Tax Write-Offs for a Small Business in Canada Watch Video
Allan Madan, CPA, CA
If you own a small Canadian business, it is beneficial to claim these 8 tax write-offs Read More…
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.
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.
I think this site has got some real superb information for everyone : D.
Many thanks from Gilford 😉
You are welcome 🙂
– Allan
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.
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
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
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.
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?
Yes that is correct Jenny as long as they are the expenses listed above in the article.
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?
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
I was wondering if I can deduct my 407 expenses as part of the motor vehicle deduction?
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
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
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
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
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
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
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
Hi Allan what exactly is an Individual Pension Plan and how can it help me generate more money for my retirement savings.
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
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
Hello
Thank you again for your site, very informative.
I am a self-employed sales-commissioned consultant. Some of my work takes me in the USA and of course now you must have a passport to travel there. Had to renew my passport this year. Are these fees deductible?
Hi Tracy,
Passport renewal fees are a personal expense and are non deductible.
Best Regards,
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?
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
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?
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
If I purchase a service for Social Media expert to advertise my business, can I claim it under advertisements?
Yes you can claim those as business expenses. Please be sure to keep all records of transactions and the service agreement.
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?
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
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?
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
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?
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
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?
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.
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?
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:
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
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?
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.
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?
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
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?
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
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.
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
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?
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.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html
Regards,
Allan Madan and Team
Hello,
I checked into this with CRA and even replacing carpet with carpet is considered a capital improvement. They were super clear on this.
Also, the link given in the response above is broken.
Hi Gillian,
Replacing the entire carpet is consider an improvement and is added to the UCC of the property. However, if you replace patches of the carpet or have it repaired in certain sections, that this is considered a repair and is tax deductible.
Best Regards,
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?
Hello,
You need to use form T2125. It should not be too difficult to understand since your business sounds rather simple. Use your personal name as your business name, unless you have a registered or “Doing Business As” name.
I would think twice about whether you have any expenses related to that contract income. Auto use, lunches, and supplies could all be deductible against that income. Consult the following CRA links, they should give you more information. http://www.cra-arc.gc.ca/tx/bsnss/sm/menu-eng.html. This has detailed instructions regarding studio tax: http://financialcrooks.com/how-use-free-studiotax-2012-program-business-income-t2125-personal-tax-return/.
Allan Madan and Team
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?
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
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?
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
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?
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.
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?
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
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?
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
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.
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
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?
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
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!
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
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.
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.
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?
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.
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?
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
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.
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.
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?
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.
Excellent blog Allan! I have learned so much from you. My question is regarding the half year rule.
I understand from one of your comments above that for application softwares (class 12), the half year rule applies. I am planning to purchase a laptop & operating system software (class 50) and a chair (class 8) for my home office this month. Do these classes also fall under half year rule or can I claim the full CAA amount this year?
Many Thanks!
Hi,
Both Class 50 and Class 8 fall under the half-year rule.
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?
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.
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?
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.
Hi Allan,
Can you write-off legal fees for defending a companies income in a divorce?
-An encorporated business, where the owner is fighting to determine income in the divorce.
Clearly not all of the legal fees for the entire divorce, but since the company has to “defend” it’s self does the company pay the lawyer or is it all personal?
Thanks in advance!
Hi Vivian,
Legal costs incurred to obtain a divorce under the Divorce Act or a separation agreement, are not deductible as these costs are purely personal. Alternatively, legal fees that is deductible is the cost to help your business reputation and may be incurred as a business or investment expense.
However, if you have any dependants who have a pre-existing right, arising from legislation, to support or maintenance, legal costs to obtain an order for child support are deductible.
Legal costs of seeking to obtain an increase in spousal or child support, or to make child support non taxable under the Federal Child Support Guidelines, are non-deductible.
http://www.cra-arc.gc.ca/E/pub/tp/it99r5-consolid/it99r5-consolid-e.html#P80_3408
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!
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.
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.
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.
Client has bought an existing Corporation having non capital losses (Deficit) of 30000/- in the last year’s balance sheet. Are we suppose to carry forward the losses or start afresh.
Hi Tracey,
The non capital losses can be carried-forward so long as they are used to reduce taxable income arising in the future from the same business where the losses originated from.
Hi Allan, I want to start my own home-based business but I am lacking funds. My husband said he will provide me with the money to get the business started. Is it possible for him to do this? Will the CRA hit us with unwanted taxes?
Hi Ren, yes your husband is allowed to loan you the money to start up a business if he can afford it, then there will be no attribution that might occur on the income from the business. This means that the income earned in the business will be taxed in your hands. The business income will not be added to your husband’s tax return. This result is due to the fact that loans made between spouses or minor children for the purpose of operating a business do not fall into the attribution rules.
Hi Allan,
First of all I want to thank you for providing such great information on your website.
Now here is my situation. I registered a sole proprietorship on Jan 1st, 2014 to start an online marketing business and at the time I was working a full time job as well. In Feb I had a child born so I took some time off on parental leave for about 6 months and found a new job which I started working around end of Aug 2014.
During this time I didn’t have the time to focus on building the business and generate any income due to being busy with my child and also the job when I went back to work. I think I only generated a few hundred dollars in revenue but through out the year I bought educational courses (to build the business) worth approx around $10,000 and in Dec 2014 I bought a computer worth around $1100 which I intend to use only business purposes so I can build the business this year.
This year I plan on building the business while I am still working my full time job and I plan on quitting the job in possibly 4-6 month to focus full time on the business. I am expecting to generate possibly $100+ in profits from the sole proprietor that I registered last year.
My question is regarding the expenses I incurred such as educational courses and the computer. What would be your suggestion on filing the taxes and can I carry over all the expenses(mentioned above) for 2015 taxes as a tax write off or am I not able to take advantage and write them off as expenses for 2015 taxes. It will be a shame if all those expenses will go to waste and I can’t benefit at all. Please advise.
Thank you.
Hi Max,
There are two main issues that need to be addressed. First, when did you start commencing business? Second, what was the nature of the courses that you took?
The CRA may argue that you never really commenced business in 2014, as you didn’t generate much in sales (a few hundred dollars) and spent most of your time studying, working, and spending time with your child. Some of the factors that the CRA will look to when assessing whether a business has truly started operating are:
1. Whether a business bank account exists
2. Websites, business cards, and marketing materials prepared
3. Master Business License obtained to operate sole proprietorship in Ontario
3. Whether a business plan has been prepared
4. Your sales pipeline, and sales opportunities
5. Number and dollar value of sales made
If the conclusion is that the business never commenced operations in 2014, then all expenses (computer and education) will be disallowed.
The second issue is with respect to the nature of the educational courses. If these courses are related to keeping you up-to-date on your profession, or for maintaing your license, then they are tax deductible as a business expense. However, if these courses are for personal improvement, or to help you understand business generally, then chances are they will be classified as an intangible asset and will not be a deductible expense.
Sorry I mean to say $100K ++ not just $100 🙂
Hi Allan, I am a first year small business owner. Looking at my numbers briefly it appears that I will lose money. How do I truly calculate my losses and are they tax deductible?
Hi Marissa, if your business lost money in the current year, you may be able to deduct this from income earned in other tax years. But you must calculate your eligible losses first. The first step is to calculate your business loss and enter it on your tax return. Then add in all of your other sources of income, live investment income, pension income, etc. From this, subtract you eligible deductions from income.
If the taxable income on your tax return is negative, you will have a loss that can be used to reduce taxes you have paid or will pay.
Keep in mind that just because your business lost money, it doesn’t mean you have a loss which you can carry forward or carry back. You must first deduct your business loss from all other sources of income in the current year.
is it better to inform insurance company that I use vehicle for both business or personal or just personal use to reduce my premiums? for a new vehicle. I was told to put personal especially as I am just starting as a new business owner (corporation)
Hello Shari,
You may need to consider the option of updating your insurance company with business use portion of your vehicle. The consequences of not doing this is may result in higher premiums and fraudulent reporting penalties from the insurance company. Insurance companies are allowed to collect information from different sources including but not limited to CRA. If you were to claim the expense for business use of vehicle either in your corporate or personal returns, the insurance company may most likely get this information.
Tax deduction for auto expenses:
If Shari’s corporation pays for the insurance of a personally owned vehicle, then the premiums paid will be included in box 14 of Shari’s T4 slip (as a taxable benefit). However, Shari can deduct the business use portion of the insurance premiums paid by his company on his individual income tax return. To do this, Shari must attached form T777, Statement of Employment Expenses, with his T1 Personal Tax Return. In addition, Shari and his company both have to sign form T2200, Declaration of Conditions of Employment, so that Shari can claim a tax deduction for insurance premiums on his return.
Hope the information is helpful,
I heard deducting CCA (capital cost allowance) of property for home office is not a good idea as it will reduce the capital value of the property when sold. Is this correct?
