8 Business Expenses Your Small Business Can Easily Write Off
July 3, 2022 Andrew AdolphAudits
How would you like to save some money on business expenses this year?
For the most part, Canadians can claim a considerable amount of business expenses against business income. This is great news if you’re a small business owner, but before you start writing off everything as a business expense, let me break down what the CRA considers a write-off.
I worked as a CRA auditor for 24 years, and I know exactly how auditors think. It would be impossible for me to go over all the various ways you could save money and avoid audits in one article, but I can give you the top 8 business expenses you can write off.
- Vehicle Business Expenses
If you want to claim vehicle expenses, you have to be careful. Number one, you MUST keep a record of kilometers driven for business versus personal kilometers. Second, if you are planning to write off the cost of the vehicle itself (or the lease payments), there are limits to how much you can write off, depending on the type of vehicle and what it is being used for.
Types of expensed that can be claimed are:
- Fuel and oil
- Parking fees
- Repair and maintenance
- Toll charges
- Vehicle registration fees
- Lease payment (if you lease) your vehicle, subject to limits
- Capital cost allowance if you own your vehicle, subject to limits
You would be well advised to speak with a CPA before making a vehicle purchase, or risk being stuck with a vehicle you cannot fully write off.
Don’t forget to pro-rate!
If you drive 25,000 kilometers in a year, and 10,000 kilometers of this was business use, then you can write off 40% (10,000/25,000*100) of your vehicle expenses.
Pro tip: Make sure you keep an accurate log of what you plan on writing off. There are apps you can purchase that will track your vehicle usage. I would also say that auto expense is the first place an auditor looks. So if you claim auto expenses, make sure you have your documentation in order for sure!
- Business-Use of Home Expenses
Before I get into what types of expenses you can write off, make sure your “home office” is actually a home office. The CRA will come knocking if you use your home office space for anything else but work. Now that we’ve got that out of the way, here’s what you can write off:
- Internet Charges
- Repair and Maintenance
- Rent or Property tax
- Home insurance
For In-home office business expenses, what you can write off is determined by the percentage of space your home office takes up in your home. You can see a more detailed discussion of the rules here.
- Accounting and Legal Fees
Every business should hire a tax accountant.
First, it’s a business expense, so you can write it off. Two, they have a better understanding of what types of expenses are claimable and not.
- Office Rental
Rent… One of the biggest business expenses of a small business. We all hate it, and there’s no getting around it. However, it 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.
Sometimes advertising expenses can be fully or partially written off; it just depends on your business.
- Online advertising is fully deductible.
- Television and radio advertising may be fully deductible for Canadian stations.
- Magazine and newspaper advertising can be fully deductible if they are placed in Canadian-based magazines and newspapers.
- Meals & Entertainment
Sometimes people go a little overboard with writing off meal and entertainment business expenses. Technically, you can claim 50% of your expenses on meals and entertainment. For example, if you take a client to lunch, 50% of the amount is tax deductible from your business income, assuming you provide a receipt.
In some cases, 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 are provided at a registered charity fundraiser.
- Capital Assets
Capital assets can be one of the most significant write-offs for small businesses in Canada. Capital cost is the total price paid for a property, and includes things like machinery, fixtures and furniture, computers, software, and many more.
These assets are not written off in a single year, but rather over time.
The depreciation rates in 2022 include:
- Fixtures and furniture 20% per year,
- Computer equipment 55% per year,
- Building 4% per year,
- Vehicle 30% per year,
- Software 50% per year.
- Business Insurance
Insurance allows individuals or entities to receive financial protection and reimbursement against losses.
Some types of insurance count as business expenses and can be written off. These include:
- General Business Liability insurance
- Business Property Insurance
- Business interruption insurance
Knowing what you can and cannot write off can help you run a maximize the profitability of your business. Hiring a tax audit accountant or CPA bookkeeper can significantly help you keep track of your business’s financial position. Knowing your numbers allows you to maximize savings and profitable opportunities and avoid costly mistakes long term.
To book a free meeting, call 604-240-6173 or email me at email@example.com. I can answer any financial or tax-related questions and help you set a profitable financial plan. You can also visit the Blog for additional tax-related resources.
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Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.