As a business owner, saving money to reinvest is integral to the success of your business. Knowing and understanding what you can expense and write off can help you maximize your tax credit.
Using Your Home as an Office
Using your home as an office is a great way for you to save money and stay productive. Depending on the percentage square footage of your home office and the time that you spent the office, you can deduct that percentage from your housing costs. Housing costs include rent, property tax, mortgage interest, home insurance, utilities, cleaning supplies, repairs, etc. The space you allocate as your home office must only be used for business. For example, if you work out of your bedroom, you cannot declare your bedroom as a home office. Additionally, it is a good idea to apply for a home-occupancy permit in case you get reviewed by the government.
If the operating owner of the incorporated company is deducting a portion of the housing costs as business expenses for a home office, the business owner must declare the same amount as personal income as well as expensing the same amount as rental expense on his/her personal income. The personal income and rental expenses will cancel each other out.
Business License
If you are in the construction industry, the Metro West Inter-Municipal Business Licence allows eligible trades contractors and professionals that are related to the construction industry to work in multiple jurisdictions under one license. And like any other business license or permit, you can write it off as a business expense.
Motor Vehicle Expenses
Expensing Interest from Personal Financing
As a business owner, there are times where you need to personally finance the business for a number of reasons such as expansion, operating costs, etc. The portion used for your business of the interest accrued is deductible. This includes personal lines of credit, a mortgage, a second mortgage, and personal loans. If you do personally finance your business, ensure that you have a clear audit trail between the funds you personally financed and the justified purpose you used the funds for.
Meals and Entertainment Expenses
This might be the most popular write off to business owners everywhere, but what can you write off? Whenever you take a client out to a meal, 50% of that meal is deductible. Furthermore, tax and tips would be included in the cost of food and beverages.
The entertainment portion of this is very generous, however. It includes the costs of tickets to the performing arts, athletic events, hospitality suites, nightclubs, vacations, and more. Although golfing green fees are not deductible, the meals and drinks at the clubhouse are deductible. You can also host up to 6 employee events per year that are 100% deductible.
If you attend a convention or seminar, you don’t get to claim the cost of incidental food (doughnuts, muffins, coffee, juice, etc.). If the seminar or convention provides food with a direct cost, you would claim it with the 50% rule. If there isn’t a clear cost for the food, you would claim 50$ a day that is subject to the 50% rule, thus you would claim 25$ per day. You would then deduct this amount from the total fee of the convention or seminar.
Travel Expenses
Travel expenses are something the CRA looks closely at because there is space for personal gain. The CRA watches closely for anyone with travel expenses at or over 10%. Be careful of being too aggressive with writing off your travels as it could lead to more questions from the CRA. 1st rule of thumb is to be able to justify why you are expensing this trip.
A common question is whether you could bring your spouse with you and most of the time the answer is no. If your spouse is there to help you conduct business, or help you at a trade show, you can write it off. For most small businesses or entrepreneurs, the business is a family affair and thus your spouse could be an integral part of the trip. If you want to be conservative, you can write off 100% for yourself, and 80% for your spouse. But be reasonable with your justification, if your spouse is only there to decorate a booth or hand out flyers, that may not be a good justification for attending the trip.
You could, however, combine business and pleasure by attending a dinner or a show with a client. Although this would abide by the 50% rule. The nature of your trip must predominantly be for business rather than entertainment.
Your business can write off the cost of attending conferences and seminars as well up to 2 a year. Firstly, more than one person can attend these seminars allowing you to expense for multiple persons. Secondly, you can expense over 2 conferences a year if your business falls in line with 2 or more categories of a trade or profession. For example, as a bookkeeping business, AGEA can expense 2 tax conferences and 2 accounting conferences.
Capital Cost Allowance (CCA)
Capital Cost Allowance (CCA) is the tax deduction for depreciable assets, such as furniture, equipment, computers, and even buildings. When you buy depreciable property, you cannot expense the entire cost immediately, rather you would need to deduct the cost of the depreciable asset gradually over a period of years. CCA is rather complicated to deduct as there are a number of different rules for different types of assets. We suggest you consult a professional when calculating the deductions, such as coming for a meeting at AGEA.
Check out this blog for a more in-depth explanation on CCA:
https://turbotax.intuit.ca/tips/what-is-capital-cost-allowance-2016
Professional/Consultation Services
You can write off fees you incurred from external professional advice, services or consultation. This includes accounting and legal fees of different natures. Although, you cannot deduct legal fees you incur from buying a capital property such as boat or fishing material. Instead, you would add this fee to the total cost of the property that you would use to calculate the CCA for the said asset.