Section B7: Allowable Business Expenses

Introduction

This section lists the various expenses you can deduct for your business. You should try to become familiar with the various allowable deductions.

Allowable business deductions change frequently with changes in Federal budgets and Revenue Canada guidelines. You should always check with an accountant, financial advisor or Revenue Canada official to verify business deductions applicable to your business.

Accounting & Legal Fees

You can only deduct fees incurred for the purpose of producing income from a business.

Fees you incur to purchase capital property (land, building) are not deductible. These fees must be included as part of the cost of the property.

Advertising

You may deduct the cost of advertising. You cannot deduct the cost of advertising paid to a foreign broadcasting company or a non-Canadian newspaper or periodical if the advertising was primarily directed at the Canadian Market.

Automobile

You may claim only the portion of expenses that relates to business use.

Deductible expenses include:

  • capital cost allowance
  • interest on money borrowed to buy the vehicle
  • leasing costs
  • fuel and oil
  • maintenance and repairs
  • insurance
  • licence and registration fees.

An alternative to tracking all these individual expenses is to simply deduct a fixed rate per kilometre. Check with Revenue Canada for the allowable rates.

Meals and Entertainment

You may deduct the costs for business meals for entertaining clients. The deduction is restricted to 50% of the lesser of the actual expense and an amount that is reasonable.

Business taxes, fees, licences and dues

Business taxes and licences are deductible.

Annual dues or fees for membership in a trade or commercial association are deductible.

Membership and initiation fees are not deductible if paid to a club where the main purpose is dining, recreational or sporting activities.

Capital Cost Allowance

The original cost of equipment and buildings cannot be claimed as an operating expense in the year of acquisition. These costs are written off over a number of years. The process of writing off an asset over time is called depreciation.

Convention Expenses

You may deduct the cost of attending a maximum of two conventions per year provided they are related to your business.

Delivery and Freight

Any delivery or freight costs incurred to earn business income are deductible.

Equipment Rentals

Any equipment rental expenses incurred to earn business income are deductible.

Home Office Expenses

  • You may claim expenses for the business use of a work space in the home if: the office is your principal place of business
  • You use the office exclusively to earn business income and use it on a regular basis to meet clients, customers or patients

You may not use these expenses to increase or create a business loss.

Insurance

You may deduct all ordinary commercial insurance premiums on buildings, machinery and equipment used in your business.

Interest

For interest to be deductible it must meet the following four criteria:

  1. The interest must be paid or payable in the year.
  2. You must claim the interest according to the method you follow (cash or accrual).
  3. You must have a legal obligation to pay the interest.
  4. You must use the borrowed money for the purpose of earning income.

Lights, Heat and Water

Any utility expenses incurred in your business are allowable.

Maintenance and Repairs

The cost of maintaining and repairing business equipment, a building etc. is allowable.

Management and Administration Fees

Management and administration fees you pay to others are deductible.

If you are self-employed, any wages you pay to yourself are not deductible for tax purposes.

A payment made by a corporation to a shareholder is deductible by the corporation. The shareholder must record it as income.

Office Expenses

Office expenses incurred to generate business income are deductible.

Property Taxes and Rent

Property taxes and rent paid to operate the business are deductible.

Salaries and Wages

Wages and benefits paid to earn business income are deductible.

Wages paid to a child or spouse may be claimed if:

  • You actually pay the wages.
  • The service provided was necessary for the business.
  • The amount paid was reasonable.

Travelling

Expenses incurred while travelling for business are generally deductible.

Cost of Goods Sold

The cost of goods sold to earn business income is deductible.

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