Are There Any Restrictions In Claiming Tax Deductions For A Small Business?

Most small businesses can deduct expenses incurred in starting and maintaining the business from their income. You can remove these everyday business expenses from your taxes. However, the costs must be reasonable and required to earn business income.

The only restriction is that a business can deduct expenses during its fiscal year. The process is complex, especially regarding accounting methods; for example, income or expenses due in the current year must be counted. You can find all the necessary information you need to know about tax deductions for small business here.

Tax-deductible operating expenses for small businesses

You can deduct the following operating expenses from your taxes;

  • Business start-up costs

It is possible to deduct expenses before the business begins to operate. The only condition is your business must have been working during the period in which the costs were incurred for you to claim them.

  • Supplies

Your business may deduct indirect costs related to providing goods and services, such as; veterinary drugs or plumbing cleaning supplies.

  • Business tax, fees, licenses, and dues

The tax, fees, licenses, and dues paid to a club are deductible, but initiation fees and dues paid to the club cannot be deducted if it mainly serves as a dining, recreation, or sporting club.

  • Office expenses

The cost of small items, such as pencils, pens, stamps, paper clips, and stationery, can be deducted. Due to their capital nature, desks, chairs, filing cabinets, and calculators cannot be included.

  • Home-based business expenses

You can deduct some expenses like heat, electricity, insurance, maintenance, mortgage interest (or rent), property taxes, and “other expenses.” Again, this needs to be proportional to how much space you use in your home. However, a business cannot deduct the value of its labor when deducting repairs and maintenance expenses.

  • Property taxes

You can deduct the property taxes if your business is located on a piece of land and in a building. Business-use-of-home expenses include property taxes related to the use of workspace in your home for business purposes.

  • Salaries, wages, benefits

The gross salary you pay to your employees and other benefits like the Canada Pension Plan and Employment Insurance premiums can be deducted from your taxes.

  • Travel 

The 50% limit usually applies to meals, beverages, and entertainment when you travel.

  • Rent

You can deduct the rent you pay if you use the property for your business. If your business is located on land and buildings, you can deduct rent for them.

  • Management and administration fees

The fees you pay for management and administration, including bank charges, are deductible. There are charges for processing payments at the bank.

  • Interest and bank charges

Interest incurred on money loaned to your business or on the property you acquired for business purposes can be deducted from your taxes. 

  • Bad debt

Account receivables that won’t get paid can be deducted if they were already included as income.

  • Advertising

Expenses incurred for advertising in Canadian newspapers, radios, and televisions are deductible. Digital advertising is also tax deductible.

  • Telephone and utilities

Phone and utility expenses such as gas, oil, electricity, water, and cable can be deducted if they were incurred to earn income.

  • Insurance

All regular commercial insurance premiums can be deducted if you use any buildings, machinery, and equipment in your business. A claim for motor vehicle expenses must include insurance costs related to your motor vehicle.

Need Help About Tax Obligation 

We can help you if you have any questions about tax obligations in Canada. If you have questions regarding taxes, we can explain common tax errors and share best practices with you.