will I open myself up for an audit if I start writing off too much stuff? Even though I can justify it, as I do legitimately work from home and need my car for both the rental and my e-store.

    • superAmin says:

      Hello.

      Unfortunately, you cannot write things off twice. Each area is a separate business, so they will be on separate statements. If a single area is used for more than one business, just allocate half of the area towards each business. For the car, record the travel in your mileage log. Note which business the travel is for. If a given trip is for more than one business, divide it by two.
      High expense claims relative to business revenue and compared to other businesses in your industry can be a flag for audit. If the expense is legitimate, make sure you have accurate records to back up your claim. If you need more information, or help getting your records in order, I would be happy to help you.

      Regards,
      Allan Madan and Team

  24. Vikram Devadas says:

    I have a cottage that I am renting out. Is it possible to write off maintenance costs against the income from selling a non-principal residence? It seems like this should be possible. However, I was not able to find any information indicating if this is allowed. Money has to go into it to maintain some value. Otherwise, it’ll decay. I imagine there could be a sliding scale where the time value of the ‘maintenance money’ would reduce to zero. Thoughts?

    • superAmin says:

      Hello,

      You can write off maintenance expenses, but if you’re upgrading things then no. You must replace carpet with carpet and the like otherwise it’s a capital improvement and not deductible. Permanent additions/improvement add to the adjusted cost base, but the CRA considers repairs/maintenance carrying expenses and so they don’t affect capital gains calculations. You can find more information at: http://www.craarc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html.

      Regards,
      Allan Madan and Team

  25. Tomas Dubiel says:

    Hello,

    I am filing using Studio Tax and so far it’s been very easy. I have one last piece to add and I am so lost on how to do it. I work a regular job and receive a T4 from my employer. I also work in the community, on contract as a contract therapist. I work at a set rate, and I send in an invoice for my hours. Then, they send me a check in the mail. I don’t have a personal business or anything like that. I don’t have business expenses or anything either. I have no clue how to report my earnings. Can you help?

  26. Allan says:

    Hello,

    My fiancé is an advanced care paramedic. She must pay around $500 a year to the college of paramedics. She also has to take $500-$1000 worth of continuing education courses in order to stay current. Are these expenses write-offs? Does she need anything other than her receipts?

    Also, she has bad feet. Therefore, she has opted to buy $400 work boots. Is this a write-off? What about driving to the station in the middle of the night whenever she gets a call? Finally, she moved from Regina to Strasbourg (only about 70km) for employment, are her moving expenses a write off?

    • superAmin says:

      Hello,

      If the $500/year she pays to the college of paramedics is a professional membership fee, it can go one line 212. This is the same as union dues. For the continuing education, the course fees must be over $100 and are paid to an accredited school. If they are, the tuition fees are eligible for the tuition/education credit on schedule 1 and 11.

      She should receive a receipt marked ‘official receipt for income tax purposes’, or a proper T2202. She does need the receipt or T2202 for backup. If her employer paid any part of the tuition, she would have to deduct that part and only claim what she paid. If her employer paid some or all AND included it in income on her T4, then she can claim all of the tuition. See this link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/323/menu-eng.html.

      Unfortunately, the $400 work boots are not a write off. This would be eligible only if she were self-employed. This is the same for driving the station in the middle of the night.
      For the moving expenses, she must complete T1M. A move must be a minimum of 40km in order to be eligible. See this link for other criteria: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/q/q1-eng.html.

      Regards,
      Allan Madan and Team

  27. Rela says:

    Hello,

    I am a resident of Ontario. I have a regular office job here, but I also earn a fee from a company overseas. The consulting I do consists of email correspondence and participating in conference calls. I do all of this from home, since I clearly cannot do this during my daytime job.

    I believe this qualify me for an office tax deduction. Does it make any difference that I am consulting for a foreign company? Am I considered self-employed with a home office? I began the consulting last tax year, but I did not claim any deductions. Can I file a modification or something to get back some of the tax that I paid?

    • superAmin says:

      Rela,

      It matters most where you perform the work. If you work in your office at home, you have to pay the taxes associated with that. Therefore, you can deduct costs associated with that. Also, considering the following. Are you reporting this consulting income? Do you have an area that you mostly use for home office? If you do, you can take the square footage as a percentage of the total area of your home. This will help you determine how much of certain expenses you can take.
      Finally you can file a T1-ADJ to amend a previous year’s tax return. To file a request, visit the CRA at http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html.

      Regards,
      Allan Madan and Team

  28. Zac Lynwood says:

    Hello, quick question: I run a business out of a house that I rent. Am I allowed to deduct the rent I pay for the house on my tax return?

