Allowable Business Expenses for Canadian BusinessesBrian Jang ON February 20, 2020
Wondering what is accepted by the CRA as a legitimate business expense for your small Canadian business?
Being able to deduct business expenses is a great way to help your small business, especially when getting started. The CRA allows for several items to be claimed as deductions on your Canadian income tax. What follows is meant to give you some guidelines about what is permissible, but it not intended to be an exhaustive list.
It’s also worth remembering that the CRA requires that your business have a “reasonable expectation of profit” and will not allow you to continually deduct business expenses if your business fails to become profitable.
Keeping your receipts is necessary in case of an audit. Without them, you will need to find some other way to justify your claimed expenses, and if you cannot, those claims are likely to be disallowed. While you will not submit these receipts when you file online, the CRA can demand to see them for up to 6 years, so store them securely.
Some Typical CRA Business Expenses
As mentioned above, this is not a complete list, but should serve to give you some idea of what can be claimed.
- Advertising expenses
- Bad debts, meaning money that you are owed but unable to collect
- Bank charges
- Business licenses
- Business software and applications
- Business taxes
- Collection agency fees
- Consultant fees and other expert advice
- Convention/conference fees
- Employee salaries, including family members employed by you
- Expenses for meals and entertaining clients
- Expenses related to repairs and maintenance
- Insurance expenses for equipment, machinery, etc.
- Internet fees, telephone fees for business use
- Interest expenses on loans required to run your business
- Lease/rental expenses for office space
- Legal/accounting fees that relate to your business activities
- Membership dues for organizations related to your business
- Office supply expenses
- Property taxes
- Service provider fees for cloud computing
- Shipping and delivery (postage, courier services)
- Subscription fees for business-related publications
- Travel expenses related to business
- Utilities, telephone
- Vehicle expenses. This includes business use of the vehicle, as well as capital cost allowance deductions (see below) at the time of purchase.
Home-based businesses may also take advantage of deductions such as the Home Business Tax Deduction and Expenses Related to Home Based Businesses. You must separate business expenses from personal expenses, meaning that when claiming utilities, you may only do so for the portion of your home that serves as your place of business.
Payroll Employee Deductions
Payroll employees may also deduct the following:
- Employment Insurance
- Employer-paid premiums for Quebec and Canada Pension Plan contributions
- Insurance plans for accidents, disability, and sickness
- Workers’ Compensation
Tax Credits for Business Expenses
Your business may also be eligible for certain other tax credits, including Investment Tax Credits and Scientific Research and Experimental Development Tax Credits. The former covers things like childcare spaces and apprenticeship job creation. The latter is for businesses engaged in qualifying scientific research and development.
Capital Cost Allowance Deductions
Capital Cost Allowance Deductions allow you to deduct the cost of depreciating capital assets. As mentioned above, this is applicable to vehicles, but also to buildings and equipment.
Since this list is not a complete one, you should always check with BCJ Group when unsure whether an expense is eligible to claim.