Small Business Tax Deductions

Deduction Principles

What Makes an Expense Deductible

• Incurred to earn business income
• Reasonable in the circumstances
• Not capital in nature (or use CCA)
• Not personal expense
• Properly documented

The Reasonableness Test

• CRA can deny unreasonable amounts
• Compare to industry norms
• Expense must match business need
• Related parties scrutinized more

Advertising and Marketing

Fully Deductible

• Website design and hosting
• Social media advertising
• Google/Facebook ads
• Business cards, brochures
• Trade show exhibits
• Signs and displays

Canadian Media Rule

• Canadian newspaper/broadcast: 100%
• Foreign advertising to Canadians: limited
• Online ads generally unrestricted

Office and Supplies

Office Supplies (100%)

• Paper, pens, ink, toner
• Postage and courier
• Filing supplies
• Small items under $500

Office Expenses

• Coffee, tea for office
• Cleaning supplies
• Subscriptions (business-related)
• Software subscriptions

Professional and Business Fees

Fully Deductible

• Accounting fees
• Legal fees (not for capital property)
• Bookkeeping services
• Tax preparation
• Business consulting
• Payroll services

Licensing and Memberships

• Business licenses, permits
• Professional association dues
• Chamber of commerce
• Industry memberships

Travel Expenses

Business Travel (100%)

• Transportation to client sites
• Flights for business purposes
• Hotel/accommodation
• Taxis, Uber, car rentals
• Parking

Meals While Traveling (50%)

• Meals during business trips
• Only 50% deductible
• Keep detailed receipts
• Note business purpose

Conventions

• Two conventions per year
• Must be related to business
• Travel and registration deductible

Meals and Entertainment

50% Limitation

• Client entertainment
• Business meals
• Tickets to events (business purpose)
• Keep receipts, note attendees and purpose

100% Deductible Exceptions

• Staff parties (up to 6/year)
• Meals included in conference fee
• Food as part of taxable benefit
• Meals for remote work sites

Vehicle Expenses

Deductible Costs

• Fuel/gas
• Insurance
• Maintenance and repairs
• License and registration
• Car washes
• Parking for business

Business Use Percentage

• Track all kilometers driven
• Business km / Total km = business %
• Apply % to total vehicle expenses
• Keep detailed mileage log

CCA Limits on Vehicles

• Class 10 (30%): most vehicles
• Class 10.1: luxury vehicles over ~$37,000
• Passenger vehicle limits apply
• Zero-emission vehicles: higher limits

Home Office Expenses

Workspace Criteria

• Principal place of business, OR
• Used exclusively for business AND meet clients regularly

Deductible Home Costs

• Rent (if renting)
• Mortgage interest (not principal)
• Property taxes
• Utilities (heat, electricity, water)
• Home insurance
• Maintenance and repairs (common areas)

Calculation Method

• Calculate business-use percentage
• Usually square footage method
• Apply % to eligible expenses
• Cannot create/increase business loss

Wages and Subcontractors

Employee Wages

• Salaries and wages: deductible
• CPP, EI employer portions: deductible
• Benefits provided: usually deductible
• Issue T4s to employees

Subcontractors

• Payments for services: deductible
• Issue T4A if over $500
• Ensure truly independent contractors

Family Members

• Pay must be reasonable for work done
• Must be actual services
• Document hours and duties
• T4 required for employees

Insurance

Business Insurance (100%)

• Business liability insurance
• Professional liability/E&O
• Property insurance on business assets
• Business interruption insurance

Not Deductible

• Personal life insurance
• Health insurance for self (special rules)
• Home insurance (only business portion)

Interest and Bank Charges

Deductible

• Interest on business loans
• Business credit card interest
• Bank fees on business accounts
• Credit card merchant fees

Must Be for Business

• Loan used for business purposes
• Not personal borrowing
• Keep clear paper trail

Capital Cost Allowance (CCA)

Common Classes

Accelerated Investment Incentive

• Enhanced first-year depreciation
• Most assets: 1.5x normal rate in year 1
• Available through 2024

Bad Debts

Deductible When

• Invoice was included in income
• Reasonable efforts to collect made
• Debt established as uncollectable
• Written off in your records

Documentation

• Keep collection attempts records
• Note reason debt is uncollectable
• Board minute if corporation

Training and Education

Deductible

• Training to maintain/upgrade skills
• Courses related to current business
• Professional development
• Certification maintenance

Not Deductible

• Training for new career/business
• General interest courses
• Degree programs (unless required for profession)

Technology Expenses

Current Expenses (100%)

• Software subscriptions (monthly)
• Cloud services (AWS, Azure)
• Domain names, hosting
• Online tools and apps

Capital (CCA)

• Computer hardware (Class 50: 55%)
• Software licenses (large perpetual)
• Immediate expensing may apply

Commonly Missed Deductions

• Business portion of cell phone
• Business portion of internet
• Professional books and subscriptions
• Bank fees and merchant charges
• Business-use portion of insurance
• Small tools and supplies
• Protective clothing/uniforms