Your article mentioned we can not deduct legal fees to purchase property, but add to the capital cost when selling. How about the PRE (Principal Residence Exemption)? If I live in my principal residence for the entire period I own the property, and use less than 50% for self-employment, the capital gains realized would be exempt from taxes. So, adding the notary (legal) fees to purchase property to the capital cost of the property would be useless. If this is right, there is no way to use or deduct the notary fees, is there?
Thanks,
Lee
Hi Lee,
There is no other way to deduct the legal fees. They are added to the cost of the property. Also, I don’t suggest claiming CCA on a principal residence, because this will cause you to lose the principal residence exemption on sale.
Allan Madan, CPA, CA
I have started a partnership selling used records and books. the inventory was from my personal collection that I have collected over the years. can I use this amount as a deduction for this business year. we started the company in November. do I write a receipt to myself
Hi Tyler,
Unless you have receipts showing the amount that you paid for the records and books, you cannot deduct the cost upon sale.?
Hi Allan, which is best Leasing of Buying? just stating a NEW BUSINESS I need the van to make pick up and deliver products, I don’t know how much Km I may used for the year as yet. . Looking at a grand caravan not sure how reliable it is so unsure if I keep it.
Also should I BUY the vehicle under the business name OR MY NAME I have not started or generate any cash flow yet. is it best to claim the vehicle under the business name or my name? for tax advantage . thanks, you seem so knowledgeable!!!
I WAS ADVICED IT WAS BEST TO PURCHASE UNDER MY NAME PLUS BUYING WAS BETTER AS A NEW BUSINESS OWNER AND LEASING WOULD BE BEST WEHN THE BUSINE IS ESTABLISH OR WHEN START TO GENERATE POSITIVE CASHFLOW
Reply
Hello Shari,
To answer your question above, we would need to know more information in this situation to better advise you as to whether buying or leasing is better. You have to find out the lease term, the interest rate on the lease, what the vehicle will be worth at the end of the term if leasing. If buying, then you would need to know the loan term, the interest rate on the loan, and the purchase amount.
The main factor that decides whether leasing or buying would be better would the interest rate implicit in the lease and the interest rate of borrowing on a loan. Also, one thing to keep in mind is that the shorter the lease term, the more expensive it will be to lease the vehicle. If at ownership the residual value is high, then it makes sense to own it rather than lease it.
Since we are not certain about the number of kilometers used for business and for personal, it is beneficial to buy it under your name rather than the business name. But, if you were to own it under your business name, there is a taxable benefit known as the “standby charge”. The standby charge recognizes that the employee is receiving a benefit by having the vehicle available to them for their personal use.
If the car is owned the formula to calculate the standby charge would be: 2% x cost of vehicle x # of months avail to employee in year. If the car is leased the formula would be: 2/3 x monthly lease x # of months avail to employee in year. Since this is a taxable benefit, it is more beneficial if the standby charge is lower. In other words, the more you use it for business, the lower the standby charge.
For anymore information regarding this and any other questions you may have, you can get in contact with us by telephone.
Allan Madan
Hello, I have a question re HST. In 2012, his first year of business, my brother was told he didn’t need to register for an HST #…but ended up making just over $40k in that year. He reached the $30k threshold in the 3rd quarter. The issue is that he didn’t register for an HST number until September of 2013. My question is 1. Does he have to calculate and submit HST for the amount over $30k in the 2012 year? Can he claim ITCs for that time period? What about the first two quarters of 2013?
Hello Jod,
Those are great questions. You will have to effectively file HST return starting with a date on November 1, 2012 (assuming you have reached $30,000 in third calendar quarter ending in Sep 30, 2012). The Income that you received after this date will have to be reported. Even if you have not collected HST – you still need to pay the HST on income between Nov 1, 2012 to Aug 2013. You can claim HST ITC’s for this period. The income you earned prior to Nov 1, 2012 is exempt from paying HST. You will have to request CRA to amend the date of registry to Nov 1, 2012.
For further explanation, review the following example.
” Example:
This example explains what happens when a person starts a small business, and that new business exceeds the $30,000 limit in two consecutive calendar quarters:
First quarter (Apr 1, 2011 to June 30, 2011) $25,000
Second quarter (July 1, 2011 to Sept 30, 2011) $25,000
Total of revenues for two quarters $50,000
In this case, you exceeded the $30,000 limit by the end of the second quarter of business, but not in one calendar quarter. You have one month (October 2011) after exceeding the $30,000 limit, as a small supplier. You have to start collecting GST/HST in November 2011. You have to register within 29 days after the first sale other than as a small supplier.”
I hope that helps.
Hi there,
I have an operating loss in 2014 because it’s my first year of business, but I also have 2014 income from a regular part-time job. Can I carry that loss forward to 2015 since I’m expecting to earn a lot more in 2015 and will be in a higher tax bracket? Or do I have to deduct the loss in 2014 against my regular income taxes? I have a sole proprietorship.
Thanks!
Hello Rebecca,
There are various types of income/loss, such as employment income, business income/loss, and rental income/loss. You will need to deduct the loss from all sources from income in the same year. After calculating net income, if it is negative, then the loss amount will be carried forward to future years.
Thank you,
Hi Allan, I run and own a sports store. There is a customer that has been coming to me since the beginning and I would like to gift him something from my store. Is there anything I need to do in regards to my taxes for this gift?
Hi Liz, when you gift somebody a product from your store, you do not have to charge GST or HST on that item. You can, however, claim an input tax credit for the GST/HST you pay or owe on your purchases to provide these products as long as they relate to your commercial activities. The gift is also tax deductible!
Hi. I bought a truck($20,000) and some tools($2000) in 2014 for a business I started in jan, 2015. What should I do for the Tax of 2014, can I use the truck and tools? I know I will have to roll the truck over to the business for tax of 2015? And CCA will apply with only half year useable for the first year? Thanks.
Did your incorporate or are you operating as a sole proprietor? In either case, you can only claim tax write-offs starting 2015, as that’s when your business began.
Allan Madan, CPA, CA
Hi Allan,
A business-owner is receiving a bi-monthly-fixed salary and claiming a mileage fee of $0.40 per kilometer for the use of his car in the business operation. The amount is being included in his pay check with no deduction (CPP, EI and Tax). Is the amount being claimed as mileage reimbursement/fee is to be included in his T4 (#14) as part of Employment Income?
Since the amount of the car allowance is less than the tax-free amount of 54 cents per KM for the first 5,000 KMs and 48 cents per KM thereafter, the car allowance has to be included in your income. But you can write off a portion of your car expenses on your personal tax return, if your employer has signed form T2200.
I can prepare your tax return and make sure I maximize write-offs, please email me at amadan@madanca.com if you are interested to discuss fees and further information.
Allan Madan, CPA, CA
Hi, I’m a little confused about the motor vehicle expenses or travel expenses.
CR tells you log your mileage and keep receipts..so what from there?
Hi Louis,
Keep all receipts for your car expenses:
– gas
– insurance
– repairs
– etc.
Keep a log book to track business related mileage. The expenses above can be deducted to the extent that they relate to business driving.
Hi,
I am self-employed and wonder if instead of keeping and calculating all of my motor vehicle expenses, I can simply log my mileage and pay myself the 54 cents/km (first 5000km)?
Where does this amount go on the tax return? I do not see a place for this in the business statement. I think it would be so much simpler just to pay myself mileage rather than sorting through the pile of receipts each year.
Thanks!
hi, can rent be written off aswell? for example, I live far from the city, and am going to rent out a place closer to the city for xx amount of months. can that amount be written off, and if so how much % of it?
Hi Ken,
There are only certain situations here you can deduct rent expenses. The most common is when you are running your own business and need to rent out a place to conduct business. Some tax payers may also be eligible for the Ontario Energy and Property Tax credit which is calculated based on your age and how much you paid in rent.
Hello and thank you for publishing useful information.
I have 4 questions regarding tax filing for my consulting business. I appreciate if you cold kindly reply. I registered a Corp in BC in May 2014.
– Can I claim the cost related to the program I studied before I register the business?
– I had no income in 2014. Can I carry forward the negative balance to next year?
– I purchased a car to be used for my business. It is my second car and it is used only for business. Can I claim %100 of expenses for my business?
– I used my personal line of credit to purchase the car. The value is 35K. This is what I can claim:
* interest on (30K + GST for 30K + PST for 30k + insurance + registration)
* car insurance
* car registration
* depreciation for 2014=1/2 of (30% of 30K)
* fuel
Am I right?
Thank you again for your time.
Al
You will list all related expenses to render your service. If your business expenses exceeds your business income this is referred to as non-capital losses. The loss you incur on a business can be used against any other sources of income to reduce your overall taxable income in any given year. In addition, you have the option to carry a loss back three years or carry it forward up to seven years.
