Introduction
The Canadian government has placed a lot of emphasis on ensuring that businesses have an economic advantage over their competitors. One way they do this is by offering tax deductions for business expenses. If you can substantiate your claim, the Canada Revenue Agency (CRA) will reimburse you for those costs! However, not all expenses qualify for reimbursement, which is where knowing what qualifies becomes important.
Office expenses
You can deduct the following expenses related to your office:
- Office supplies, such as pens, paper, and printing.
- Rent or mortgage payments on your business’s building (including equipment). This is not a tax-deductible business expense if you lease your office space.
Traveling expenses
The amount you can deduct for business travel expenses depends on whether the trip is a temporary or permanent move.
- If your company is relocating, you must move from one city to another within Canada’s national boundaries; this will be considered a temporary move.
- If your company is expanding or planning for future growth, it might be considered a permanent move and, therefore, tax-deductible (if it does not meet all conditions).
When calculating these amounts, remember that any food or beverages provided during meals and transportation are deductible as part of this category of expenses.
Meals and entertainment costs
Meals and entertainment costs are tax-deductible as long as you meet certain conditions.
- You can deduct up to 50% of your meal and entertainment expenses for each business day you work or meet with clients or customers.
- If your employee brings along a guest, they may be able to claim the same amount as well. The amount an employee can claim is determined by their length of service (or tenure), typically one year for employees who have been with the company for less than one year.
Vehicle expenses
Vehicle expenses include the cost of any vehicle you use in your business. To claim vehicle expenses, you must own or lease the following types of vehicles:
- Motorcycles and scooters
- Trucks, vans, and other large vehicles (other than motorcycles) that are used for transporting people or goods from place to place or between jobs
These vehicles can be used for personal purposes as well as business purposes. The amount you can deduct is based on their fair market value at the time they were purchased.
Advertising, promotional, and other business expenses
Advertising and promotional materials are great ways to build brand awareness. You can deduct the cost of business cards and other promotional items that help you promote your business.
You can also deduct the cost of attending trade shows, conventions, and other events if they relate directly to your business activities or services.
Business owners in Canada can write off many common business expenses.
Business owners in Canada can write off many common business expenses. The tax-deductible expenses are different for each business, depending on the kind of business you’re running and where it’s located.
The deductions depend on the province where your company is registered and its size (large or small).
In general:
- You can deduct 100% of your annual advertising costs if they exceed $1,000 (or 5% of gross sales if that’s higher). Suppose this amount is lower than $1,000 but exceeds 50% of net income from all sources combined, including profits from other activities. In that case, you may claim a partial deduction based on how much advertising expenses exceed 50%.
- You may also be entitled to claim an itemized deduction for certain travel-related services provided by employees at a flat rate per mile traveled between home base and client location (this includes transportation for yourself only).
Conclusion
In Canada, business owners can deduct common expenses from their taxable income. If you are in business for yourself and have a taxable income for the year, you can claim some of your costs as a tax deduction.
If you own a small company with limited assets and liabilities, you will probably only be able to claim a few expenses on your taxes.
