Small and mid-sized firms make up the lion’s share of business in Canada. In fact, they account for 99.8 per cent of all businesses in the country. Since small business is the backbone of the economy, it only makes sense that there are plenty of incentives for business owners. Some of these are tax deductions, designed to make it easier to keep your doors open. You’re likely aware of at least a few small business tax deductions offered by the Canada Revenue Agency. Many business owners miss deductions though. As tax season approaches, be sure to keep these ten deductions on your radar. They could get your business some much-needed tax relief.
1. Operating Expenses Are Often the Largest of the Small Business Tax Deductions
The first tax deduction business owners learn about is their operating expenses. The list of operating expenses is lengthy. If you pay for it to deliver service to your customers, it could be an operating expense.
This includes things like software you need to offer service to clients or your phone bill. It also includes expenses associated with your plant or office, such as:
- Renter’s insurance
If you have to buy supplies from other companies, these count as operating expenses. In an office, this includes office supplies. In a mechanic’s business, buying oil and oil filters might be operating expenses. This is why operating expenses are often the largest item you can deduct. Many items are deductible at 100 per cent, although you may be able to claim only portions of some. So long as it’s essential to keeping your business running smoothly, it’s likely an operating expense.
2. Home Business Expenses Are Also Deductible
If you run your business from home, you can claim many of the same expenses you’d pay if you rented or owned office space. This includes expenses like:
- Interest on your mortgage
- Home insurance
It may even include things like the cost of cleaning supplies for the house. You will only be able to claim a part of these expenses though. You’ll calculate the square footage of your workspace as a percentage of your home’s total area. You’ll then be able to claim a portion of these household expenses, equal to your workspace.
3. Employee Salaries and Benefits Are Deductible Too
Your employees are essential to keeping your business running. You may have thought their salaries would be included as operating expenses. Either way, the salaries you pay to employees are deductible. If you pay subcontractors, their wages are also deductible. You can also claim Canada Pension Plan and Employment Insurance premiums for employees. Other employee benefits, such as medical insurance, may not be deductible. If you offer a health spending account or similar benefits program, you may be able to write it off.
4. Business Owners Can Write off Travel and Entertainment Expenses
You sent an employee to Toronto for a training workshop, or you had to fly to Vancouver for a business meeting. Did you know the costs associated with these trips are tax write-offs for your business? You can claim plane tickets, hotel costs, and even the cost of meals. Small business tax deductions include allowances for travel and entertainment expenses. If you take clients to a sporting event or your sales team out for dinner as a “thank you,” you can deduct these expenses. Keep in mind that you can only claim 50 per cent of these expenses. You’ll want to keep a good record of these expenses. The CRA may want you to prove they’re legitimate business expenses.
5. Write off Costs Associated with Your Vehicle
Next on our small business tax deductions checklist is vehicle expenses. If you have a vehicle that you use for your small business, you could claim costs associated with it.
The vehicle costs you can deduct include:
- Repairs and maintenance
If you have more than one vehicle used in the business, you can deduct the expenses for your entire fleet.
If your business vehicle is also your personal vehicle, you can only deduct part of the costs. You’ll need to determine how much of your use is for business. If you drive 10,000 kilometres and 8,000 of that is for your business, you can claim 80 per cent of your vehicle expenses. This can be difficult to estimate after the fact. If you didn’t keep good records for last year, be sure to start logging your business kilometres in the future. Good records are essential if the CRA ever decides to audit you.
6. A Newspaper ad Could be a Write-Off
This write-off is one of the lesser known ones. That’s because it has a few restrictions that make it more difficult to claim. If you place an ad in a Canadian magazine or newspaper, though, you could write off the cost. The CRA says small business owners can write off television and radio ads as well. The primary purpose of the publication can’t be advertising. If less than 80 per cent of the material is journalistic in nature, you’ll only be able to write off a part of the costs. Unfortunately, this tax deduction doesn’t apply to advertising in large, foreign-owned outlets. It does apply to online and digital advertising though. If you want to put more into your advertising budget, this could be the incentive you’ve been looking for.
7. Deduct Your Business Insurance Policies
Canadian businesses may take out insurance policies designed to protect them. Generally speaking, business insurance offers coverage that goes beyond consumer policies. There are also special types of insurance for certain business concerns.
The types of policies you can write off include:
- General business liability, which covers you if you’re sued after a workplace injury
- Business property insurance, which protects properties your business owns
- Business interruption insurance, which covers business expenses in the event of a natural disaster or fire
- Life insurance, if the policy has been used to back a business loan
There are other types of insurance for businesses. You’ll need to check with the CRA or an accountant to see if they’re eligible deductions.
8. You Can Deduct Capital Property
When you buy a vehicle or a new computer for your business, you expect it to provide a benefit for years to come. You can depreciate these items over time, so they’ll continue to give you a tax benefit for years to come too. The CRA has specified depreciation rates for different types of capital property.
- Computers and computer equipment
You can also claim office furniture. Intangible items like goodwill and franchises are considered capital property too. You can then depreciate these costs. These write-offs can be quite significant for some kinds of businesses. Even if you didn’t buy much in the way of equipment, you should still be sure you’re claiming these costs. They could make all the difference.
9. Don’t Forget to Deduct Your Business Management Costs
Did you join a professional organization last year? Maybe you have a website and you pay for web hosting. These expenses are considered business management costs, and they’re tax deductible.
Fees paid for services like mail and delivery are also included in this category. If you paid for accounting or bookkeeping services, you can deduct those costs too. If you consulted with a lawyer about your business, any legal fees you paid are deductible too.
10. Create a Reserve to Get a Deduction on Your Taxes
This is one of the lesser-known tax deductions small business owners can take advantage of in Canada. If you want to put some money into a reserve or sink fund, you can do so and write it off. The CRA’s only requirement is the amount is “reasonable.” This is an excellent move if you expect you’ll have high expenses in the next year. Many you’re planning for a renovation of the office building. You might be planning to make investments in a new product line. In either of these cases, a reserve fund could help manage expenses. Generally speaking, the amount you put in a reserve fund has to be added to your income for the following year. In practice, you can create a new reserve fund at the end of the following year and write it off as well.
Don’t Miss out on the Deductions You’re Entitled to
These are just some of the small business tax deductions available in Canada. There are others, such as incentives for hiring apprentices or write-offs for investments. If you weren’t aware of all the deductions you’re entitled to, don’t worry. Many business owners are in the same boat. If you want to be sure you’re getting all the deductions you’re entitled to, get in touch with us. Whether you’re preparing your return or doing tax planning for your future, we can help.
Until the next time,