Owning a business requires courage and determination. It also requires you to have a basic understanding of the tax law applicable to you. Whether you are fully self-employed, or have a full-time job and earn self-employed income on the side, the Income Tax Act (ITA) provides guidelines which allow you to deduct a range of business expenses. These expenses are necessary to offset your net income, lowering your income and reducing your taxes owing. These guidelines are limited to a few specific items, which means that the Canada Revenue Agency (CRA) then has the responsibility to determine if the expense was incurred for the purpose of earning income and whether they will be allowed or denied
Here are the main deductions which you may be eligible to claim.
Here are the main deductions which you may be eligible to claim.
Rule of Thumb: Any money spent running your business is considered a business expense, and you can claim it on your tax return as a deduction.
Business expenses include, but are not limited to:
- Advertising fees
- Start-up costs (including interest and fees on money borrowed for your business)
- Delivery or shipping costsLegal,
- Legal, accounting, and similar profesional fees
- Office supplies
- Telephone, Mobile phone, and Internet (were used for business)
- Utility costs
- Rent
- Maintenance & Repair
- Travel expenses
More details can be found on the form T2125, which the form you must fill out when claiming SE income & expenses.
Office and Home Office Expenses
If you rent an office, you can deduct the rent and any ancillary expenses for that space.
If you have a home office you can deduct its cost.
To determine your home office expenses, calculate the size of your home office as a percentage of your home’s total size. For example, if your home office is 10 square meters and your home is 100 square meters, your office is 10% of your home, which means you are able to deduct 10% of your mortgage interest or rent, utilities, home insurance, security monitoring fees, repairs and other related costs on your self-employment income tax return (T2125).
Entertainment and Travel Expenses
If you travel to a convention, meeting, or other business-related events, you can deduct all of your travel expenses, including public transportation fees, hotel costs, and conference fees. You can only deduct 50% of your meal and entertainment costs.
Vehicle Expenses
If you have a vehicle you use exclusively for your business, you can deduct all of the expenses related to that vehicle. However, if you use your vehicle both for business and personal, you can only deduct the portion of the business related usage. For example, if in a tax year you drive a total of 100 km and only 20 km was driven for business purpose, only 20% of expenses related to your vehicle will be deductible. This requires you to keep a vehicle logbook in order to accurately claim your vehicle expenses.
Vehicle-related business expenses you can claim on your tax return include:
- Gas
- Insurance
- Repair costs
- Parking fees
- Leasing
- License and registration
Other small business expenses are often overlooked. Although each expense may be small, these tend to add up and impact your bottom line tax owing.
Examples of commonly missed business expenses:
- Bank charges on your business’s bank account, including the cost of cheques
- Yearly dues for commercial or trade organizations
- Parking fees
- Private health services plan premiums for you and/or your employees
- Interest on vehicle payments
- Cleaning supplies for a home office
- Deductions for bad debts and/or the cost of recovering balances owing to you
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Using a Professional Tax Preparer designed for self-employed taxpayers takes the guesswork out of taxes and with a precision work, ensure you claim everything you are entitle to.
So don’t try this at home! Reach out and we will gladly assist!