10 Tax Write-Offs for Small Businesses in Canada
Do you consider all Canadian small business tax deductions that are eligible? If not, you risk accruing a hefty tax bill every year. Plus, all your personal taxes. In Canada, the average corporate income tax rate is around 15%. The good thing is that the government provides various ways for businesses to reduce their taxable income through legitimate expenses. And so understanding the common tax write-offs for small businesses in Canada can be a game-changer for your financial security.
What is Tax Write-Off in Canada?
Tax write-offs, also known as tax deductions, are the monetary amounts that the Canada Revenue Agency (CRA) allows taxpayers to take away from their taxable income. If your small business is eligible for sufficient tax deductions, this can put you in a lower tax bracket, reducing your tax bill for the year.
All business expenses you can claim will count, even the small ones. That’s why we recommend keeping track of all your receipts. Let’s check out what you can claim as we give you the breakdown of tax deductions for small business owners in Canada.
What Are the Most Common Tax Write-Offs for Small Businesses in Canada?
Here are the common tax-deductible business expenses you can enjoy as a small business owner.
1. Vehicle Expenses
As a small business owner in Canada, you are eligible for a vehicle expenses tax deduction. These expenses include insurance, fuel, repair and maintenance, parking fees, vehicle registration fees, toll charges, capital cost allowance if you own the vehicle, and lease payment if you lease the vehicle.
The claimable vehicle expenses are calculated as a percentage of vehicles used for business purposes annually over the total miles in a year.
For instance, if you drive 5,000 km for business and 20,000 km in a year, you can write off 25% of your vehicle expenditure.
5,000 km divided by 20,000 km multiplied by 100%
The CRA usually requires you to keep an accurate logbook to verify how much of your vehicle is used for personal and business purposes.
If you own the vehicle, your claim depreciation will be 30% of the vehicle’s cost annually through the capital cost allowance.
2. Home Office Expenses
Home office expense is one of Canada’s most common tax deductions for small businesses. A home office space needs to be a small business owner’s main place of work to be eligible as a business expense. Home office expenses include rent or property tax, internet charges, water, home insurance, utility, and repair and maintenance.
The claimable home office expenses are calculated as a percentage of the size of your office area over the entire size of your home.
For instance, if your house is 1,800 square meters and your home office is 300 square meters, your office is 15% of the overall area of your house.
300 square meters divided by 2,000 square meters multiplied by 100%
(300/2,000*100) = 15
That implies you can deduct 15% of home expenditures as home office expenses on your tax return.
Furthermore, you can claim office supplies such as stationery, pens, pencils, stamps, thumbtacks, and cleaning products. However, you couldn’t write off the cost of furniture like chairs and desks or computers since they are capital assets.
3. Meals and Entertainment Expenses
Canadian small business owners can get a 50% tax deduction for eligible meals and entertainment on their business tax returns. To be eligible for the 50% deduction;
- The meal or entertainment activity must be attended by either you or an employee.
- The expenses must be directly related to generating revenue or earning income.
- The expenses must be reasonable in the context of your business operations.
In some cases, 100 percent of the cost of meals or entertainment can be deducted.
- Staff events or parties (maximum 6 annually)
- Meals or entertainment are provided for a registered charity fundraiser.
4. Travel Expenses
As a small business owner in Canada, any travel expense incurred strictly for business purposes can be written off. This includes transportation costs (such as flights, taxis, train tickets, and car rentals), accommodation expenses, meals, and other necessary expenses incurred.
However, there are Limits on how much you can write off for every expense. For instance, you can only write off 50% of the cost of meals. For Transport, you can only write off the cost of economy-class tickets, while for accommodation, you can only write off the cost of a standard room.
5. Insurance Expenses
Insurance premiums, paid to protect your business’s assets and employees, are considered ordinary and necessary business expenses and can be written off. These ordinary commercial insurance premiums include general liability insurance, property insurance, professional liability insurance, business interruption insurance, other business insurance, and employee benefit plans.