Deducting 100% of your vehicle expense is allowable. However, you will need to specify the total kilometers required for business use vs. the total amount driven in the year. This rate is used to be prorated against all listed expense related to vehicle usage. In addition you have the option of deducting CCA on your vehicle up to the maximum of $30,000. The depreciation rate for a vehicle is 30% yearly, first year being 50% of it. CCA deduction is limited by the net income earned to bring the balance to zero.
The following are eligible motor vehicle expenses:
• fuel (gasoline, propane, oil);
• maintenance and repairs;
• insurance;
• license and registration fees;
• capital cost allowance;
• eligible interest you paid on a loan used to buy the motor vehicle; and
• eligible leasing costs.
I own a small online membership based travel business. My competitors have offered free 3 month trials (similar to sampling of a product before purchase) . Can I deduct a free trial offer as an advertising cost to sample the advantages of membership for my business ($19 value) ? If so what would be a reasonable amount of free trials one can offer?
I have a question about vehicle expenses for a self employed individual. Currently, the person has no taxes payable because the income is too low this year. I can zero out the claim for CCA on the vehicle but does that mean I can carry forward the UCC that I have starting this year and use that same amount next year? Or does the vehicle need to be depreciated and lowered regardless if I choose to claim that amount or not? Thanks.
Hi Neil,
Basic Information about Capital Cost Allowance:
It seems clear you are aware of the class of your asset and depreciation rate. To be more specific depreciation on a fixed property is the amount deducted from the previous UCC. The maximum allowable deduction is limited by the net income earned in the year. Overall, Capital Cost Allowance is a declining balance of the property year-to-year.
You do not have to claim the maximum amount of CCA in any given year. In fact, you may deduct any amount on CCA as you wish (zero – the maximum allowable). Deductions are used to lower your total taxable income. Therefore, if you already do not have any taxes payable then it would be recommended to not claim your CCA for the current year since this would preserve your UCC which you can carry forward for the following tax year.
As a personnel contractor for a tech company i know i can claim a Laptop every 2 years, my only question is how much am I really getting back from that? For example I go buy a nice macbook air and use it for work purposes only and I spend 1500.00 on it, How much can i realistically look at as a deduction on my taxes over the next 2 years? will i get the entire 1500 as a deduction over the 2 years or is more realistically half that?
hi, great site, wondering as a yoga teacher who also makes youtube videos & has to purchase yoga clothing, can I write off those workout clothing expenses. thanks,
Hi Charu,
This is a good question. Generally speaking, clothing is a non deductible business expense. For example, business attire is considered ordinary clothing that one would normally wear, and therefore is a non-deductible expense. Uniforms and protective clothing (e.g. construction hat) are deductible for tax purposes.
You could deduct your Yoga Clothing as a business expense, if you can successfully argue that it is protective gear and/or a uniform.
Allan Madan, CPA, CA
Hi Allan,
I purchased equipment for my sharpening business in late November 2013. (learning curve) My Business start up year was January 2014. How do I calculate CCA ? does the 50% rule apply here? I’m a sole proprietor.
Hi Glenn,
Your company can begin claiming CCA when the asset is put into use, which appears to be the 2014 tax year. It does not matter that you bought that asset in November of 2013. The half year rule will apply, and equipment is a Class 8 asset for CCA purposes, with an annual depreciation rate of 20%. For the 2014 year, because of the 1/2 year rule, CCA can be claimed at a rate of only 10%.
Hello Allan,
Thank you very much for the information shared. It answers most of the basic questions for a beginner like me.
I opened a corporation in Jan 2015. I am an IT consultant working for my client and does my billing through my corporation. Currently I am paying to myself through Salary by keeping it in low tax bracket. I read some articles saying as of 2014 the tax % on dividends and Salary payouts are virtually same and will not make difference. Is that true?
If I have to pay myself as dividends, should I have to wait till end of the year? Since my is a new corporation, will you suggest me to stick to Salary pay than the Dividends.
Thanks,
Praveen
The answer to your question is:
Dividend Payment Implications:
When a shareholder is paid dividends, for personal income tax purposes they will be receiving a dividend tax credit on the grossed up amount. Essentially, this dividend tax credit is equal to the taxes already paid at the corporate level to prevent double taxation.
This method overall can potentially result in tax savings by a couple of percentage points. The comparation of tax savings arise due to the avoidance of the CPP premiums toward employment compensation. As investment income from shares owned, dividends are not subject to normal payroll deductions
Benefits of Dividends payments:
Dividend payments is an effective method for families who wish to split income from owned own shares in the corporation directly, or indirectly through a family trust. However, dividends should not be paid to children under the age of 18 to avoid the “kiddie tax” under Canadian Tax System.
Salary
Salary is subject to all types of deductions. The benefits you gain from these charges are providing pensionable earnings for CPP purposes and generating RRSP/IPP deduction room to name a few.
Timing
The timing of when you should pay yourself dividends ultimately resides on whether you are currently on the end of basic tax payer or on the end of a higher tax payer.
Hi Allan,
If HELOC was used to purchase a business, what are the rules with CRA to take the money out of the business, when the business is sold?
Neera
I was wondering if you might be able to clarify a question about expenses I incurred for my home office/workspace. I had to do some electrical upgrades to my garage for my machinery to operate. The garage is my home office/workspace. The machinery is capitalized but I do not plan on capitalizing my home. Can I still capitalize the electrical costs without having the home capitalized or do I add them to the cost of the machinery or can I claim at all as a business expense? How would I approach this?
Regard,
Addie
Hi Addie,
Electrical wiring is cost of repairs, which is specific to your home-office workspace (Garage). If the life of this wiring and its usage is more than 1 year, you will capitalize. You may capitalize under Leasehold improvement. This is a straight line method based on the number of years of the life of asset. If the life of asset is less than one year, or you may need to do this wiring every year, you will expense this cost. All the above statement is true only if you were to use this space completely for office/business purposes otherwise you may need to prorate based on the space that you have used.
Best Regards,
hi, Allan:
thank you for providing a great website for people like me to find useful tax return information. I am a sales representative in real estate business. I bought a computer, a printer and a tablet in 2014. can I claim those in CCA?
many thanks,
HL
Hi there,
Computer, Printers and Tablets should be added to Class 50. Class 50 is depreciated at an annual rate of 55%.
Allan Madan, CPA, CA
Hello,
Can I claim car depreciation if I own the car and use it for my business or it must be owned by business?
Thanks,
Al
Hi,
If you are self employed you can claim depreciation on the business-use portion of your vehicle. Please complete form T2125, Statement of Business Activities, which should be submitted with your T1 Personal Tax Return.
Hello,
I pay an annual professional membership fee that runs from April 1, 2014-April 1, 2015. I paid the expense in 2014 but because the annual membership runs through to 2015 I am unsure if I should claim this expense in 2014 or divide the number of months and partially expense it in 2014 and partially in 2015.
Furthermore, should I expense this under my business expenses business tax, fees, licences, dues, memberships and subscription line on the T2125 form or line 212?
Thanks,
Sara
You may claim the amount in full.
Self Employed deductions include any related costs that were required to generate income. The professional membership fee must have been a requirement for you to maintain your self-employment and or professional activity. Assuming this was the case, you would deduct the full pre-paid amount under Business, License, Membership fees Expense. As you continue to prepare your taxes in the following years, the full amounts are captured and deducted.
If the costs qualify as business related costs then deducting them as business expenses would be more advantageous to lower your taxable income.
Alternatively, you will prorate this expense, if you choose the accrued basis to report self-employed income.
You also have the option to deduct this amount under Line 212 – Annual Union, Professional or Like dues. Specifically, this line is used for amounts related to your employment.
Hello,
I claimed a small amount of income (<$2k) as independent contractor (editor) working from home a few years ago, but haven't earned any money from that endeavour nor attempted to in the last two years. For tax purposes should I continue to claim this as "business" I operate, with an income of $0 and $0 in expenses?
Thanks very much!
Hi Alison,
You may be required to assess the nature of your role as an independent contractor (editor) with the following the steps indicated on the CRA Link: http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html#employee_selfemployed
Self-Employed:
If you meet the category of someone who is self-employed and you have evidence of performing work you may continue to file as a sole proprietor on Form T2125 on your personal tax return. You will list all related expenses to render your service. If your business expenses exceeds your business income this is referred to as non-capital losses. The loss you incur on a business can be used against any other sources of income to reduce your overall taxable income in any given year. In addition, you have the option to carry a loss back three years or carry it forward up to seven years. Essentially, it may make sense for you to carry your non-capital loss back to recover income tax you’ve already paid, or to carry it forward to offset a potentially larger tax bill in the future
Employment Expenses
If you are rendering any services as an independent contractor for your employer and you are eligible to deduct expenses related to work including Home Office expenses. Request a T2200 – Declaration of Conditions of Employment.
