Most small business owners are acutely familiar with how much they pay in tax each year. But there are several ways that you can lower your small business tax: for example, there are tax-saving strategies, such as incorporating your business and using investment tax credits.
You can also use tax write-offs to effectively reduce your small business’s taxable income and thereby lower your tax bill. But what can you write off for a small business in Canada, exactly? Let’s take a look.
Operating costs
Most things you need to keep your business running successfully can be used as tax write-offs. These are all allowable business expenses that most small businesses will incur:
Business supplies: the details will depend on the type of business you operate, but anything you need regularly to carry out your business can be used as a tax write-off.
Office supplies, such as stationery, paper, ink, pens, pencils, etc.
Phone, cell phone and internet expenses.
Delivery costs for your business (goods or other items).
Insurance costs: there are actually several types of insurance that can be written off for tax purposes when you have a small business:
- Property insurance for your business buildings, equipment and other property.
- Business liability insurance to protect your business from possible legal action.
- Part of your life insurance if it’s used as collateral for a business loan.
- Business interruption insurance that covers losses from fire or natural disasters.
Accounting costs and professional services
Bank interest and charges: you can claim back the interest on loans as a small business expense, as well as any bank charges your business pays.
Professional fees: for example, your accountant or lawyer’s fees, consultant fees, etc. However, legal fees to buy property need to be added to the cost of the property. Charges from hired contractors can also be small business tax write-offs.
Business licence fees, trade memberships and subscriptions to relevant publications are all allowable business expenses.
Business promotion
Most marketing and advertising expenses can be used as tax write-offs (except if you advertise in foreign publications or on foreign TV or radio). These include:
- Advertising costs: any type of advertising, such as out of office (billboards), radio or TV ads and online ads, can be small business tax write-offs.
- Business cards, flyers, signs, printing costs and expenses for attending trade shows or conferences.
- Costs for more long-term marketing efforts, such as website builds, may have to be spread over the period of time that they’re useful.
- Entertaining clients: you can deduct 50% of any money spent on meals or a sports/entertainment event, including gratuities, when entertaining your company’s clients (remember to submit receipts).
- You can also write off the costs of up to six employee events, such as holiday parties and team-building events.
Depreciation of assets
The gradual depreciation in the value of your assets, such as vehicles, computers, machinery and even furniture can be used as small business tax deductions.
The CRA works to specific rates of depreciation, so different assets have different annual depreciation rates. So, for example, buildings depreciate at between 4% and 10%, furniture and appliances depreciate at 20% and computer hardware depreciates at 30%.
Bad debt
Any debts you’re owed but which have been written off as uncollectable can be claimed as an expense (except a mortgage or conditional sales agreement), as long as they were already included as income.
Charitable donations
Any donations to registered Canadian charities, with charitable tax receipts included, can be used as tax write-offs.
Home office expenses
If you have an office in your home that you use to run your business, you could claim a percentage of the following expenses as small business tax write-offs:
- Rent or mortgage interest
- Insurance
- Utilities
- Property taxes
- Maintenance costs
You can claim a percentage of these costs, depending on the size of your home office compared to the size of your home.
Business property costs
Business property rent: provide your rent receipts and rental contract when filing your taxes.
Property taxes if you own your business’ property.
Any necessary repairs and maintenance of your business property and equipment (although you can’t claim any expenses that have been covered by an insurance claim). You can’t claim repairs that are classed as a capital expense, such as renovations that you will get the benefit from over a period of years. Those costs need to be split over several years.
Employee costs
Many of the expenses incurred through employing people to work for you are allowable business expenses, including:
- Salaries, wages and bonuses.
- Canada pension plan payments and employment insurance.
- Premiums for employee sickness, accident, disability or income insurance plans.
Travel and vehicle costs
Any necessary business travel (for example, to visit clients or suppliers or to attend conferences), can be considered small business expenses. This can include everything from plane and train fares to taxis and hotels, as well as 50% of your meals.
Car expenses can also be claimed when used for business. You would need to keep a log of the amount of mileage that is business use and claim that percentage of your car’s total expenses. The expenses you can claim are quite extensive:
- Gas
- Repairs and maintenance, including oil changes
- Car insurance
- Lease payments
- Parking fees and toll charges
- Registration fees
If you own the car, you can also deduct a percentage of its cost as depreciation.
How your IG advisor can help your business succeed
While your IG advisor can help with small business tax planning, they can also help you in a variety of other ways. These include ideas for making your business more efficient, tips for growing your business and how to maximize your profits.
They can also help you ensure your business and personal financial plans are synchronized and optimized. Talk to your IG advisor today: if you don’t have an IG advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.