    • superAmin says:

      Hi, you are allowed to deduct rent for the property you use for your business. The deduction can include the land and building where your business is situated. Make sure you claim the rent expenses as Business-use-of-home-expenses. However, you may only deduct the space you use for business purposes. For example, if you use half of the house for business, you can only deduct half of your rent. On the plus side, you are allowed to deduct any utilities you use in the entire property.

  29. Pedro Alvarez says:

    My husband works full time. For the last two years, he has been trying to establish a side business as a freelancer. I used to complete our taxes myself. As we are now claiming expenses, I want to use an accountant because of the increased complexity. He only has revenue of around $2000. I am not sure if it’s even worth claiming this, or if there is a law that says we have to.

    With the expenses involved, I believe the income be will be reduced to zero. Is it best to save ourselves the hassle of track all of our bills? We are mostly spending on a home office and a vehicle. Is it okay to just consider this a hobby and not claim anything other than our full-time jobs with our T-4′s?

    • superAmin says:

      Hello,

      You should include the revenue from the side business on your tax return. The courts hold that certain activities are indeed hobbies, but those cases come about because clients tried to claim large losses that the CRA denied.

      It is the law to reflect all revenue earned from all services. If you do not declare all revenue, you can be found to be guilty of tax evasion. Having said this, completing your return shouldn’t be that hard. Although the first year is the hardest, a tax professional like myself will be able to set you up with a system that works.

      From what you said, most of your husband’s expenses are mostly from his home office and vehicle. You can deduct lease costs or depreciation on your car. If your husband’s expenses exceed revenues, your husband can claim a loss against other income. You cannot claim a loss against other income based on your home office expenses — but home office expenses can be carried forward to be claimed in the future against business income.

      Regards,
      Allan Madan and Team

  30. Karl says:

    I live in British Columbia. For a number of years, I ran a computer repair business. I never made than 25,000/year, and have also never collected any taxes. I didn’t file for the past couple years, but I am now in the process of doing my taxes. I am also no longer doing the computer work. I do have an office full of parts and machines that I have had for years in my home. Is there a way I can write off the office space, heating, and other costs for that office?

    • superAmin says:

      Hello,

      Though you can claim home office expenses against business income, these costs cannot increase a loss. You can only deduct them to bring taxable income to zero. To claim expenses, the work space has to be your primary place of business. Alternatively, it has to be a work space used exclusively for earning income and is used on a regular and continuous basis for meeting clients.

      Assuming you qualify, in order to claim the expenses, you will need to take the total of the utilities, taxes, insurance, repairs and mortgage interest for your entire residence and then claim a percentage of costs based on the percentage of square footage attributable to your office space.

      Regards,
      Allan Madan and Team

  31. Chelsea Cantrell says:

    Hi, this year my home business ended up having more expenses than income. I was wondering if there are any ways to help relieve the expenses on my tax return.

    • superAmin says:

      Hello Chelsea, yes there is something you can do to help with your expenses. The CRA provides something called “unused work space in home expenses” which allows you to carry the expenses forward to the next year.

      If your business continues to meet the conditions to claim the unused work space in home expenses, you can carry forward the expenses indefinitely.

      Allan Madan and his team

  32. Topher says:

    I am an independent contract worker. However, if the labor board and told me that I am an employee, am I expected to pay fees/money/taxes back to the Canada Revenue Agency (CRA) for the write-offs I had in the previous years? If so, how many years does it go back?

    • superAmin says:

      Hello.

      Each government agency makes its determination of whether you are an employee or independent contractor seperately. The CRA is not bound by a ruling made by the labour board or any other government agency. Technically, the CRA is not even bound by its ruling on previous years, meaning it can change its mind down the road.

      Usually, the CRA will grant some respect to the decision made by another board or government agency that has looked into the situation. Usually the CRA is only bound by a court ruling at the exact time frame being looked at – and technically they are only bound if the CRA (or Minister of National Revenue) was a party to that court action.

      If the CRA does get notified of the labour board’s finding, or for other reasons does look into your situation and feels that you are an employee, you are then given a chance to make representations to them as to why you are an independent contractor and not an employee. If the CRA determines that you are, or were, an employee, then there will be an issue that you are not entitled to the business expenses you have claimed. However, you may be able to claim some or all of the expenses as an employee.

      The CRA generally does not reassess past what is called the ‘normal reassessment period’ unless they believe that the taxpayer was negligent in filing his or her tax returns. Where a taxpayer is a person and not a corporation, the normal reassessment period refers to the three year time period starting from when a person gets their Notice of Assessment for a tax year (i.e. if you filed your 2013 tax return, and received a Notice of Assessment dated July 1, 2014, the normal reassessment period would roughly expire on July 1, 2017).

