Can I deduct research expenses relating to starting a new business?

Where a taxpayer is carrying on a business and incurs expenditures on research to determine whether to expand his/her business,

• to determine the desirability of developing a new product or line of products,
• to develop a more efficient manufacturing process,
• to improve administrative procedures

These expenses would be considered current operating expenditures and are deductible for tax purposes.

Where a taxpayer who is not presently carrying on any business incurs expenditures on research to determine whether a business should be started, such expenditures are not deductible.

Where a taxpayer who presently carries on business incurs expenditures on research to determine whether a new and separate business should be undertaken, these expenditures also are not deductible.

In either case, if the new business is in fact commenced, the expenditures will qualify as an eligible capital expenditure of that business.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

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

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