The Top 3 Tax-Deductible Business Expenses in Canada

Every small business owner should know which business expenses are tax-deductible in Canada

May 11, 2022

Understanding how to take a business expense as tax-deductible can be a bit of a mystery, primarily if you operate your business alone as a sole proprietorship You're probably wondering what expenses you can claim as a small business owner. These expenses are recognized as a deduction within the income tax system and help reduce the overall tax burden. Business expenses come with running a business, so it's best to know if your expenses are tax-deductible. Here are three business expenses that you can claim as tax-deductible in Mississauga for your small business.

What are business expenses?

Business expenses are all the costs that you incur to run your business. Such expenses can be deducted from your business income to reduce the amount of taxes you have to pay on the profits earned by your company. This can help you save money on your tax bill and boost your business at the end of the year. Here are three business expenses that you can claim as tax-deductible in Canada for your small business:

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"For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle."–Winston Churchill.

  1. Supplies
  2. Insurance expenses
  3. Business Travel Expenses

Supplies

Supplies include the cost of items that your business used indirectly to provide goods or services. If you’re self-employed and use supplies for personal reasons, they won’t be deductible if you're an employee and use them. Check with your employer before using any items for personal use. Supplies are usually listed on the same line item as repairs and maintenance, but whether they're deductible depends on how your business uses them.

For example:

if you take (office supplies home), they may be deductible at 50%

Common tax-deductible supplies:

  • Vehicle repairs (but not gas) if they relate directly to your business use of the vehicle.
  • Office supplies such as pens, paper clips, and staples.
  • Computer supplies such as cables, monitors, and software downloads.

If you've purchased any of these items for your business, you may be able to get a deduction on them through your expense list. It would help if you kept receipts for these purchases as proof when filing taxes at the end of the year. For more information about tax-deductible business expenses, please click view our blog, Which Business Expenses Are Tax-Deductible In Canada?

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Insurance expenses

Insurance expenses mean that you can deduct all ordinary commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business. However, the cost of insuring your home is not deductible as a business expense, nor are the premiums for personal health and dental care. To claim insurance expenses as tax-deductible, you have to:

  • If you pay by cash or debit card at an ATM, keep a transaction record showing the insurance company's name.
  • Provide the proof of payment (a receipt) showing the name of the company or organization you paid, the date of payment, and the amount paid.

What are Ordinary Commercial Insurance Premiums?

Ordinary commercial insurance premiums are utilized by small businesses to protect their assets from damage or loss due to fire, theft, or other risks associated with doing business. In addition, the premiums paid for liability protection (i.e., worker's compensation) are also considered ordinary commercial insurance premiums.

Business travel expenses

The Canada Revenue Agency (CRA) allows you to claim your business travel expenses as a tax deduction. However, in most cases, the 50% limit applies to the cost of meals, beverages, and entertainment when you travel. Therefore, it is essential to keep your receipts and record your travel. Some common examples of business travel expenses that can be deducted are as follows:

1. Car expenses

Whether it's your car or a rental, you can deduct any reasonable out-of-pocket costs associated with your business trip, including gas, insurance, and maintenance.

2. Airfare

If you fly for business purposes, you can deduct the cost of your flights and any applicable fees such as baggage fees and airport parking.

3. Hotels

You can deduct the cost of your hotel room and meal expenses if necessary for business conduct during your trip; however, if you stay at a relative's home while on a business trip, these expenses will not be deductible.

Meals

You can deduct 50% of meal expenses incurred during a business trip as long as they were incurred while traveling away from home overnight (or for more than 24 hours). 

Final Thoughts!

Understanding your tax-deductible expenses as a small business owner can help you pay less in taxes each year. In the end, it's important to remember that every business is different. Some of your expenses may or may not apply, so it is always best to speak with a registered professional accountant before making any decisions. If you are looking for a reliable service in Mississauga or require assistance in determining your business expenses, please do not hesitate to contact Yogi & Associates. Just dial our number at 905-277-5996 or click https://yogiassociates.ca/

Laila Batool

Executive Journalist

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