General business liability insurance can be fully written off and is used to protect your business from plausible injuries-related lawsuits. On the other hand, business property insurance is used in the event of destruction to protect all business assets, including buildings and equipment. This type of insurance doesn’t include home spaces, whether you work from home or not.
Furthermore, business interruption insurance is in addition to property insurance and covers business losses from natural disasters. Also, keep in mind that a portion of life insurance premiums can only be written off if the business owner’s life insurance policy is used as collateral on a business loan.
6. Professional Service Fees
A business’s professional service fees in Canada are usually written off as ordinary and necessary business expenses. These professional fees refer to payments made to external professionals or consultants for services rendered to support and improve business operations.
Professional service fees include consulting, legal, accounting, marketing, bookkeeping, and IT services.
7. Salaries, Wages, and Benefits
Paying your employees a salary benefits them and your small business since the salary can be written off. You can claim tax write-offs for the gross wages and any benefits, such as Employment Insurance, you pay your employees.
As the employer, you can write off your part of these components that form part of an employee’s wage package:
- Government pension plans (Canada and Québec)
- Worker’s compensation costs for all your employees
- Provincial parental insurance plan premiums
You can significantly reduce taxes during the respective tax year by claiming the salary, wages, and other payroll-related expenses.
8. Property Taxes
These taxes are usually imposed on the value of real property, such as land and buildings, by local governments or municipalities. The good news is that property taxes paid on your business land and building can be written off.
If you use your home to do your business, the property taxes on your home can be claimed, but this amount cannot be claimed as a property tax expense but as business-use-of-home or home-office expenses.
9. Advertising Expenses
The advertising expenses can be fully or partially deducted, depending on the type of advertisement your small business uses.
For instance, Radio and TV Advertising can be fully written off for Canadian stations only. These expenses cannot be deducted if you advertise with a foreign broadcaster.
Also, newspaper and magazine advertising can be fully written off only for Canadian-based newspapers and magazines. Advertising shouldn’t dominate the pages. To qualify for tax deductions, at least 80% of newspaper and magazine content should be journalistic information. In case the newspaper or magazine contains less than 80% of journalistic content, only 50% of advertising expenses will be written off.
Furthermore, for online advertising, Domain Name Registration and Web Hosting fees for your Websites are fully tax deductible.
10. General Business Expenses
Another tax write-off for small businesses in Canada is based on general business expenses such as business licenses, dues, and taxes. Your yearly business license, as well as any subscriptions and membership fees to industry associations, are tax-deductible expenses. However, don’t include your golf membership because those cubs are considered sporting, recreation, and dining, for which membership expenditures are not eligible for deductions.
Furthermore, if a customer forgets to pay their balance, you can deduct 100% of any bad debt, as long as you have declared them as income.
A few more Canada Revenue Agency-approved Expenses include:
- Allowable Reserves
- Convention costs
- Disability-related Office Modifications
- Non-deducted Premiums
- Private Health Services Plan (PHSP) Premiums
Frequently Asked Questions on Tax Write-Offs for Small Business Canada
1. What can you write off for taxes with a small business in Canada?
Here are the common tax-deductible business expenses that you can enjoy as a small business owner; Vehicle expenses, home office, and supplies expenses, meal and entertainment expenses, travel expenses, insurance expenses, professional fees, property taxes, salary, wages and benefits, advertising expenses, general business expenses, to mention a few.
2. What is a write-off in business Canada?
Tax write-offs, also known as tax deductions, are the monetary amounts that the Canada Revenue Agency (CRA) allows taxpayers to take away from their taxable income. If your business is eligible for sufficient tax deductions, this can put you in a lower tax bracket, reducing your tax bill for the year.
3. Can you do tax write-offs in Canada?
Yes, you can write off many items on your taxes as an individual, ranging from employment expenses to child support payments. Also, some tax write-offs come as non-refundable credits, reducing your tax amount. Tax Write-offs are handy because they can lower your tax burden as a taxpayer.
4. Can I write off a Car purchase for my business in Canada?
However, you will need receipts to prove why you need to write off your vehicle expenses. We recommend keeping track of your overall driving kilometres and the kilometres you drive to earn business income.
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