Author: Ali Raza Jaffer, CPA, CGA, MBA, BComm, Chartered Professional Accountant
Taking the leap in becoming an entrepreneur is one of the most impactful changes one goes through as they evolve in striving towards their goals. As the small business sector in Canada continues to grow, it is important to be aware of some deductions that can be claimed to decrease your tax payable and keeping in mind some potential audit risks with Canada Revenue Agency (CRA).
Rent or Home Office Expenses
Whether you are renting an office or operate a home office, some expenses that can be claimed include rent paid, utilities, insurance, repairs and leaseholds. For home office, you may also claim a portion of the interest paid on your mortgage (office usage portion only).
As CRA is clamping down on auto expenses, business owners must ensure that a mileage log is kept. There are many apps that can be connected to your vehicle to keep your mileage logs current. Some expenses that may be claimed include:
• Capital Cost Allowance (if you own)
• Lease payments (if you lease)
• Repairs & maintenance
• Toll charges
• Vehicle registration
If the vehicle is under the business’ name, there are taxable benefits that may be required to be added to income if you own a corporation.
Professional and Membership Fees
Recently, CRA has been looking very closely at professional fees to ensure that they are in fact for business purposes. Consulting, legal, accounting and association fees must be supported by invoices and proof of payment
Advertising, Travel, Meals and Entertainment
As these costs are essential for small businesses, they must be incurred to earn business income. Some examples include:
• Online, media and print advertising including website domain name registrations and web hosting
• 50% of amounts spent on client meals are eligible to be deducted
• Business travel to earn revenue are also deductible (includes, airline, rentals, hotels, gas expenses)
There are different types of insurance that qualify as tax deductions for small business owners. Some of these include, auto insurance (business component), liability insurance, medical benefits, and business property insurance. Note that corporate life insurance premiums may be paid from the corporation, but these premiums are not deductible.
My best advice to business owners on claiming is to ensure that they are only for business purposes. Furthermore, please seek advice with a professional to determine if CRA allows these expenses. Finally, per CRA requirements, you must have the documentation to support your deductions.