The total amount of Home Office expense that is allowable for deduction for an individual is limited by the employee’s salary.
Hello,
Great tips – I had a question about a vehicle used for business. Im a sole proprietor and I was using an owned for the month of Jan but then starting leasing a new car for business in Feb until Dec. For the one month when I used the owned vehicle I think I’m suppose to take 1/2 of the UCC at the end of 2013. Is that correct?
Also, to expense my monthly leasing fee is it as simple as taking the monthly fee x12 and entering that into the line 8 of Chart A – Motor Vehicle expenses?
Hi JJ,
The answer to your question is:
Basic Information about Capital Cost Allowance:
The Half-Year Rule on Motor Vehicle Capital Cost Allowance is applicable only to the year when the vehicle was acquired and allows a lower depreciation rate for one year. The maximum deductible amount on a vehicle is $30,000.
To report a vehicle that was used for one month requires prorating for the first fiscal period. Base the 2013 UCC on the number of days in January of the tax year compared to 365 days. The prorated vehicle cost is deducted on a continuous basis under Class 10 with a depreciable rate of 30%. Only owners of vehicles qualify towards CCA deductions. In addition, capital cost allowance is an optional deduction.
If you currently posses more than one vehicle, you will still be deducting Capital Cost Allowance on the vehicle that is owned and the expenses are deducted by the amount of kilometers driven. The only way that vehicle can be removed from the Capital Cost Allowance is if from a sale of disposition.
Calculating Motor Vehicle Expense
Lease payments on a vehicle are tax deductible and are reported on Chart C – Eligible Leasing Costs for Passenger Vehicles. This form is used to include all lease specific information. Only the amounts incurred related to business in the calendar year are included. In addition, lease costs that may be itemized with insurance or maintenance must be separated on Chart A. To further accurately deduct the lease expense keep a record of the total kilometers driven and the kilometers you drove to earn income.
CAR Expenses:
Am looking for a more detailed listing or examples of what would qualify as a vehicle maintenance ie ice scrapers, sun visors, booster cables, lock de-icer, etc.
Also are amounts paid to companies that ‘boot’ peoples vehicles due to parking violations deductible?
Hello,
I am planning to buy a new car on lease for my business purposes . Do I need to sign the lease on the Incorporation name in order to write off vehicle expenses or It doesn’t matter if the lease is on my name or the company name?
Hi Nick,
If the car is used mainly for business purposes, it is best to use your corporation name to lease the vehicle, so that it is owned by the corporation. You can deduct the vehicle expenses directly on corporation only if the car is in the company’s name.
Allan,
Your website is very helpful! I have a question regarding writing off obsolete inventory. In the US, the IRS requires that you can prove that you no longer have possession of the inventory. You must either destroy it or donate it. Does Canada have a similar requirement or can you write it off as obsolete if you still have possession of it but have determined it has no fair market value? I am working with a small Canadian corporation and would like to write off the remaining inventory this year if possible.
Thanks,
Lynda
Hi Allan!
I am currently the owner of a small business and I have an office in my home. I understand that I cannot write-off 100% of home-office expenses. My question is how much can be deducted? How is this calculation made?
Thanks!
Jenine
Let’s use an example to answer this question! Suppose your house is 5000 square feet and an estimated 500 square feet is the space of your home office. This means that you can deduct 10% of your office expenses! Imagine you incurred a total of $3000 of home office expenses such as utilities, repairs, maintenance, etc. During the year, you will be able to claim $300. (This calculation is as follows: $3000 x 10% = $300). This is how you can determine how much you can deduct on your taxes if you write off that room as a business expense!
Hi Allan, are stock options always a good idea?
Not always! Which is why you should be confident in two things regarding this topic. First, feel assured that the shares in the company are going to increase in value over time. And second, feel assured that you will eventually be bale to sell the shares. Purchases may look good on paper, but you won’t actually realize a profit unless you sell shares for a higher value than what you have originally paid!
Hi Allan,
This is a technical question. If I start using personal-use property for business but without wanting to expense it through CCA for tax purposes and without considering it a business asset, is it considered a deemed disposition for capital gains purposes?
For example, let’s say that up to now I’ve been using my car for 100% personal use and that I bought it for 10 000$. Now it’s worth 20 000$ (it might not be very realistic but it s for the purpose of the example) and I want to use it to make some business traveling but I don’t want to expense it through CCA. Basically, I don’t consider it a business asset. I’m would be just using my car instead of taking the bus/metro. I consider it a personal choice for my own comfort and pleasure. It’s a bad business decision but again it’s for the purpose of the example. Is there a deemed disposition?
Thank you Allan,
Hi Anon,
If you remain the beneficial owner of the asset, then there will not be a deemed disposition. Consider billing / invoicing your corporation for the use of your personal asset in the business.
Hi Alan,
I have a photography business on the side but work in a full time position selling software. Although I was expecting 3 photography deals/projects to come through this year, they haven’t yet. I have spend money on dinner and alcohol with my clients over the last year but have lost many of my receipts. If I have my Visa bill that states what restaurant or bar we ate at with the amount, does this constitute as a receipt in the eyes of the government?
Thanks,
Chris
Hi Chris,
You will need copies of the receipts. On the back of the receipts, the names of the individuals who joined you must be written along with their phone numbers. The CRA will not accept credit card statements as proof that the expense was incurred.
Hi Allan,
I used my severance package to pay for a new business. The Business will open in first quarter of 2016. Is there ways I can justify that on business taxes or personal taxes. What I’m asking is How can I spare myself on being heavily taxed?
Many thanks for your reply.
Hi Lorraine,
The portion of your severance packaged that you received (which was not transferred to a RRSP) is fully taxable to you. The fact that you used your after-tax severance money to make an investment in your business does not mean that you can claim a tax deduction for the amount invested. You can claim a deduction for business purchases made, and other costs associated with starting up and running your business.
I’ve recently started a sole proprietorship and have bought some tools and computer equipment for the business, I will not generate any income until April of next year, can I deduct the expenses on this years tax return or do I have to wait until next year?
Hi Colin,
Tools and computer equipment purchased should be claimed on this year’s tax return, specifically on form T2125 – Statement of Business Activities.
Tools that cost less than $500 each are added to CCA Class 12 and are depreciated at a rate of 100% per year. Tools that are $500 or more each are added to CCA Class 8 and are depreciated at a rate of 20% per year. Computers are added to class 50 and are depreciated at a rate of 55% per year.
I closed my sole ownership small business in 2015 for medical reasons. I notified GST HST department I had no income for year but on final closing I sold off equipment. I sold equipment for 18K, do I just list this as business income?
Thank you
Hi Careen,
I presume that you sold the equipment for less than you bought it for. If this is correct, report the sale on form T2125 and claim a terminal loss or recapture. A terminal loss occurs if the sales proceeds are less than the Undepreciated Capital Cost. Recapture occurs if the sales proceeds are more than the Undepreciated Capital Cost.
Hi there,
I started doing contract bookkeeping work for a few people in 2015. I enrolled in, and completed a Quickbooks course last year. Can I claim this as a deduction from my business income?
Thanks!
Hi Wendy,
Yes, you can write-off the fees paid for the Quick Books training course as a valid business expense.
I started my own business last year on Jan 1, 2015. Can I claim the truck I bought for it (and now own fully) three months prior (sept 2014) as a vehicle capital expense for 2014 tax year
Hi Richard,
I assume that you’re a sole proprietor (i.e. unincorporated). You need to estimate the fair market value of the truck on the date that you started the business (January 1, 2015). For the 2015 tax year, you can claim Capital Cost Allowance (tax depreciation) on the truck. The CCA rate is 30%, but only 1/2 or 15% can be claimed in the first year.
Hi,
I am doing bookkeeping for a self-employed counselor, who’s business is located in Ottawa, Ontario Canada. They charge HST on their services, and I input HST tax credits for HST they pay on their business expenses, but I am unsure how to account for the taxes they pay on business expenses incurred in the province of Quebec. Can I claim any portion of this as as an HST tax credit?
Thanks for your help!
Wendy
Thanks for your question. You can claim ITC’s for the GST paid on business expenses incurred in the province of Quebec.
Hello,
On July 22, 2014 you had answered Chrysanthos question on writing off damaged and obsolete equipment. Please give details on the accounting entries and Schedule 8 entries. Thanks.
Hi Amil, Thanks for your question. To write-off a damaged asset record the following entry in your company’s financial statements:
Debit Loss on Asset
Debit Accumulated amortization
Credit Cost amount of asset
On Schedule 8 of the T2 Return, record $0 for proceeds of disposition and check the box for “Terminal Loss”. Note that a terminal loss can only be claimed for a CCA class if all of the assets in that class are disposed of / written-off.