      Regards,
      Allan Madan and Team

  33. Matthew says:

    Hi Allan,
    I am starting a small technology business and have incurred some expenses to put together a prototype that can be used in presentations to potential investors. While these costs are not directly producing sales, indirectly they are required to obtain further financing, which is required to for me to bring my business to the next level of sales. Can these costs be deducted as a business expense? And if not, how should these costs be classified?
    Thank you!

    • superAmin says:

      Hi Matthew,

      Thank you very much for your question. In order to give a more specific
      opinion on how to treat the cost, much more detailed information is required
      regarding your business and the prototype, such as the commencement date of
      the business, what the exact expenditures for putting the prototype together
      were for, what type of technology/product the prototype is, what type of
      work the development consists of, etc. Hence, I am restricted to provide
      some general guidance only, which you can find below:

      Generally, after a business has commenced, the initial expenditures
      (start-up costs) that are incurred in relation to the business (and are
      recognized by the Income Tax Act) are treated the same way as expenditures
      that are incurred for the purpose of earning income/for outlays on account
      of capital for the business. (IT-364)

      Since the cost for developing the prototype provides a lasting benefit, the
      expenditure would generally be capitalized and amortized over time (rather
      than be treated as a current expenditure and be deducted fully when
      incurred).
      However, depending on what the prototype is, what the development work and
      costs consist of, and other factors, the expenditure may also be treated as
      Scientific Research and Experimental Development (SR&ED) Expenditure. As
      indicated above, in order to provide a more specific treatment for the
      development cost, more information regarding the prototype and the business
      will be required.

      Sincerely,
      Allan Madan and Team

  34. Caryl Alden says:

    Hi, I am looking to take a class that will upgrade my knowledge and skills to further my career at the small company I work for. I was wondering if I can deduct any of the costs of the classes I take on my tax return.

    • superAmin says:

      Hello Caryl, if the course is intended to maintain or upgrade an existing skill that relates to your business, the price of the course will be fully deductible. However, if the course is taken to learn a new skill that is related to your business, the cost of the course will be treated as a capital expense and you won’t be able to fully deduct the costs.

      You should also keep in mind that if the course does not relate to your business at all, the expenses will not be tax deductible.

      If the course is eligible for the tuition tax credit, the CRA says you must claim it as a credit. If it is not eligible for the tuition tax credit and it relates to your business, then the costs can either be fully deducted as a business expense, or deducted over time as an eligible capital expenditure.

  35. Nora says:

    Hi, I started a small business last year and I made a lot more profit than I initially thought I would. I was thinking of using the excess money for some radio and newspaper ads. Are there any tax benefits that I can take advantage of through advertising?

    • superAmin says:

      Hello Nora, yes, there are a few tax deductions you can take advantage of through advertising. You will be able to write-off the design and printing costs for the radio ad. You will also be able to deduct the costs that you will pay to create and place your print ads in the newspaper. Just so you know, if the publication you are advertising in has at least 80% Canadian content, you can deduct 100% of the cost. If it is lower than 80%, you can only deduct 50% of the costs.

  36. Christine says:

    Excellent, straightforward information! Thank you for this article! I will definitely be following you! I found this article as I was looking for information on whether I can claim a deduction, or be reimbursed for a particular situation.
    I recently took a 4 day holiday to Montana, but I took work with me. I put real work time in – both on the phone for recruiting and working on my bookkeeping, updating records and other admin tasks.

    My question is on whether my expenses can be reimbursed by my incorporated business, or if I can only use the costs as a tax deduction. Can I have my business reimburse my passport cost that I got specifically for this trip?

    • superAmin says:

      Hi Christine,

      You can only charge-back actual costs that you incurred to your corporation, including:

      - Train, taxi, airfare
      - Hotel
      - Parking
      - Travel visa

      Personal expenses such as charges for renewing your expired passport, dry cleaning, and meals are non-deductible.

      Thanks,

      Allan Madan and team

  37. Paul says:

    Hi Allan, I run a small business where I sell office supplies. Right now my profits do not exceed $30,000 so I haven’t registered for GST yet. I was just wondering if there is any tax benefit for voluntarily registering for GST before I hit the $30,000 mark.

    • superAmin says:

      Hello Paul, registering for GST can either be a good or bad thing, it all depends on your individual situation. I will list some issues that you should consider before deciding what to do.

      To start, as a registrant you will be eligible for input tax credits. This means that by registering you will be able to reduce the cost of your purchases subject to GST by 5%. This is a significant reduction in the cost of your operations. Secondly, you will have to start charging GST on sales to your customers. This may be a problem if none of your competitors are charging GST, so you might start to lose customers. Compare and contrast your prices with people who run similar businesses to determine what the best option for you will be.

