As a business owner, you know that every dollar counts. In Canada, in addition to tax credits and deductions, it's possible to take advantage of several business expense deductions.
One of the most important strategies for minimizing your tax burden is to identify and take advantage of deductible business expenses. Maximizing these deductible expenses is one of the most important strategies you can use to significantly reduce your business taxes and increase your profits.
To assist you, our team presents the main categories of deductible expenses for Canadian businesses.
1. Expenses related to the operation of your business
For companies incorporated in Canada, business expenses represent a range of costs essential to the day-to-day management of your business. By reviewing these deductions in detail, you'll have the tools you need to make informed decisions and optimize your tax benefits.
T2inc.ca can help you simplify your corporate tax filing and maximize your tax deductions. Our easy-to-use online service makes filing your tax return simple and intuitive.
Rent and occupancy expenses
Expenses such as office rent, utilities, maintenance, etc. are tax deductible for corporations.
These costs can represent a significant portion of your operating expenses, so understanding their deductibility can have a significant impact on your tax situation.
Example: You rent an office for your business and pay $1,500 per month in rent and $200 per month in utilities. You can deduct that $1,700 from your taxable income.
Salaries and benefits
Employee compensation, insurance and pension contributions, etc. are also important deductible expenses for businesses.
Be sure to keep accurate records of these payments. This will make it easier for you to file your tax returns and will allow you to provide evidence in the event of an tax audit.
Example: You pay your employee a salary of $50,000 and contribute $10,000 to his insurance plan. You can deduct this $60,000 from your taxable income.
Business start-up expenses
Expenses incurred in starting your business, such as professional fees for incorporation, start-up advertising costs, etc., may be tax deductible.
It's important to keep accurate records of these expenses so you can claim them.
Example: You paid $1,000 in legal fees to incorporate your business and $500 in advertising costs to start your business. You can deduct this $1,500 from your taxable income.
Automobile expenses
Expenses related to the use of a motor vehicle for business purposes, such as fuel, maintenance, repairs, insurance and leasing costs, may be tax deductible. However, it's important to note that you can't deduct the cost of the vehicle itself, as this expense can only be written off over time through the Capital Cost Allowance (CCA). What's more, interest on money borrowed to buy a vehicle is not a deductible expense.
Be sure to keep a detailed log to document business use of the vehicle, and consult a professional to make sure you're claiming these deductions correctly.
Example: You use your personal vehicle for business and spend $1,000 on gas, $500 on maintenance, and $200 on insurance. You can deduct this $1,700 from your taxable income.
Supplies and inventory
Expenses for office supplies, production equipment, etc. may be deductible.
This includes not only supplies used directly in your business, but also products sold as part of your trade or business.
Example: You buy $500 worth of office supplies and $1,000 worth of products for resale. You can deduct the $1,500 from your taxable income.
Telecommunications expenses
Expenses for telecommunications services, such as cell phones, land lines, Internet access and fax services, may be tax deductible as long as they are used for business purposes.
Example: You pay $100 per month for your cell phone plan and $50 per month for your Internet access. You can deduct that $150 per month from your taxable income.
Marketing and advertising expenses
Expenses incurred to promote your business and its products/services are generally tax deductible.
Whether you invest in online advertising, traditional ad campaigns, or other forms of marketing, these expenses can help grow your business while providing tax benefits.
Example: You invest $2,000 in an online advertising campaign. You can deduct that $2,000 from your taxable income.
Travel and meal expenses
Business travel and meals are deductible expenses.
Whether you're meeting with potential clients, attending professional conferences, or taking other business-related trips, these costs can be significant and worth considering in your tax planning.
It's important to note that meal and entertainment expenses are generally 50% deductible under Canadian tax rules. Be sure to keep detailed receipts and document the business purpose of each meal to comply with CRA requirements.
Example: You go on a business trip and spend $500 on airfare, $200 on lodging and $100 on meals. You can deduct 50% of the meal expenses, or $50, and the remaining $700 from your taxable income.
Business and professional insurance expenses
Business insurance premiums, including liability insurance, are also deductible expenses.
Make sure you understand the different types of insurance available for your business and choose those that offer the best protection while providing tax advantages.
Example: You pay $1,000 per year for liability insurance. You can deduct that $1,000 from your taxable income.