Hello wonderful article and great tips. Just a quick question. Do I have to claim the entire percentage of depreciation as per the rate class? Like If my rate class for a particular item is 40% per year can I instead claim on 30% or 25% instead?
Hi BK,
Thanks for contacting me. You can claim any amount of depreciation you want so long as the amount claimed does not exceed the maximum amount allowed.
i am starting a small part time business this year and I know my expenses will be more than my income this year. Will that be a problem will i be red flagged?
Hi Dylan,
No, you won’t be flagged. Make sure you keep receipts for all of the expenses claimed in case the CRA asks for proof.
Hi There,
Just had a couple questions about sole proprietor and vehicle expenses.
and how it works… If a person puts 40,000 km on the vehicle in the year that are business related does it matter what the km were for. so for example I am a massage therapist and I have a room I work from home 1 day a week. then the other 4 days I work half an hour away where I rent a space. Am I allowed to use those km driving from my home to the other office as part of the expense? r those still considered business km? or is it just if I leave the office to run and pick something up business related?
Thanks
Hello,
I’m a musician in a band. I have a considerable automobile deduction since traveling is necessary part of the gig. I keep a meticulous logbook. I recently switched accountants and am receiving conflicting advice. My first accountant said that I can deduct a mileage rate ($0.52/km for 5000km, then $0.48/km when exceeded) on just my business travel (gigs). My new accountant says this is unacceptable. He says I NEED to keep track of actual expenses (gas receipts, etc). I realize this is how the T2125 form is supposed to work. Having just discovered this, I have very few actual receipts for the previous year. Even if I had the receipts, I’m certain the mileage rate would give me the higher deduction. Can I continue to use the mileage rate or should I claim what little actual expenses I have?
Hi Fray,
The per KM allowance method (i.e. 54 cents per KM for the first 5000 KM’s and 48 cents per KM thereafter) is only available to employees. If you are self employed (i.e. a sole proprietor), then this method is not available to you.
You must keep receipts for your car expenses in order to claim them.
Hi Fray, I am an Uber driver I leased a car that costs $7,000 annually and plus all other costs exceeds what I make from Uber. I drive this car 70% for uber only 30% for personal use. In my P&L I have more expenses than revenue. I have full time job too, can I combine my losses when i file my taxes?
Hi Sanjay,
You can offset your business losses with your other sources of income, including employment income.
Good morning Allan,
I am very greatful for all the free information you are sharing on this page. It’s very helpful, especially for new business owners. Thank you.
Quick question: I just incorporated my business about 6 months ago. We have a couple contracts, but nothing substantial, however I need a company vehicle to get from site to site as I speak to builders. Being that we don’t really have any money, will a dealership even look at us to lease a car? We can afford monthly payments of about $1,000 on a car right now. My credit is also on its way up…does this matter? Please let me know, as it seems much easier to get a leased for a vehicle in the US than it does here.
Also….I was able to score a contract recently and hired someone to do the work for cash. When I claim this do I just claim the remainder of the money after I’ve paid the person as my profit or do I just take the hit of claiming the full amount I was paid for the job? I think I know the answer, but reassurance helps. Thanks again,
J.S
Hi Jessica,
If you are making a cash payment and do not have a receipt or proof of payment, you cannot claim the amount as an expense. Please be careful when paying cash to employees; you will be responsible for any unpaid payroll taxes.
Hi Jessica
Whether or not you will be approved for a lease depends on your credit score and financial situation, even if the car is leased in the name of a corporation that you own. You should speak with the lessor and put in an application for lease.
Hi Allan,
Does any purchased equipment for a commercial kitchen treated the same way as far as the 20% depreciation rule? Regardless of it being a small induction cooker plate or a large metal working table? Frying pans or stove, etc etc?
Else, what is the easiest software that you might recommend for an employee salaries, and deductions bookkeeping for small business?
Thank you?
Alex
Hi Alex,
The equipment you listed in your question is considered to be ‘manufacturing and processing equipment’. Such equipment purchases should be recorded in CCA class 53, which applies CCA at a rate of 50% per year under the declining balance method.
Hi there. My wife is a sole proprietor but has never had earnings above personal exemption limits. She files returns of course as per the law. Our question is this: since claiming business expenses would not impact the amount of tax she owes (it’s already at zero), can we carry those forward and use them in a year when she does have taxable income?
Many thanks.
Hi Phil,
Good question. Business expenses incurred in the year must be claimed in the same year. They cannot be deferred to a subsequent year. However, business losses (expenses > revenues) can be carried back three years and forward 20 years.
my wife s a professional part time blogger and content editor for a US based commercial blogger site, to help with this she has taken some courses at a major accredited US University for copywriting. I understand she is not eligible to claim these as tuition but rather can claim them as a CCA — is this correct if so what class and how many years for the CCA.
Hi Geoff,
The tuition paid can be treated as an intangible asset. Only 3 quarters of the cost is eligible for depreciation at an annual rate of 7%. This is different than CCA.
Hi there,
Thanks for keeping this article up! I’ve decided to start doing my partner’s return on my own and I’m wondering what to do about his business expenses as they far exceeded his income last year. He’s always been self-employed but last year he started working as an employee (and that income was healthy). So, with his self-employment business he’s in a loss (and the year previous, too) — What is the best way for me to file this? Do I just holdback receipts and apply them to the following years tax return? Do I separate & keep self-employment income/loss and employment income/loss separate?
Or, do I apply this to his return? (I scrolled through your answers to others and I read a reply to one reader, and you wrote): “There are various types of income/loss, such as employment income, business income/loss, and rental income/loss. You will need to deduct the loss from all sources from income in the same year. After calculating net income, if it is negative, then the loss amount will be carried forward to future years”.
Forgive me if my question was so convoluted….still getting with the program 🙂
Hi Julia,
You have to claim business expenses in the year they are incurred. You cannot claim them in another year. If the total business expenses exceed the total sales for the year, then a loss will result. This loss is called a non-capital loss and it is deducted on line 135 on your T1 General Return.
Hello!
I have a side business (not registered as I don’t make over $30,000 / year) – and I have recently been receiving some help with the business. This person and I share all income we earn 70% me / 30% her. When we get paid for a job, all the money comes to me – and then I give her her cut. In terms of taxes – how do I mark that 30% as income “I” did not actually earn – but rather she did? Do I just claim it as an expense? Or what is the proper way to handle that? I am very very new to this, so any help would be most appreciated! Thanks!
– David.
Hi David,
If the person who receives a 30% share of sales is your business partner, then each of you should report your individual ownership and share of sales on form T2125. However, if this person is receiving a fee for a service (like an independent contractor), then you should issue a T4A slip to him/her (due February 28) and report the amount paid as ‘service fee expense’ on form T2125.
Hi Allan,
I have my own incorporated telecom contracting services company in AB and have a question regarding vehicle expenses. I used my own personally insured and registered financed 2006 F150 from Jan – May and kept a mileage log of a total of 1122 business km’s out of a total 1733.3km driven (64.73% business). Would I be eligible for a mileage reimbursement for the business km’s? And for the expenses deductions would I add up the total cost of fuel, license and registration fees, insurance, maintenance and repairs and multiply it by 64.73% to determine my eligible automotive deduction amount? What about the interest on the monthly finance payment? And also I traded in the financed 06 for a 2013 and leased it under the company including commercial insurance and registration. How would I handle the deductions in this case as I had also kept a mileage log.
Hi Chris,
For personally owned vehicles, there are two methods for vehicle allowances/reimbursements:
1. Per KM Method
An employee can receive a tax-free vehicle allowance of 54 cents per KM for the first 5,000 KM’s and 48 cents for each additional KM for business-related driving. This allowance is tax deductible to the employer and tax-free to the employee. To be eligible for this allowance, you must be on the company’s payroll and receive a T4 (employment income) slip.
2. Fixed Allowance / Reimbursement
The company can reimburse you for all or part of the vehicle expenses that you personally incurred, which are related to business driving (64.73% in your case). The reimbursed amount is taxable to you and must be reported on a T4 slip as a taxable benefit to you.
However, you can claim a tax deduction on your personal tax return for vehicle expenses, which (a) You personally paid for and (b) Are related to business driving (64.73% in your case). To claim this personal tax deduction, complete form T777 with your personal tax return.
When the company owns a vehicle, it can write-off 100% of the vehicle’s expenses, including interest charges, regardless of the amount that the vehicle is driven for business purposes. However, the employee who has access to and drives a company-leased / owned vehicle will have to report taxable benefits on their personal tax return, which are the standby charge and operating cost benefit.
Excellent. Thank you. Can I write off the income I pay CRA as an expense?
Hi Leona,
Income taxes paid to the CRA are not a deductible expense.
