13 Essential Tax Write Offs For Business Owners In Canada
What does it mean to write off something? A write off is simply a deduction that reduces your net income, which reduces the amount of taxes you would owe.
Does that mean you write off everything?
CRA has hundreds if not thousands of categories. It would be impossible to go over all of them.
But in this article, we’ll discuss some of the common business expenses that you should utilize
These are 13 essential and common tax write-offs you don’t want to miss:
- Office in home
- Meals and entertainment
- Vehicle Expenses
- Business Travel
- Bank Charges
- Professional Fees
- Salaries and Benefits
- Costs of Goods Sold
- Business license
Office In Home
In order to claim home office expenses, your office must be the principal place of your business, and you use that exclusively for business purposes ie) meeting clients and customers.
You can also take a portion of rent if you’re renting, or, if you own, you can take a portion of costs in proportion to your office at home.
Here’s how you calculate your eligible expense.
Let’s say your home office is 100 sq. feet and the total sq. feet of your home is 1000 sq. feet. That means 10% of your total housing costs can be expensed. You can expense the following:
- Mortgage interest
- Property tax
- Any other costs related to maintaining your home
Meals and Entertainment
Who doesn’t want to be treated out for dinner. Now you have to make sure you’re recording this properly in case of an audit. CRA does like to audit this particular expense.
A meal can be expensed when you meet the following criteria:
- Restaurant name (on receipt)
- The amount paid (on receipt)
- Date (on receipt)
- Name of business associate, which could be a client, vendor, supplier, colleague, or prospect (not on receipt)
- Business purpose (not on receipt)
You will be responsible for proving the business purpose if you are audited
Another important note, this expense is only 50% deductible. The reason being is that if you’re purchasing meals, you are purchasing one for yourself and one for your client. The meal for your client is tax deductible, the one for you is not.
After every business meal, physically save the receipt, or better yet, take a picture and store it on the cloud.
If you’ve trying to reach new customers, you may have run ads on Facebook, YouTube, Google, etc. All of that could be written off.
If you run a periodical, meaning a scheduled publication, like a magazine, newspaper, or journal, you can still claim all the advertising expenses if the total content is 80% is just original stuff. If the publication is less than that, you can still claim 50%.
A key thing to remember is that the advertising must be targeted towards the Canadian market.
The not so obvious are:
- Gifts and gift cards to clients could be argued to be advertising as you’re promoting your business
- Cheques/Cash gifts to someone that gave you a referral
- Branded stationery
There are two types of car expenses. One if the cost of your car and they other is you operating expense.
In 2023, if you purchase a passenger vehicle through your business, you can deduct $36,000, before tax. If you choose to lease, you can get a max lease deduction of $950/month, before tax.
If you already own a car, before starting your business, you can still claim the operating expenses.
Here’s how you can do it.
Take your odometer reading at the beginning of the year, and then take a reading at the end of the year.
A major thing to remember is that anytime you drive for business related purposes, you track the kilometers. At the end of the year, you add up all the trips, and take that as a percentage on your total driving
It might be a headache to do this everytime you go for a business meeting. But luckily, there are many apps available to do just that. We recommend Stride and MileIQ, they are two FREE apps. You simply press start at the beginning of the trip, and the apps will automatically track and log your trips using GPS.
Now that you know how much you drive for business, let’s do an example.
The odometer at the beginning of the year was 1000km and at the end of the year it showed 11000 KM. The app tracked 5000km. So your eligible expense is 5000 divided by the total driving which is 10000 km. Meaning your total eligible expense was 50%.
Add up all your vehicle expenses (i.e. gas, insurance, repairs, etc.), and you times that by whatever percentage you had.
You can claim travel expenses like your hotel, meals, and airfare, if you traveled for business purposes. You can’t just go to Columbia and say it was for “business purposes”. You have to prove it.
Some examples would be:
- Traveling to open up a new location
- Meeting up with a potential client
- Meeting up with a supplier
- Attending a conference for business development.
Let’s look at an example, you are traveling to Las Vegas to promote your latest revolutionary toothbrush for the Consumer Electronics Show (CES). It’s a 4 day event, but you booked your flight for 5 days because you wanted that one day for yourself. The airfare, hotel, and meals for those 4 days are all an expense, but that one personal day is not.
This would be the costs to keep your bank accounts. This would be monthly bank charges for maintaining your chequing and savings account. E- Transfer fees for sending money can also be expensed.
Interest you pay on bank loans, credit cards, personal loans, lines of credit can all be expensed as long as the borrowed money was used in the business.
If you paid a professional for consultation, you can deduct the fee you incurred to help you with your records. This could be legal fees paid to a lawyer for an assessment appeal or objection. If you hired an accountant, you can deduct accounting fees paid to prepare GST/HST returns..
Even more reason to hire an accountant: it’s an expense that reduces both your taxes and stress.
Monthly subscriptions can be written off, such as:
- Website hosting
- Google Workspace
- Microsoft 365
Salaries and benefits
If you hire an employee, their wages and benefits are of course an expense.
Just be careful. When hiring your first employee, make sure to set up a proper payroll system.
This means you need to make the following deductions off each of their paycheques and send them to the CRA:
- CPP – Canadian Pension Plan
- EI – Employment Insurance
- Income Tax
And you’ll need to pay that to the CRA every month
If you don’t, there’s a whopping 20% penalty and interest gets added up until you pay.
Cost of goods sold
Let’s say you are an Amazon Seller and you’re selling umbrellas on Amazon. You are trying to sell all the 5000 umbrellas bought. Those 5000 umbrellas are not an expense right away, they actually get recorded as inventory.
Each time you sell one, that gets recorded as a cost of goods sold. You’re matching the income to the expense because you’re not selling the whole 5000 in one go, but one by one. You record how many you sold as your expense.
You might be a small electrical team and may need to offload some help to a subcontractor. You can claim whatever you’re paying them.
But be very careful. CRA has certain rules between an employee and subcontractor relationship. Just note that if they are subcontractors, they should be bringing in their own tools and are in charge of their own time, you are not in control of what, when, and how they do it.
If you have a retail location, and you need to get a license from your municipality, that’s a business fee, and therefore, a business expense.
Final Note: Always Document
This is a super important and overlooked item for most business owners.
If CRA audits or reviews your financials, you MUST provide actual copies of your receipts to support the expenses you claimed.
If you do NOT have the receipts, CRA will deny the expenses, redo your tax return by taking out those expenses, and send you an updated tax bill and ADD interest on top.
FREE Download: What You Need To Know When Starting A Business In Canada
1 in 5 small businesses in Canada will fail within three years of starting. That’s why it’s important to start out on the right foot. We want to help new (and existing) business owners succeed, so that’s why we wrote an eBook on the accounting basics that ALL Canadian business need to know.
Stay up to date on all things accounting, business, tax-related topics on our newsletter.
Couldn't Find What You Were Looking For?
Give us a call and let’s see if we can get you in the right direction.