The Canadian Revenue Agency (CRA) allows businesses to deduct expenses from their tax returns. Basically to claim that deduction it needs to be reasonable and lead to at least the expectation of a profit. So, it has to have a specific purpose that will lead to sales or other revenue.
Some of the more common allowable expenses include:
Fees for professional services like accounting, attorneys, consultants, and advertising. Within the range includes fees for cloud computing and internet provider services and related fees as long as they are business related. You can also claim business software and applications.
Fees related to conferences and conventions, as well as travel and entertainment. That would include meals. Other professionally related and allowable expenses include membership dues and subscriptions to periodicals as long as they are business related.
Expenses relating to the operation of your office that will include office supplies, postage, couriers, rent and lease payments, insurance, licenses, utilities, telephone costs, and repair and maintenance expenses.
Salaries, and this includes family members. Just remember that the expenses need to be reasonable, so the CRA will check to see if the amounts paid to family members are in line with what would be paid to any other non-relative employee.
Taxes include business taxes and property taxes.
If you have receivables that you are unable to collect, this is another allowable expense. It also includes any fees you need to pay to a collection agency in an attempt to recover those losses.
Promotional items can also be claimed. That includes those t-shirts and mugs and even business cards. You can also claim the amounts used to sponsor charitable events as long as your name is specifically mentioned as a contributor. If you are offering a seminar or presentation, include those expenses. Just be cautious. Not everything is 100% deductible. There are rules about how your business is promoted as well as some restrictions on food and beverages.
There are also some business expenses that are relegated specifically to the home-based business. Just use discretion and be sure you are calculating accurately. As an example, you can deduct a portion of your mortgage or utility expenses, but they must be in proportion to the amount of space in your home dedicated to the business. So, you can’t deduct your entire mortgage payment if you are only using a quarter of a spare room.
There are also employee-related expenses that can be included like employment insurance and qualified pension plan contributions.
If you have any reservations about what may or may not be allowed, consult with a professional tax advisor. It is preferable to having the CRA conduct an audit. Also be sure to keep each receipt. While you don’t need to submit them to the CRA with your return, if there is any question, you will have the documentation on hand and ready to prove its legitimacy. Keep those receipts in an orderly fashion and for a minimum of six years.
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- The Capex Team