Last updated: Jun. 5, 2023
Top Small Business Tax Deductions
If you’re self-employed or a small business owner, you understand how quickly business expenses can add up. Luckily, with a little tax planning, there are many available tax write-offs you can use to reduce your overall tax bill. Keep in mind that the small business tax deductions are allowable expenses that help lower your taxable income, which is much different from small business tax credits that when applied, directly reduce your final tax amount owed to the CRA.
Eligible Small Business Tax Deductions
We’ve created an exhaustive list of small business tax deductions to help you maximize your savings. And remember to keep organize your receipts related to business purchases.
1. Accounting and Legal Fees
According to the Canadian Revenue Agency (CRA), you can deduct “reasonable” fees related to accounting, bookkeeping, tax preparation, and finances. You can also deduct any legal fees paid during the year to collect or establish the right to collect salary or wages.
2. Bad Debt
If a client owes you money, but you’re unable to collect it within a year, you may be able to claim it as a deduction if it was categorized as income for the year.
However, not all bad debt is eligible. You can’t claim bad debts related to a mortgage or debts that result from a conditional sales agreement. We advise that business owners speak to a tax professional for more information.
3. Business Advertising and Promotional Expenses
Business owners and contractors can claim expenses used for advertising and promotional purposes as small business tax deductions. This includes any money spent on business cards, promotional gifts, or ads. These expenses may include:
- Online advertising campaigns
- Money spent on advertising on Canadian radio and television stations
- Ads placed in Canadian newspapers and magazines.
- Promotional materials, such as business cards and pamphlets
- The sponsorship of local sports teams and branded charitable donations as long as the materials include your branding and logo
4. Business Taxes, Licenses, and Memberships
You can deduct annual license fees, such as beverage, trade, or motor vehicle licenses, and certain business taxes, such as municipal taxes, land transfer taxes, gross receipt taxes, health and education taxes, and hospital taxes.
You can also deduct annual dues or fees paid for trade or commercial associations and magazine subscriptions as long as they are expenses you incurred to earn business income.
However, golf club memberships don’t qualify for small business tax deductions. The CRA specifically restricts them.
5. Business-Use-of-Home Expenses
You can deduct expenses spent on the business use of a workspace in your home.
Home office expenses are another well-known small business tax deduction. These can include part of your maintenance costs, such as cleaning materials, utilities, or home insurance, along with part of your property taxes, mortgage interest, or rent.
You can claim this expense as a small business tax deduction if the workspace in your home is considered the principal place of business or you use the space only to earn business income and meet regularly with your customers in that workspace.
To claim this expense and avoid scrutiny from the CRA, make sure you’ve correctly calculated the percentage of your home that you use for business and apply that percentage to the tax deduction.
For example, if you live in a 1,000-square-foot house and your office is 100 square feet, you’re using 10 percent of your home for business use. That means you can deduct 10 percent of your expenses.
If your annual electricity bill is $1,000, multiply this amount by 10 percent, which equals $100. This means you can deduct $100 for electricity on your tax return as a business-use-of-home expense.
6. Depreciation Expenses
If you purchase a capital asset, such as furniture, equipment, computers, and so on, you can’t claim the full purchase amount in one year. Instead, you must claim the depreciation amount (capital cost allowance or CCA) based on the rate allowed for by the CRA. Please speak with a tax specialist to ensure you’re using the correct CCA class and that you are claiming the correct amount.
7. Employee Salaries and Benefits
You can deduct any employees’ gross salaries and other benefits incurred as an employer. As the employer, you must deduct your part of Canada Pension Plan contributions and employment insurance premiums. You can also deduct workers’ compensation amounts payable on employees’ remuneration.
You can deduct salaries paid to yourself or business partners only if your business is incorporated and you pay yourself a salary through the corporation.
8. Interest and Bank Charges
You can deduct interest on money that you borrowed for business purposes or to buy property for your business. However, you can’t deduct the principal of the loan, mortgage payments, or any money borrowed for personal purposes.
You can deduct any fees paid to reduce the interest rate on your loan and any penalty a bank charges you to pay off your loan before it is due.
You can also include the cost of your business bank fees, which will include those incurred to process payments, such as credit card processing fees.
9. Insurance Premiums
Commercial insurance premiums paid on buildings, machinery, and equipment used for business purposes are eligible expenses for small business tax deductions. You must claim insurance costs related to motor vehicles used for business reasons as vehicle expenses. You should claim insurance costs spent on business use of the workspace in your home as business-use-of-home expenses.
10. Meals and Entertainment
You can deduct up to 50 percent of your total meal and entertainment expenses spent on business purposes.
11. Office Expenses
These expenses include small items such as pens, pencils, paper clips, and stationery. You cannot claim calculators, filing cabinets, chairs, and desks, which qualify as capital items.
You can deduct rent incurred for property that you use in your business. If you rent your home and use space to run your business, you can deduct the portion of the rent you use for your workspace as you would your business-use-of-home expenses.
13. Repairs and Maintenance
You can deduct the cost of labour and materials spent on any minor repairs or maintenance carried out on the property used to earn income as a small business tax deduction..
However, some repairs may be capital in nature and you should deduct them using the capital cost allowance instead.
14. Tools and Equipment
This includes eligible tools and electrical materials bought during the previous tax year. You must use these tools specifically for your job and not for any other purpose before you bought them.
15. Vehicle Expenses
If you’re self-employed and use your car for business-related activities, you can deduct a portion of your license and registration fees, fuel and oil costs, insurance, maintenance, repairs, and leasing costs.
Remember to save all receipts for purchases made for business reasons. It can also be helpful to keep a detailed record of each purchase. Without detailed documentation, the CRA could reject claims on these expenses so keeping audit-proof mileage logs will be critical.
Free Download: Year-End Tax Planning Strategies for Your Small Business
Many small business owners wait until spring to start thinking about their taxes, but this simple act of waiting could cost them thousands.
Fall is actually the best time to start think about your taxes. It allows you to get organized and assess what actions you can take before the end of the tax year to lower your future business or corporate income taxes.
Consider this toolkit your roadmap to help you get organized, reduce your tax burden, and keep more money in your pocket.
We’ll Help You Claim Any Eligible Small Business Tax Deductions
For 70 years our focus has always been to support Canadian small business owners just like you, to bring you financial peace of mind and help you hold on to more of your hard-earned money.
We help you pay less tax and will support your back office needs through affordable bookkeeping and payroll services.
Let’s see if we’re a good fit for you and your business. Take 15 minutes to connect with us. Request your free consultation online or call us at 1-800-265-1002.