      A rule you must always have in mind is that once your taxable sales exceed $30,000 in a taxation year, you are required to register for GST in the following month. One last thing to remember is that input tax credits on supplies and services used in your business can only be claimed from the date of registration. This means that if you operated your business for a year without being registered, you won’t be able to go back and claim an input tax credit on the GST you paid on the stationary used, or on the legal services you received. Since you were not registered at the time, you are not eligible for the input tax credit.

  38. Megan says:

    Hi Allan, I have a few capital assets that I have acquired this year. From my understanding, I will be able to claim a capital cost allowance on these assets. Do I need to claim the allowance now, or can I defer them to another year?

    • superAmin says:

      Hi Megan, the capital cost allowance (CCA) allows you to either claim them now or write them off over a period of years. The amount of allowance you are allowed to write off depends on the size of purchases at rates determined by the government. CCA is also a discretionary expense, which means you can defer the claim in the current year or you can claim any amount up to the maximum allowed by the rules.

      There is a lot of flexibility with claiming CCA, it is possible to manipulate your income from year to year. This makes using the CCA rules a good personal income-splitting technique. For example, if your income is low one year, you may want to claim less CCA if you expect your income to be at the highest tax level next year. You may get more money for you deduction next year, so it may be worth waiting to make the deduction.

  39. Anders S. says:

    Hi, I want to attend a convention that I think will help me network my small business. The problem is, a ticket to attend the convention is kind of pricey. I was hoping there would be a tax deduction or something I could take advantage of. Any insight on this?

    • superAmin says:

      Hi Anders, you are in luck! You are allowed to deduct the costs of attending two conventions a year (you should keep this in mind when planning on which conventions you want to go to, make sure you find the two most important if you want to deduct the cost).

      In order to deduct the cost of a convention, the convention has to be for business purposes only. So you cannot deduct the cost of a comic book convention, unless your business is selling comic books!

      The last thing you need to know is that the convention must be held in an area that covers the geographical area of the organizer of the convention. This insures that a Canadian company doesn’t plan a convention in Phoenix during the winter to get away from the cold. You can, however, go to a Phoenix convention if the convention is held by a Phoenix company and is related to your business interests in Canada.

  40. Riku says:

    Hi Allan, I have an office, but I also use my house for a few business purposes. Am I allowed to deduct home expenses for the business that I conduct, or is that exempt because it is not my principal place of business?

    • superAmin says:

      Hello Riku, you might be able to deduct home expenses for the business if you meet a few criteria. If your home is not your principal place of business, ensure that you designate an area in your home to be used solely for your business. This means that the living room should not be used as your office, unless you are somehow able to kick the rest of your family out of that room. In addition, you must be prepared to meet clients in your office and be able to demonstrate to CRA that you in face do meet clients at home. By taking these extra steps, you can ensure that you can deduct home expenses in your business.

  41. Brian says:

    Hi Allan, I am currently in the process of advancing my small business. I have noticed we are spending a lot of time and money on research and development. Does the CRA provide any relief for R&D? From what I have read in your articles, the CRA offers a lot of deductions, but don’t really announce that you can take advantage of them!

    • superAmin says:

      Hello Brian, yes there is an R&D tax credit that you can claim! The CRA has a pretty good program in this subject called the “Science Research and Experimental Development (SR&D) Tax Credit Program.” Generally, a CCPC can earn an investment tax credit of 35 per cent up to the first $2 million of qualified expenditures for SR&D carried out in Canada, and 20 per cent of any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an investment tax credit of 20 per cent of qualified expenditures for SR&D carried out in Canada. This is a refundable tax credit, which means that even if your business does not make a profit, you will get the appropriate refund back in cash.

  42. Steve says:

    Hi Allan, unfortunately I have to close my small business. I was wondering what steps I need to take in order for the CRA to recognize that my business is in fact closing.

    • superAmin says:

      Hi Steve, there are six steps you need to take in order to truly shutdown your business:

      Step 1: Remit all CPP contributions, EI premiums, and income tax deductions withheld from the former employees to your tax centre within seven days of the day your business ends. You should also write a short note that says your business number and that you are closing your business.

      Step 2: Calculate the pension adjustment that applies to your former employees who accrued benefits for the year under your registered pension plan or deferred profit sharing plan.

      Step 3: Confirm the labour standards of your employee’s province or territory of employment to ensure that you have met their requirements.

      Step 4: Prepare and give a Record of Employment to each former employee within five calendar days.

      Step 5: Complete and file all T4 or T4A slips and summaries using electronic filing methods or on paper, and send them to the Ottawa technology Centre within 30 days from the date your business ends. Give copies of the T4 or T4A slips to your former employees.

      Step 6: Close the business number and all CRA business accounts after all the final returns and all the amounts owing have been processed. To close your payroll program account, you can use the “Request to close payroll account” service in your business account.

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