As a Canadian small business owner, income tax season is the time to report your business income and remit any taxes you owe. Though it’s hardly a fun process, the upside is you’re eligible to claim tax write-offs related to your business activities.
And while you may already be aware of some common deductions — client lunches, advertising and marketing spending, home office costs — there are some lesser known deductions that may not be on your radar.
Here are five useful write-offs that could help you save this tax season.
1. Start-up costs
Getting your business up and running comes with a lot of initial expenses, many of which you are able to claim on your tax return. Business start-up expenses can include anything from standard office supplies to creating a web presence to advertise your services, or paying for legal advice. The Canada Revenue Agency (CRA) doesn’t specify dollar limits on the business expenses you claim, either. Instead, the agency looks at whether a given write-off is a reasonable amount for you to pay to earn business income in your industry. (The main exceptions to this rule are meals and entertainment expenses, which are limited to 50% of the amount spent.)
To claim business expenses as a tax deduction, they just need to have been made during the fiscal period you started your business. This doesn’t have to be the day you opened your store to customers or made your first sale, but you do have to have started your business activities; items you purchased a few years ago when you were only researching your exciting new business idea aren’t likely to qualify.
Also, be careful not to claim any personal expenses, like clothing or haircuts, even though you may need them for professional reasons. They are not considered start-up costs and are ineligible for business tax deductions.
Did You Know?
Larger items, like furniture or computers, are considered “capital costs.” They can be deducted over several years through the capital cost allowance, to reflect the fact that they are depreciating assets.
2. Bad debts
If your small business has an invoice or accounts receivable that remains unpaid even after you have tried all possible means of collecting it, you are able to claim this deduction on your tax return as “bad debt.” To be eligible, the amount must have already been included in your income for the year. The bad debt also can’t be related to a conditional sales agreement or mortgage.
3. Loan interest and bank fees
If you need to borrow money to run your business or to purchase property that will be used for business purposes, you can claim any interest you pay on the borrowed amount as a tax deduction. This is true of money borrowed via loan, line of credit or credit card. You can also claim the fees or penalties a financial institution charges for paying off your loan early.
However, there are limits to this deduction, specifically if you borrow money to purchase vacant land or a vehicle for your business. So make sure to review the CRA’s guidelines before claiming either as a write-off.
Nerdy Tip: Any regular bank fees or account charges you incur for business purposes are tax deductible. For example, charges for processing payments can be written off.
4. Membership fees and dues
Have you joined a local trade organization or chamber of commerce? Maybe you’ve become a member of a commercial association in your business sector. Or maybe you work in a field where you’re required to maintain and pay annual licence fees to operate.
Any membership fees, dues or annual licence fee payments you’ve paid to a community, trade or business organization are eligible business tax deductions. And this extends to any subscriptions to trade or commercial publications, too.
The only limitation to this deduction is that recreation, social or sport-based facilities don’t qualify. For example, membership dues paid to gyms or yacht clubs can’t be written off.
5. Delivery and shipping charges
If you’re shipping items for business purposes, you can deduct the cost — everything from a stamp to courier fees, your P.O. box rental fee and even shipping supplies, like boxes or envelopes, qualify.
What’s more, if you use your personal vehicle to make business deliveries — let’s say you make a product as part of your home-based business and deliver it locally to your customers — you can claim the relevant fuel, insurance and maintenance costs as a tax deduction. Just bear in mind that, per CRA restrictions, these expenses can only be deducted when they are “reasonable” and backed up by receipts.
Prepping for tax season
There are dozens of tax write-offs (some more common than others) that can be claimed by small business owners and entrepreneurs in Canada. To make sure you aren’t leaving money on the table this tax season, familiarize yourself with the CRA’s guidelines. And if you still have tax questions, like whether your small business is eligible to claim a specific deduction, consider consulting a tax professional for advice.