Once again, tax season is upon us. It’s time to organize documents, collect receipts, and file your business tax forms. The Canadian Revenue Agency offers small business owners many tax deductions. The following is practical advice for taking advantage of the deductions unique to small businesses.
Examples Of Tax Deductions For Small Businesses
Small businesses are eligible for many tax deductions, including:
- Income splitting: A common tax strategy for small businesses is income splitting. This involves moving income from a higher-earning family member to a lower-earning member, reducing overall tax exposure by paying reasonable salary/wages to involved family members.
- Dividend payments: Shareholders receive dividends. If you add your spouse/children as shareholders, you can split income by paying them dividends. Be sure to check out the TOSI rules.
- Incorporation: A corporation is a separate legal entity with assets, a bank account, and a tax burden. Since corporate tax rates are usually lower than personal rates, incorporating a business helps save on taxes.
- Capital cost allowance: When a small business purchases items (such as buildings, vehicles, computers, a franchise, or equipment), it depreciates them, providing tax benefits for several years.
- Fees, dues, and licenses: A business can claim professional licenses, professional service fees, and professional association fees (membership in a commercial or trade association).
- Start-up costs occur during the setup of business operations and qualify as small business expenses.
- Bad debts are payments that a small business is unable to collect. The CRA allows small businesses to claim these debts, except those resulting from a mortgage or a conditional sales agreement.
- Fuel costs: A business may deduct fuel costs (diesel, propane, gasoline), motor oil, and lubricants used for business purposes.
- Bank charges and interest: A business can write off interest on money borrowed to buy property and for general business purposes, as well as bank charges incurred when processing payments.
- Home expenses: If a small business operates from a home, it may claim a portion of the cost of home insurance, the interest on the mortgage, and heating/electricity.
- Delivery, freight, and express: A business can claim delivery and mail service fees.
- Repairs and maintenance: A business can deduct the cost of labour and materials for maintaining and repairing property used to earn income.
- Administration and management fees: A small business can deduct fees to manage assets/investments.
- Insurance: A small business can deduct business insurance policies ( such as business interruption insurance, general business liability, fire insurance, business property insurance, etc.). However, businesses cannot deduct life insurance premiums or insurance for motor vehicles.
- Meals and entertainment: A business can claim up to 50% of the cost of food, beverages, gratuities, plane tickets, and hotel rooms when an employee or owner attends a convention, conference, or similar event. It can also claim 50% of the cost of tickets, entrance fees, cover charges, food, beverages, room rental for a hospitality suite, and gratuities when an employee or owner takes a client to a sporting or entertainment event.
- Vehicle expenses: If a business acquires expenses through using a personal vehicle (for business purposes), it can claim these expenses by keeping an accurate log of use. If it owns a motor vehicle or fleet, it can claim fuel, insurance, maintenance, parking, and repairs.
- Legal, accounting, and other professional fees: A small business can deduct professional advice and services (legal fees, accounting, etc.).
- Prepaid expenses: A small business can claim expenses paid ahead of time (yearly rent, advertising costs, legal retainers, insurance, leased office equipment, salaries, etc.).
- Office expenses: Deduct expenses such as paper clips, pens, pencils, stamps, and stationery.
Cook And Company Can Help
Tax deductions are constantly changing. If you’re in doubt about the deduction potential of a business expense, contact Cook and Company Accountants. No matter what size or type of business you have or where you operate, we ensure you receive the deductions you qualify for. Let us help you reduce your business’s tax burden.