Also my wife worked for same company with me, say she made $12,000 and I made $25,000, can we split the income? If I paid for $5,000 medical expenses out of my income does that have to be a deduction for her or can I claim it? Thanks
Hi Mike,
You can claim all of the medical expenses. You can also take advantage of the family tax cut to income split with your spouse (2016 is the last year this credit is available).
Hi…I have a question about photography equipment deductions. I know you can deduct 10% for the first year, then 20% over the next 4 years if I’m not mistaken.
My question is, say I bought a new camera for $1000 in 2016 and I already deducted 10% for that tax year. Now in 2017, am I deducting the 20% from the original purchase price of the camera or do I have to deduct the 20% from the estimated value of the camera’s current used market price?
Thanks!
Hi Brody,
In year 2, claim 20% of the remaining balance to depreciation. The remaining balance to depreciation in your example would be $900. Therefore, the year 2 depreciation expense (CCA) will be $180.
Hi Allan. If my company decides to write-off mortgage interest, property taxes, and home insurance, would my company own a portion of my house? If i decided to sell my company, would my house have to be sold?
Hi James,
No, your company should not own a portion of your house. Instead, you (as the owner of your house) should charge rent to your company. The rent should be calculated based on the area of your house that you are renting out and the household expenses attributable to the rented area. Household expense include mortgage interest, property taxes, utilities and insurance.
DO NOT claim CCA on your primary residence or else you will lose the principal residence exemption.
Hi Allan, I do my own bookkeeping for my small business. Can I assess or charge a reasonable fee to my business for that and claim it as an expense?
Hi Allan,
You can compensate yourself by way of a salary paid by your company to you. You can do this if you have an incorporated company.
Hello I own a small business sole proprietor, I was wondering if I can write off my business banking fees/expenses?
Hi Debra,
Yes, you can write-off your business banking fees from income. Complete form T2125 with your personal tax return to report your business income and expenses.
Hello, I worked Jan, Feb and then went on maternity leave for 6 months and then worked September through to December. For a total of 6 months. I have employee expenses for the home office (utilities, home insurance, home tax’s) and automobile expenses (CCA, registration, car insurance). Am I only allowed to deduct 6 months worth of these expenses or do I get to claim 1 years worth for certain items. Thank you for your help.
hi Rose,
You can claim only 6 months worth of expenses.
hi if you buy old run down house trailors and fix them up and sell them, what is the best way to account for this on your income taxes.
Hi Trudy,
Record the profit as business income. A breakdown of the revenues and expenses should be reported on form T2125, Statement of Business Activities.
Should professional membership fees be deducted in the year paid if due Dec 31st or treated like a prepaid expense and deducted the next year using accrual basis for professional income?
Hi Tatiana,
Professional fees should be deducted in the year they are incurred, and not when paid. For calculating business income / professional income, the accrual basis of accounting must be followed.
if I finance my equipment purchase for my business over 5 years consisting of computers, software, digital video recording devices, LCD TV’s, video cables, equipment carts and so on, how much of that can be used as a deduction. For example if I finance $100,000 over 5 years @5% = 1,887/month how much and what portion becomes a tax write-off? Also does it affect me if the finance company is located in the US?
Hi Glen,
You can claim capital cost allowance (i.e. depreciation) at a rate of 20% per year of the purchase amount for the equipment. For computers, the rate is 55%. Note that in the year of purchase, only 1/2 of the normal depreciation allowed can be claimed. Also, you can write-off the interest paid on the loan. It doesn’t matter that the vendor is located in the US.
Hello. My husband owns his own pest control company. Last year he sold a sprayer he no longer needed. I was wondering how to write it off, regarding depreciation we were claiming it yearly. He sold it for under the value. What steps must I take. Thank you
Hi, Tracy. If you are a sole proprietor, write the sales proceeds in Part 11 (CCA Chart) of form T2125. A terminal loss can be claimed if the sales proceeds are less than the UCC of the CCA Class and there are no remaining assets left in the CCA Class.
Hi Allan. I just started a sole proprietorship this year. I make and sell fused glass. I’ve been making it for a while, but just started selling it this year, so I have two questions.
First, how do I incorporate supplies, mainly glass sheets, that I purchased prior to this year? Some I bought as recently as last year, and some I’ve had for several years.
Second, I have one bedroom of our two bedroom apartment, which we rent, dedicated as the work space where I make my pieces. While it doubles as my office space, I do not meet any buyers here. Am I able to deduct this space in any way?
Thanks for taking the time to answer all these questions. There’s great info here.
Hi, Steph. Record the purchases you made as ‘opening inventory’ based on their market value / worth when you started the sole proprietorship. You can claim a portion of the rent so long as the work-space is your primary office (meaning you spend more than 50% of your working time there).
Hi.
I would like to have my brother do a one time bit of design for my company logo.
Also a 1 or 2 days paid help at just organizing some paper work etc. For my incorporated trucking company.
Whats the best way of paying him. Im guessing setting him up as an employee with cra deductions etc is a bit much for like 2-3 days of work a year.
Thanks
Hi, Steven. You have to registered for a payroll account and pay your brother as an employee, even if he is working part time. However, if your brother is a self-employed business owner with many clients, and you are another client of his, then you can pay him as an independent contractor. In this case, payroll is not required.
Hello
Thank you for all this amazing info.
When starting a new business are we permitted to claim approved expenses (legal fees, clothing, office rent, vehicle mileage etc) accumulated prior to business registration? We understand we can assume all pre-incorporation contracts, but does that include pre-incorporation expenses as well?
Hi Amiga, pre-incorporation costs cannot be deducted by the corporation.
Hi Alan! I am a 50 yo female physician who started to practise in internal medicine in canada 4 yrs ago. I have been recently thinking to purchase an undeveloped office space to develop and turn it to my own office as recently my office rent has gone up to close to 6k. Now , as I started learning about the tax rules and tips in Canada, I am worried if I am making a right decision. Please advise .
The office space I am thinking to buy is 1000sf and cost 380k. I need to spend 100 k to complete it plus perhaps 50 k equipment.
Hi Zoe, by opening a separate corporation to own your new office, you will be protecting it from the business / professional risk associated with your medial practice. Your medical corporation should pay market based rents to this separate corporation for use of the office space for its practice. This separate corporation will not be impacted by the proposed tax increase on investment income, because the office space is being used to carry out an active business, i.e the practice of medicine.
Hi Allan,
I operate a small business from my home selling toys, art and collectibles. I was thinking about donating some overstock to this years Toy Mountain. If so, can I use the donation as a tax write off? Would it be considered a “donation” based on the retail value, or a “loss” based on the wholesale price I paid. Would I need some sort of receipt or confirmation from the organization of the donation to use as proof for tax purposes?
Hi Skye, thanks for your question. A donation can be written off if the donation is made to a registered charity. If the donation is not made to a registered charity, then consider the following options to write-off the overstocked toys:
Write-down the overstocked inventory to its net realizable value (cannot be below $0). Then make the donation.
Claim the donation made as a promotion expense with the justification that the donation is increasing your brand-awareness in the marketplace.
In any case, the write-off cannot exceed the amount that you paid for the inventory.
I work as an employee and would typically file a t4 from yearly. However, earlier this year I have floated my own small business geared solely towards putting together a yearly gospel concerts for now with hopes that we can grow the brand larger and eventually globally. Under the business it will also cover my personal performances invited to. The first concert we just held was not bad at all for a start and though I didn’t make any profit yet, growth is eminent. This year alone I gulped costs associated with travel airfare for guest artistes from the usa, hotel reservations/ feeding, theater rental for event, Uhaul rental, cd replication cost, music production costs, my personal vehicle travelled a lot while putting event together, Projector/ Screen rental and so many cost in that line. My question is ; am I obligated to file my t4 from my job alongside with my small business tax? (Business is not my personal name), Also, am I able to write off most of these types of expenses? Since I am hoping that can help keep business alive.
Hi Toyo, you mentioned that the business is not in your personal name. I therefore assume that that your business is incorporated. As such, corporate income and expenses should be separated from your personal income (T4). Expenses incurred to operate a business are deductible. Capital purchases (like screens and projectors and music equipment) are capitalized and depreciated over time.
I have been operating an online business for a few years now and purchased a website from a competitor earlier this year. Would the purchase price be counted in CCA? If so, which class? If not, how would I go about claiming this?
Hi Rick, generally speaking, the purchase of a website is classified as ‘software’, and class 12 for CCA purposes. However, you need to closely examine the amount paid, to determine if a portion relates to goodwill (e.g. customer list). Goodwill is added to class 14.1.
I see so many great replies to questions so I had a few of my own 🙂
I am a makeup artist/ eyelash technician, I am considering registering a company.
My questions are:
Since in Quebec we do not NEED to register a company that has our full name, would it be smart to do so for the tax write offs?
