Which Business Expenses Are Tax-Deductible In Canada

It is important to know about your tax-deductible business expenses.

Feb. 19, 2022

Every company will have its business expenses. Claiming and tracking the business expenses helps you to reduce tax liability. In Canada, business expenses are tax-deductible if the cost is appropriate for your work. Therefore, it is important to understand what actually are business expenses and which expenses you can deduct to avoid more taxes than necessary.

What are Business Expenses?

Business Expenses are the ordinary and necessary costs subject to operating your business. For example, payroll and rent. Some business expenses are fixed, and they don't change, such as rent and insurance. There are some variable expenses that can change, for instance, shipping costs, gas for vehicles, and sales commissions. Business expenses help you to keep an eye on your profits and losses.

Business taxes, fees and licenses

Annual license fees, and the annual dues for belonging to professional organizations, are tax-deductible unless and until the organization's primary goal is recreation or dining. In addition, some corporations and business taxes are also tax-deductible.

Office Expenses

The cost of some small products used in the office can be tax-deductible. These items include pencils, stamps, pens, paperclips, and stationary. However, chairs, desks, calculators are not tax-deductible because they belong to capital items.

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"The important thing is that the expenses must be incurred to earn the business income, and they must be reasonable under the circumstances." –Chantal Trepanier

Business use-of-home expense

This expense is deductible if, for instance, your home is 1500 square feet and your office is 300 square feet, then your office is 20% of your home's size. Therefore, you can deduct 20% of your home expenses as home office expenses on your tax return.

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Business start-up costs

The expenses utilized for the operation of your business are also tax-deductible. You could claim your costs only if you started your business in a fiscal year in which the expense is incurred. In addition, you must have a record of the launch date of your business.

Travel

The cost of your travel expenses is tax-deductible if these travels were subject to business purposes. 50% limit applies to the cost of meals beverages when you travel.

Salaries, wages and benefits

Gross salaries and other benefits such as Canada Pension Plan and Employment Insurance Premium that you pay to the employees are tax-deductible. 

Property Taxes

Property taxes for the land and building used for your business are also tax-deductible. However, you have to claim the property tax related to business use of workspace in your home as business-use-of-home expenses. 

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"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." – Dave Ramsey

Advertising

You can deduct expenses for advertisements, such as advertising for Canadian radio, television stations, and Canadian newspapers. 

Interest and bank charges

The money borrowed from the bank for business purposes or to get the property for business purposes is tax-deductible. 

Insurance

Commercial insurance premiums are deductible if you utilize them on any machinery or equipment in your business. However, you have to claim the costs for your motor vehicle as motor vehicle expenses.

Telephone and Utilities

The expenses for telephone and other utilities such as water, electricity, gas, and cable are tax-deductible. 

Maintenance and Repairs

The cost of labor and equipment used for repairing a property is tax-deductible only if this property is used for business income purposes. 

Rent

The rent of the land or property used for your business is included in the list of tax-deductible business expenses.

Bad Debt

Bad debt refers to a loan that has not been paid by a retailer on the due date. You can deduct a bad debt by claiming it as a business expense on your income tax return.

Management and Administration fees

The management and administration fees are tax-deductible. Such as bank charges subject to your business operations are included in the list of tax-deductible.   

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"Beware of the little expenses. A small leak will sink a great ship." –Benjamin Franklin.

Let's Wrap it up!

It is better to deduct your business expenses that flow more money into your business account. It's important to understand that an expense that meets the definition of ordinary and necessary for business purposes is tax-deductible. Yogi & Associates is a very cooperative firm to help you track and claim your business expenses. Contact us, and we are always there to help you maintain your financial stability.

Laila Batool

Executive Journalist

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