Many small business owners are unsure of what they can deduct as a legitimate business expense. It is quite common for someone to start their own business before they have had a chance to consult with a tax accountant, who can provide guidance on what expenses are allowed to be deducted for tax purposes. Of course, when it comes time to file your taxes, your accountant will be able to help; however, it is important to know what is eligible so that you can plan accordingly.
As per the Canada Revenue Agency (CRA): As a rule, you can deduct any reasonable current expense you paid or will have to pay to earn business income. The key here is that the expense had to have been incurred in order to earn business income, (i.e. you cannot deduct a night out with friends, if it was not for the purposes of earning income).
There is an additional nuance to consider as well, which is whether or not the expenses are considered a current year expense, or are capital in nature. The CRA provides additional information about Capital vs. Current expenses, which you can read about here.
Tax Deductible Business Expenses
Advertising
Allowance on eligible capital property
Bad debts
Business start-up costs
Business taxes, fees, licences, dues, memberships, and subscriptions
Business-use-of-home expenses
Capital cost allowance
Current or capital expenses
Delivery, freight, and express
Fuel costs
Insurance
Interest
Legal, accounting, and other professional fees
Maintenance and repairs
Management and administration fees
Meals and entertainment
Motor vehicle expenses
Office expenses
Prepaid expenses
Property taxes
Rent
Salaries, wages, and benefits
Supplies
Telephone and utilities
Travel
Other expenses
As noted above, these expenses need to be business related, and reasonable. Some commonly questioned or audited business expenses are travel expenses and meals. If it is determined that any travel was for non-business purposes, and likewise with meals, the CRA will disallow the expense.
If you have any questions on what is deductible, or any other tax questions, please feel free to email us at [email protected].
