With year end just around the corner, we thought now would be a good time to remind small business owners about some valuable tax deductions that have been used to minimize hard-earned revenue surrendered to the CRA.
While it’s most efficient for your business to have accounting and bookkeeping support throughout the year, Brander can help you prepare your year-end tax returns to ensure that you’re taking advantage of all the appropriate deductions.
1. Home-Office Expenses
The most common tax write-off we see for small businesses in Canada is home-office expenses. If you work from home, you can apply eligible deductions on certain home-office related expenses.
These include:
- Utilities
- Property taxes
- Repairs & maintenance
- Home insurance
- Mortgage interest
The amount of these expenses you can write off is determined by the total size of your home and the percentage of that space being used as your working space. There are some interesting guidelines not many people are aware of – including that the office space must be available for client meetings and it’s not supposed to be used for anything BUT business. So, you might rethink using this deduction if you use a spare bedroom as your workspace – unless you permanently repurpose it into an office.
2. Office Rent
Staying with the theme of physical accommodation for your business, rent paid to a landlord for office space is also tax deductible. This applies whether it’s a regular office building or a business centre where you’re simply renting desk space. As long as you have an official rental agreement and receipt, it is a legitimate deduction.
3. Vehicle Expenses
As a small business owner in Canada, certain vehicle expenses are also tax deductible.
These include:
- Lease payments (if you lease)
- Capital Cost Allowance* (if you own)
- Insurance
- Vehicle registration fees
- Repairs & maintenance
- Fuel & oil
- Parking fees
Some expenses are determined as a percentage of business mileage compared to your total mileage in the year. For example, if you drove 10,000 kilometres in the year for business purposes and 30,000 kilometres in total for the year, then you can write-off a third of your vehicle expenses.
CRA requires you to maintain an accurate logbook in order to verify the amount your car is being used for business and personal purposes. Online apps (like Mile IQ and Everlance) have gained in popularity in the last several years to try and relieve some of the stress of remembering to differentiate between business and personal mileage.
* Capital Cost Allowance: If you own your vehicle, you can claim depreciation for 30% of the cost of the vehicle each year.
4. Accounting and Legal Fees
There’s an old saying that applies here – sometimes you need to spend a little money to get (hopefully more) money. One way of reducing taxes is by deducting fees paid to your accountant for preparing your income tax return. Also, any regular legal fees you pay to operate your business are tax deductible.
5. Travel expenses
Small businesses can deduct travel expenses gained to earn business or professional income. This includes travel to professional events such as tradeshows and conventions, but only up to a yearly claim limit of two events. Eligible travel expenses include public transportation fares, hotel accommodation and meals (including taxes and tips, and subject to a 50% claim rate). There are specific guidelines about the admissibility of events. The 50% limit also applies to the cost of food and beverages served and entertainment used on airplanes, trains and buses, when the ticket price doesn’t include those features.
There are many myths and pitfalls out there in terms of what you can and cannot deduct, which could land you in hot water and could lead to an audit. We recommend saving time, stress and money by giving us a call today.
Don’t wait until the last minute. Tax time is (understandably) a VERY busy time for accountants. We want to make sure every client gets our best service and rushing the process is not a good way to wrap up your year.
It may not surprise you that all documents and receipts need to be available; you’ll need to provide them if you’re audited by the CRA. Organizing them throughout the year minimizes the stress and frustration you experience (not to mention possible additional cost for reprinting) when it’s time to hand them over to us after 12 (OK, maybe 11 and a half) months of shoving them in a drawer to get to “later”.
But maybe that’s your new year’s resolution. Again.