Also since my business is part time I do not make a large amount of money from it possibly a few thousand per year, would it be worth registering it all?
Any advise you may have for a newbie to the game would be greatly appreciated.
– Sam
Hi,
If I set up a holding company to hold shares in a employee-owned firm, can my weekly flights between home (in Ontario) and work office (in Saskatchewan) be treated as an expense for my tax purposes?
Thanks.
C.
Hi,
I have a question regarding writing off % of lease payment.
I currently have an Automotive Detailing business on the side, I have always been paid in cash. I do travel to potential client’s to inspect the vehicle prior to having any work done. I have a website for the business.
I am looking a purchasing a new vehicle and thought why not write off a portion of the lease if I have the option to. For that to happen can the vehicle be registered in my personal name, or do I have to actually register my business and then register the vehicle in the business name in order to write off % of the lease payment. The final question is does the business need to make an income to write off, or does the km’s used to meet with potential client’s enough to write off % km’s used.
Hi Marcus, assuming that you are operating the business as a sole proprietor (not incorporated), then the lease can be in your personal name. You can write-off a % of the lease payments on your personal tax return, based on the amount you drove for business purposes compared to your total driving in the year.
Hey, I was wondering if all these transactions that were made was on your personal account, would I be able to claim it. For example We had to flight out to different cities & paying for hotels to research our compitition, but all the transaction was done on my personal credit card. How would this work?
Hi Archuthan, expenses incurred for the purpose of earning income from your business on your personal accounts/credit cards are still tax deducible. Keep a copy of the receipts, and the credit card / bank statements should the CRA request to see them.
As a Small business owner (consultant) can I show my continuous education and paid courses as an expenses?
Hi Hassan, yes, you can write-off courses required to update and maintain your professional license / designation for your business.
Hi Allan:) I have a brand new jeep that I use for personal use as well as for my own janitorial business. However, even though I pay for the loan payments, insurance, package policy, gas etc, the vehicle is under my sisters name(she was able to get a great deal through her work IF she purchased it under her name). So my question is, can I still claim all or at least some those expenses listed above?
Thank you and have a great day!
Hi Tanya, yes, you can, so long as you enter into an agreement with your sister to the effect that you are responsible for all vehicle expenses, including car payments.
Hi Allan! Your website is very informative – Thank you! However, I do have a couple of questions.
I’m about to start a small business (small supplier). Am I able to claim business/office expenses without having a BN or registering for a GST/HST account? If yes, how would CRA know that I have a business and that claims made are for business purposes?
Is there a limit on how much I can claim? Reason I ask is because I plan to sign up for an ecommerce platform where packages at different price points are being offered. Are there advantages/disadvantages to sign up for the lowest monthly fee (~$20) package vs. the highest monthly fee (~$200) package? (Claiming less expenses vs more expenses?).
Also, I read somewhere that fees to hire an accountant to do my business taxes can be claimed as an expense. Does this mean I can hire an accountant for let’s say $800, and the entire $800 can be claimed as an expense?
Thank you!
Hi Tom, yes, you can deduct business expenses without registering for a GST/HST account or business number. If you are not a GST/HST registrant you cannot claim a GST/HST rebate (i.e. input tax credits) for GST/HST paid on business expenditures. To claim business expenses, complete form T2125 and attach this form with your personal tax return when filing with the CRA.
There is no upper limit, but the expenses incurred have to be reasonable. By increasing expenses, your taxes will be lower. However, I would not spend money just for the sake of getting a tax deduction, as you will still be out-of-pocket, even if you factor in the tax savings.
Accounting and tax return preparation fees for a business are tax deductible.
My partner and I have just started a small business in the maintenance and construction industry. My partner believes that being a business owner he is entitled to write off the odd dinner out with his family under his personal income tax report. I believe that he is incorrect and not able to claim that under his personal taxes.
Hi Scott, personal meals with family members are non-deductible. However, meals and entertainment expenditures incurred in the course of taking out a customer / supplier / or persons of business interest are 50% deductible.
Hi Allan, My husband and our 4 sons are owners of our company .I was wanting to get them all on a health benefit program ,is there any way to make that work ? So we can right it off.
Hi JR, if your sons are also working in the company, then consider purchasing a group medical benefits plan for the company and its employees. The premiums paid by the company for the plan are tax deductible.
Hi Alan… several questions for you:
I’ve incorporated my project management business (I’m the sole person of the business). My business involved me traveling across canada by plane, rental car, and staying at hotels and paying for meals (all paid by me initially, until I submitted my expenses). How much of travel expenses can I claim (within reason)?
Also, I needed to by a GPS and camera for this business, are these able to be expensed (what percentage)?
thank you,
Tim S.
Hi Tim, travel expenses (other than personal meals) related to your business can be deducted by your corporation. GPS equipment should be depreciated at a rate of 20% per year – CCA Class 8.
My son who lives in Toronto, has a small business, this is his livelihood. The funding comes from me. I’ve been funding his small business for a about 15 months. The small business earns under $20,000. Can I claim on my income tax.
Hi Edna, no, you cannot. There are three treatments for this payment to your son:
1. Loan to your son’s company
2. Investment in shares in your son’s company
3. Gift
Neither of the 3 are tax deductible to you.
my son currently works and earns approx. 40K per year but does have a small business that makes approx. 20K per year, does he have to file a different tax form?
Hi Janet, if he is operating as a sole proprietor and not though a corporation, then he has to attach form T2125 to his personal tax filing. Form T2125 reports his business income and business expenses for the year. Therefore, he will have one tax return filing only.
Hi
What about employee wages? Are they an expense to the corporation and thus can be written off?
If so where exactly ( what form and line ) do the wages get entered into?
Peter
Hi Peter, employee wages are tax deductible. Enter the gross wages, including the employer’s portion of CPP payments and EI payments on line 9060 of form T2125, if you are a sole proprietor. If you are incorporated, then enter the amount on line 9060 of form G125.
What are the rules in Canada regarding business’s donating goods and services to be used by the customer to auction off finished product for proceeds to be given to a family that lost a family member?
Hi Zakk, your business can write-off the cost that it paid for the goods and services that it is donating.
HI, I’m an IT professional who’s working on a contracted project. I drive to GO station in my car and then take GO Train to Union Station, which is close to where I work. I use PRESTO card on the GO Train.
Am I able to claim Small Business Expense for the kilometers traveled to and from GO Station?
Additionally, am I able to expense the fares I pay for the GO Transit?
Hi, you could argue that these are travel expenses to visit your client and are therefore deductible. The CRA could push back and argue that your client’s office is akin to your own office since you work there every day, and so these travel costs are personal in nature and are therefore non-deductible.
I suggest that you deduct them and should the CRA disallow them, your company will have to pay the tax back.
Hi Alan, thanks for your great article! My question is – I have an active corporation for the last few years but I haven’t been doing business because of sickness (nil return). I have been paying all of my licensing fees and even though I claim them as expenses, is there another benefit I can claim for not using the licenses?
Hi Kenny, business licenses are tax deductible by your corporation. If the corporation has no revenues, then a business loss will be created by the tax deductions claimed. Business losses can be carried forward for up to 20 tax years, and can be used to reduce income earned by your corporation in the future.
Whats the limitation on writing off expenses(Meals/Entertainment, Advertising, Office Expenses)? Say I incurred them in the 2017 or my previous fiscal year can they be claimed in 18 or the next fiscal year?
Hi Matt, expenses incurred in the 2017 tax year must be deducted / claimed in the 2017 tax year. They cannot be deferred.
Hi Alan ,
I am partner in corporations and I purchased property in 2018 in my name only .I had a loos of $75 k after property was sold plus mortgage expanses .Can I claim this as a loss on business taxes .
Thank you ,
Ann ,
Hi Ann,
If the property is in your name, then your corporation cannot claim a loss on the sale of the property.
Hello Alan,
My husband and I have started our incorporation and I am working as an employee of that corporation.I am an engineer. I want to do some certification and training to upgrade myself, Like auditor certifications and courses, Which are inline with my work experience.
Can i expense these as business expense under my corporation?
Thanks
Naina
Hi Naina,
Yes, so long as the company can establish that the courses that it pays for on your behalf are more beneficial to the company than you. Having said that, the CRA could argue that courses leading to a certification for you, are more of a benefit to you than the company and are therefore non-deductible.
Good day,
My husband and I purchased an older rental property and we are 50-50 owners of it but it needed a lot of renovations. With regards to expenses that we can deduct in repair and maintenance section, we have a quote from our contractor and most of it is labour and purchases of little things like paint, gyps, baseboards, joints. Is that ok to deduct? Im asking bc appliances, toilets, cabinets, tile, furniture that were purchased are all capital expenses and will be put into the calculation in the CCA. As well, what class do those items belong under? Lastly, if we have a rental loss, we cannot claim the CCA for that period?
