8 Best Write-Offs for Small Businesses in Canada

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Generally, all businesses in Canada are allowed to deduct expenses from their income, that are incurred not only to make the business operational but also to sustain that business once it is up and running. The CRA has a list of the common business expenses that you can write off. The pre-requisite for any write-off is that it must be incurred to earn the business income and must be reasonable under the circumstances.  

There is a lot that you can claim. It’s about portion and being reasonable. This article covers the 8 best write-offs for small businesses in Canadian Tax Law. Read on to know how you can claim these write-offs and consequently reduce your taxable income and taxable liability.  

  1. Vehicle Expenses.  

As a small business owner in Canada, you can deduct vehicle expenses. What is a vehicle expense? Expenses that are related to running the vehicle like 

  • fuel and oil 
  • insurance 
  • parking fees  
  • repair and maintenance  
  • toll charges 
  • vehicle registration fees  
  • lease payment (if you lease) your vehicle  
  • capital cost allowance if you own your vehicle  

The claimable vehicle expenses are determined as a percentage of vehicles used for business purposes in a year over your total mileage in a year. For example, if you drove 7,000 kilometers in the year for business use and a total of 25,000 kilometers in the year, then you can write off 28% (7,000/25,000*100) of your vehicle expense.  

You are required by the CRA to maintain an accurate logbook to verify the amount of your car being used for personal and business reasons.  

Perk: If you own your vehicle then you can claim depreciation for 30% of the cost of the vehicle’s cost each year under the declining balance method this is referred to as capital cost allowance.   

  1. Home Office Expenses.  

The home office expense is the common write-off in Canada for small businesses. If you work from a home office, then below mentioned is the list of expenses eligible for deduction as home office expense:  

  • Utility Expenses  
  • Water  
  • Internet Charges  
  • Repair and Maintenance  
  • Rent or Property tax   
  • Home insurance  

In-home office expenses you determine the size of your office space as the percentage of the total size of your house.  

  1. Accounting and Legal Fee  

Another way to reduce your taxes is, you can deduct the fee that you pay to attorneys, accountants, consultants, and other professionals as a business expense. The fee paid for work-related only to your business is tax-deductible.  

  1. Office Rental  

Rent expense is the cost incurred by a business to utilize property or location for office space and is tax-deductible. Maintain a file for the lease agreement and rent receipts as these documents may be required in case the CRA conducts the audit.  

  1. Advertising  

Advertising expenses can either be fully or partially written off depending upon the advertising method used by your small business. 

  • Online advertising is fully deductible including your websites with domain name registration and web hosting. 
  • Television and radio advertising may be fully deductible for Canadian stations only. If you choose to advertise with a non-Canadian broadcaster then these expenses cannot be written off. 
  • Magazine and newspaper advertising can be fully deductible only for Canadian-based magazines and newspapers. Advertising must not take up the majority of content space, to be written off, at least 80% of magazine and newspaper material must be journalistic information. In case the magazine or newspapers contains less than 80% of journalistic information only 50% of advertising expense will be tax-deductible. 
  1. Meals & Entertainment  

You can claim 50% of the expenses you spent on meals and entertainment. For example, you go with your client for lunch 50% of the amount is tax-deductible from your business income assuming that you provide a receipt.  

There are instances in which 100% of the cost of meals or entertainment can be written off. This includes: 

  • Staff events or parties (maximum 6 per year) 
  • Meals or entertainment is provided for a registered charity fundraiser. 
  1. Capital Assets  

A capital asset is the main part of write-offs in small businesses in Canada. Capital cost is the total price paid for a property, which includes machinery, fixtures and furniture, computer, software, and many more.  

These assets cannot be written off in a single year. Instead, these capital assets are written off over a period of time based on CRA’s specific depreciation rates.  

The depreciation rates for 2021 include  

  • Fixtures and furniture 20% per year,  
  • Computer equipment 55% per year,  
  • Building 4% per year  
  • Vehicle 30% per year 
  • Software 50% per year 
  1. Insurance 

There are several different types of insurances that qualify as a tax write-off for small business owners in Canada. What does insurance mean? Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection and reimbursement against losses from an insurance company.   

   There are different types of insurances that write-offs taxes for small businesses in Canada.  

  • Life Insurance – It cannot be claimed as a business deduction unless your life insurance policy is used as collateral for a business loan, in which case you may be able to claim a portion of the premium paid. For more information on eligible insurance, deductions refer to the CRA’s bulletin on Line 8690 – Insurance 
  • General Business Liability insurance – This insurance protects your business from potential lawsuits associated with injuries and is fully deductible on your personal tax return. The premiums paid each month to your insurance company can be claimed on line 8690 of your T2125 Statement of Business Activities form
  • Business Property Insurance – Property insurance will cover all business assets such as buildings and equipment in case of destruction. Home insurance does not cover your business if you work from home. These premiums can be used as tax write-offs for small business owners through their personal tax returns. 
  • Business interruption insurance – It is an add-on to property insurance and covers all or a portion of your business losses that arise from any natural disasters including fires. Premiums paid for this insurance can also be written off on your tax return. 

Conclusion 

Many business owners are unaware of what they are eligible for and that is why they end up paying much more tax than they should at the end of each year. Remember, this information is general and if you want personalized advice for your particular business, it’s best to contact a chartered accountant and get in touch with them as soon as possible to figure out how much you can save this year.  

No matter what sort of business you run, whether it is a new business which is run from home, or it is an old business that has been running in its own building for years, Filing Taxes can help you reap full tax advantage by claiming these expenses and having these tax write-offs filed. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return. 

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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