In this article, we’re covering the top 10 tax write-offs for Canadian small businesses.
These are the deductions that we most frequently see business owners saving the most money with at tax time. I’ll break each one down in plain English so you can see what applies to your business.
Home Office Expenses
A lot of small business owners work from home, at least some of the time. This often provides the opportunity to write-off some home-related expenses.
To claim a home office deduction, the space has to meet one of two CRA requirements:
- It’s your main place of business, AKA it is where you run your business most of the time, OR
- It’s used exclusively to earn business income and you meet clients, customers, or patients there regularly.
If your workspace meets either of those criteria, you can deduct a portion of your household expenses. That includes things like rent, utilities, internet, property tax, interest on your mortgage, and even home insurance.
The amount you claim depends on how much of your home is used for business or, in some cases, how much time you use it for work. The key is that your calculation needs to be reasonable and backed up in your records.
Utilities, Phone, and Internet
Even if you are not claiming a full home office, you can still deduct the portion of your phone and internet that you use for business.
If you have a separate business phone or internet account, that is 100% deductible. If you are using a personal plan for both business and personal, you will need to split out a reasonable percentage for business use.
For commercial spaces, utilities like hydro, heat, and water are all deductible business expenses.
Motor Vehicle Expenses
If you use your car for business, you can write off the business-use portion of your car costs. That means gas, maintenance, insurance, lease payments, or even loan interest if you financed it.
The CRA requires you to keep a logbook of your business kilometres compared to total kilometres in the year. The percentage of business driving is the percentage of your vehicle expenses you can deduct.
Remember, there are limits on writing off luxury vehicles, so you cannot expense that new sports car in full.
We have a full in-depth guide on vehicle write-offs linked here if you want all the details.
Meals and Entertainment
Taking a client out for lunch, or coffee with a prospect? Those meals are 50% deductible.
The CRA figures that meals and entertainment have a personal benefit too, so you only get to write off half the cost.
There are a few exceptions where you can claim 100% – like team holiday parties or meals provided at remote work sites. For most business meals it is 50%.
Keep your receipts, and make a note of who you met with and why, in case the CRA ever asks.
We also have a full guide on if you want to go deeper on this one.
Travel Expenses
If you travel for business, you can deduct the cost of transportation, hotels, and 50% of meals while you are away.
This could include attending a conference, meeting with clients in another city, or checking in on a branch office. Flights, hotels, taxis, and even Uber rides for business trips can all be written off.
The key is that the trip needs to be primarily for business, not personal. If you tack on a couple of vacation days, you will need to split out the personal portion.
The CRA also limits convention fees to two per year, and they have to relate to your business or profession.
And again, we’ve got an in-depth guide on travel write-offs for more details.
Salaries, Wages, and Benefits
If you have employees, the wages you pay them are deductible. That includes not only their salaries but also the employer’s share of CPP, EI, and any benefits you provide.
If you are incorporated and you pay yourself a salary, that is deductible too. Just make sure you are actually running payroll properly with source deductions and T4 slips filed at year-end.
You can also deduct payments to contractors, as long as the payments are for legitimate work and at reasonable amounts.
If you’re new to the topic of payroll, we’ve got another guide for you. Check out our guide on hiring your first employee for more details.
Advertising and Marketing
Spending money to attract new customers? Those costs are also deductible.
This can include online ads like Google or Facebook, website hosting, social media promotions, sponsorships, or even old-school ads in newspapers or radio.
Just make sure the expenses are directly tied to your business and are reasonable for what you are trying to achieve.
Software and Subscriptions
Almost every business uses software these days. The good news is that subscriptions to accounting software, project management tools, cloud storage, CRMs, and even e-commerce platforms like Shopify are deductible.
Most software these days is subscription-based, so you deduct the full cost each year. For larger one-time software purchases, sometimes you will need to write them off over time like a capital asset.
Capital Assets (CCA)
When you buy big items like computers, office furniture, or major equipment, you usually do not write off the full cost in the year you buy it.
Instead, you claim depreciation through something called Capital Cost Allowance, or CCA. The CRA has specific rates for different types of assets. For example, computer equipment can be depreciated faster than furniture.
This helps spread out the deduction over the useful life of the asset.
Interest and Bank Charges
If you borrowed money for your business, the interest on that loan is deductible. That includes business lines of credit, loans for equipment, and even credit card interest if it is tied to business purchases.
Just make sure the borrowing was for business purposes. If the loan was partly for personal use, you can only deduct the business portion of the interest.
You can also deduct regular bank fees on your business accounts and merchant fees from payment processors like PayPal or Stripe.
Payment processing fees are typically charged to the business owner at a rate of about 3% of the transaction total. This is the unfortunate truth about accepting credit card payments for your goods or services, but the good news is that those transaction fees are also tax deductible.
Bonus Write-Off: Professional Fees
Alright, we said 10 but we wanted to include one more bonus write-off.
Last but certainly not least, you can even deduct the fees you pay to your accountant.
So technically, if you are paying us at ÐßÐßÍøÕ¾, that is a write-off too.
On a serious note, having a professional accountant does not just save you money on taxes. It also makes sure you are claiming the right deductions and avoiding CRA headaches.
If you would like help making sure you are getting all of these write-offs, and doing it properly, reach out to us at ÐßÐßÍøÕ¾ Accounting. We would love to help.
And that does it for 10 tax write-offs for Canadian businesses.
