The good news is that the Canadian government has stipulated that a business can deduct any reasonable capital or current expense that has earned business income.  The bad news is that there are, of course, exceptions.

First we need to explain the difference between Current expenses and Capital expenses.

Capital expenses:

• Provide a benefit for longer than one year.

• Improve property.

• New property or equipment.

Current Expenses

• Expenses that recur especially after a short period of time.

• Restores property to its original state.

• Repairing equipment or property.

So, buying a new copier is a capital expenditure because it is a new purchase and it will last for more than a year.  Having the copier repaired is a current expense. 

Using Money to Make Money
The next criteria are if the expense is reasonable and if it is used to earn income.  It would be reasonable for a computer programmer to require a computer, but not necessarily for a bricklayer.  If the programmer wrote lots of code, but didn’t sell any of it nor his services to write it, then the computer is not deductible.

Another glitch is if the expenses were split between business and personal use, like a vehicle or a mobile device.  You may have to allocate the expenses proportionately.

Exceptions
Like we mentioned at the outset, there are exceptions:

• Meals and entertainment – You can claim a deduction of 50% for business meals or entertainment. Keep careful records, especially about the nature of the business discussed so that you have verification in case of an audit or questions.

• Vehicles – You can deduct the expenses (fuel, insurance, lease, maintenance, etc.) for a motor vehicle when it is used to earn income. However, if the same vehicle is used for personal use, you will need to prorate the costs. Hint: driving from your home to place of business is considered personal use.

• Home office – This is allowable if the space is the site of your primary place of business, or if it is exclusive for business purposes, and you use it for meeting clients, customers or patients on a regular basis. If you meet all those requirements, you can deduct utilities, property taxes, mortgage, etc. based on the percentage of the space used. In other words, the ratio of the square footage of the room(s) used exclusively for business as compared to the overall square footage of the house.

• Gym and Golf memberships – If the facility is dining, recreation, or sporting, the dues are not deductible. 

If you have any questions or concerns about allowable expenses, be sure to contact a tax expert or CPA for clarification.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team