Hi Sonia,
If the contractors expenses relate to a major renovation, and not routine maintenance / repairs, then the expenses should be capitalized to the cost of the property, CCA Class 1. You cannot claim CCA if there is a rental loss.
Hi, I have a question in regards to what I claim… I have a full-time job in an office, but in Jan2018 started selling products for a company…. I had an office in our home, and worked extremely hard at this during 2018 when I was not at my fulltime job. I was wondering what I can claim from our home office… obviously I was only using it to work on evenings and weekends.. So I know its the percentage of square feet the room takes up in my house.. but do I then have to make a calculation based on time spent using the office, seeing as I spent the rest of my time at my other job?
Hi Melissa,
In depends on whether you were self employed or an employee for the sales job. If you were self employed, you can deduct a % of the following home office costs:
* Mortgage interest
* Property tax
* Utilities
* Insurance
* Repairs
The deductible percentage is equal to the size of the home office divided by the size of the home (entire living space).
Hello Allan,
I have to wear suits for my work. I’m a consultant and have incorporated a business. Can I write off the suit cost as an expense? If so, what category would this fall under?
Hi George,
No, you cannot write off business suits. Clothing can be deducted if its a company uniform or a costume necessary for your work (e.g. clown outfit for a professional clown).
How much does one need to earn in order to claim write offs? it’s my first year in business and would like to know if under $1200.00 a year is applicable.
Thank you,
Hi Sabi,
There is no minimum income threshold for deducting business expenses. If the expenses exceed the income for the year, then you will have a business loss. Business losses can be offset against other sources of income in the year. Any unused business losses can be carried-forward for a period of up to 20 tax years.
If I am a newly published author, and just began selling my books in March 2019, can I claim the editing, cover design, illustration fees, binding and printing fees I’ve incurred this tax season 2019?
Thanks,
Amanda amandamaybee@gmail.com
Hi Amanda,
If you incurred the expenses in the 2018 calendar year, then they can be deducted on your 2018 personal tax return. Complete form T2125.
I work as a volunteer paramedic but I am paid as self employed. I was on-call for over 6000 hrs last yr. Can I claim a larger portion of my home as business since I am technically “working” while being on call out of my home at times for 160hrs in a week? Just trying to figure out what portion of my house is “office” since I am “working” while using the whole home.
Hi Rosalin,
If you can prove that your home office is your principal place of business, then you can claim a deduction for home-office expenses. For example, if you have no other office, but for your home office, and perform administrative duties in your home office, then you can claim a portion of your home’s costs (property tax, utilities, mortgage interest and insurance) as an expense. The deductible portion is equal to the size of the home office as a percentage of the total living space of your home.
Please what tax deductions can an insurance agent like myself deduct in his tax filing. I use my home as an office, but i have another paid job. I have not registered a company name for my insurance services, I am a captive agent but not an employee of the company that i sell their products, meaning I am an independent contractor, hence I have another 9-5pm job. Thanks
Hi Zen,
You are able to deduct the following income from your commission income:
– Advertising/Promotion
– Business bank fees
– Cell phone
– Home office expenses
– Internet
– Meals and entertainment (50% only)
– Office supplies
– Professional fees
– Vehicle expenses
Hi
I work 2 full time jobs with total pre-tax earnings of approx.$ 213,348.00, I rent a commercial garage where I work on vehicle development projects (a hobby of mine) that I want to turn into a small business.
If I use earnings from one or both of my jobs (deposited by me into a business account that I will set up) how does this affect my tax position? I am looking for ways to mitigate having to pay at tax time, I already pay an excessive amount of income tax as it is and I am trying to find ways to reclaim as much as I can at tax time.
I also financially support my elderly parents and have listed them as aged dependants on my income tax for the past several years and trying to get disability tax credit deductions for my father at least (88yrs old, mild dementia, prostate cancer)
I really could use some advice on how to maximize my tax returns for the greatest benefit
Hi Ron,
If you are operating your vehicle development business as a sole proprietor, and there are losses, the losses can be offset against your employment income, and you will receive a personal tax refund. However, losses from a hobby are non-deductible. So you have to operate the business with an intention of profit, even if you have start-up losses in the beginning.
Hello
My company purchased a new business vehicle for $48,000 and has a loan for it in which in the 2nd month paid off the majority of it ($44,000 paid) with the remaining payments of $900 to finish over the course of the next 5 months (the dealership provided incentives to take out the loan as I was prepared to purchase it outright).
The vehicle is registered and insured for businesses use in my company name and I also own a second vehicle for personal use. Can you confirm I can write off 100% fuel, maintenance, insurance? Do I still need to keep a log? Also, how do I deduct the expense of the vehicle purchase since the company does not own it outright yet?
Thank you!
Hi Al,
As long as your company is the registered owner of the vehicle, your company can deduct the following expenses (100%) it pays for:
> Interest on vehicle loan
> Gas
> Insurance
> Repairs
> Maintenance
> Parking
> Toll charges
Furthermore, your company can claim capital cost allowance (also knows as depreciation) on the first $30,000 of the cost of the vehicle, even if there is an outstanding loan. You should still maintain a vehicle log in order to compute the ‘stand-by-charge’ and ‘operating-cost-benefit’. These are taxable benefits for you because you are using a company-owned vehicle.
Hi, can I write off home and vehicle expenses for tax purposes during the course of a software development project in a year while the business is not yet form?
Hi Jake,
Is the project a ‘business’? If yes, then operating costs like home office expenses and vehicle expenses can be deducted.
For example, if you have a business plan, registered the business, and are developing software that will be used in the course of the business’ activities, then you can say you have started a business. In this case, operating expenses can be deducted.
My children help in front office of my business. We provide professional LLC business that requires owners/partners having professional license.
Can we pay for education for a professional degree for our childern to join back in the business?
Hi Alex,
You can, but the amount that your business pays for their education will be a taxable benefit for your children. Also, you run the risk of CRA disallowing a tax deduction for your business for the amount paid because they could argue that the expense is unreasonable and not related to your business.
What if you started a business and it cost more in expenses then it made in revenue? Can you still claim all of the business expenses?
Hi P,
Yes, you still can. If the total business expenses exceed the income earned in the year, then your business will incur a business loss. Business losses can be deducted in the year from other sources of income, carried-back to reduce your taxable income in any of the previous 3 years, or carried forward for a period of up to 20 years to reduce your taxable income in those years.
I pay an amount annually to a family member for keeping all my invoices, bills and business related documents in order. What GIFI code should this expense be assigned to? Can this be assigned to code 8810 “office expenses”? Thank you.
Hi Soheil,
If this person is a sub-contractor, then use code 8360 or 9270. It appears that this family member is a part-time employee, in which case you should be deducting payroll taxes and issuing a T4 slip.
Hi,
I own a corporation. I used my own car for business in 2019. I created the mileage log and would like to use the CRA rate to expense it. Can I use code 9281 to report the expense ? I also purchased a new car at the end of the year for the corporation, however I did not register it under the company’s name, can I also include the new car in 2019 Schedule 8 for CCA, if not how can I claim the depreciation of the new car?
Hi Ali,
If you use your personal vehicle to carry out your duties of employment, you can receive a tax-free vehicle allowance from your employer (i.e. your corporation in this case). The vehicle allowance amount is 55 cents per KM for the first 5,000 kilometers and 49 cents per KM thereafter. Furthermore, the vehicle allowance paid is tax-deductible to your corporation. Report the vehicle allowance paid on GIFI code 9281 of Schedule 125 of your corporation’s T2 corporate tax return.
Note that you must have a signed form T2200, Declaration of Conditions of Employment, on file, and you must be on your company’s payroll in order to qualify for the tax-free vehicle allowance. Finally, your corporation cannot claim capital cost allowance on a vehicle that you personally own.
Hi Allan,
I have a question on the CCA for a business to own a car. If the car price is $60,000 plus tax, the CCA has a limit as of $30,000 and its rate is 30%. Is this CCA limit for each year till the write-off or the total of the car price? That is, the depreciation should go as: $18,000, $12,600, $8,820, … $0 OR $18,000 and $12,000? Please teach me on this. Many thanks. Victor
Hi Victor,
The maximum amount available for depreciation for a passenger vehicle is $30,000. The annual depreciation rate is 30% on a declining balance scale. In the year of acquisition, only 1/2 of the normal depreciation can be claimed. See the depreciation figures below:
1. Depreciation Year 1 – $4,500 (UCC at end of year 1 = $25,500)
2. Depreciation Year 2 – $7,650 (UCC at end of year 2 = $17,850)
3. Depreciation Year 3 – $5,355 (UCC at end of year 3 = $12,495)
Depreciation is claimed each year until the balance reaches $0 or until the vehicle is sold.