Interest and bank fees
Business loan interest and bank fees are common expenses for many businesses, and fortunately, they're usually tax deductible.
Be sure to keep accurate accounting records of these expenses to facilitate tax claims.
Example: You pay $500 in interest on a business loan. You can deduct that $500 from your taxable income.
Depreciation of fixed assets
Another important deductible expense to consider is the deduction for wear and tear on capital assets such as machinery and equipment.
Understanding the depreciation rules can help you plan your equipment investments and maximize your tax benefits.
Example: You purchase a machine for $10,000. You can deduct a portion of that cost each year over a period of years.
Security expenses
Expenses incurred to ensure the safety of employees and company property, such as surveillance systems, alarms, and personal protective equipment, may also be deductible.
Keep proper documentation of these expenses so you can claim them when you prepare your taxes.
Example: You purchase a surveillance system for $1,000, you can claim a $1,000 deduction.
2. Expenses related to the use of your home for business purposes
If you use part of your home for business purposes, certain related expenses may be tax deductible.
It's important to understand the specific rules and keep accurate records to maximize your tax savings while complying with CRA requirements. If you're a corporation, you can contact the tax accountants at T2inc.ca for personalized business tax advice.
Part of the maintenance costs
If you use part of your home for business purposes, you can deduct part of the maintenance costs, such as
Electricity: Calculate the proportion of your electricity consumption based on the area used for business purposes. For example, if your office occupies 10% of your home, you can deduct 10% of your electricity costs.
Heating: Same principle as for electricity.
Internet: Deduct the portion of your bill that represents business use of the Internet.
Be sure to keep accurate records to support your claim, such as invoices, receipts, and a log showing the business use of the space.
Home office expenses
In addition to utilities such as electricity, heat and Internet, expenses related to office equipment used exclusively for business purposes may also be considered deductible.
Here are some of the expenses that qualify:
Computers and software: laptops, desktops, tablets, office software, business-specific software, etc.
Printers and scanners: laser printers, multifunction devices, flatbed scanners, etc.
Office furniture: desk, chair, storage cabinets, etc.
Office supplies: paper, ink cartridges, pens, etc.
Be sure to keep accurate records to support your claim and follow the specific CRA rules for this deduction.
Property taxes and mortgage interest
You can also deduct a portion of property taxes and mortgage interest based on the amount of space used for business purposes. The calculation is similar to that for home maintenance expenses.
Example: You use 20% of your home for business purposes. You can deduct 20% of your property taxes and mortgage interest.
Capital Expense Allowance
If you use part of your home for business purposes, you can deduct depreciation on the portion of your home's value that corresponds to that use.
It's important to consult a professional to make sure you're claiming this deduction correctly.
Example: You bought your home for $200,000 and use 20% of the space for business purposes. You can deduct 20% of the depreciation of your home over several years.
3. Other deductible expenses
In addition to everyday expenses such as rent, payroll, and utilities, there are other less obvious but equally important expenses to consider.
Here are just a few of the expenses you shouldn't overlook.
Professional fees
Fees for accountants, lawyers, consultants and other professionals can be deducted as professional expenses. These fees are essential to the smooth operation of your business and can be claimed to reduce your tax burden.
For advice on how to claim these expenses and maximize your tax savings, consult a tax professional.
Research and development expenses
Expenses related to the research and development of new products or services may also be tax deductible.
If your company is investing in innovation, it's important to understand how to claim these expenses. To learn more about deducting R&D expenses, read our in-depth article on the majors federal credits existing in Canada.
Charitable donations
Contributions to registered charities may qualify as deductible expenses.
If your company wants to support social or community causes, this deduction can be beneficial. For specific advice on how to claim charitable donations, see our special guide.
T2inc.ca: your accounting and tax partner to maximize your business taxes
Mastering deductible expenses is critical to maximizing your tax savings and improving your company's profitability. Whether it's identifying deductible business expenses, optimizing expenses related to the use of your home for business purposes, or taking advantage of other less obvious deductible expenses, every dollar saved helps strengthen your company's financial health.
Keep in mind that tax rules can be complex and changing. That's why it's important to consult a tax professional for personalized advice. T2inc.ca can help you simplify your corporate tax filing and maximize your tax deductions. Our online service is easy to use and allows you to file your tax return in minutes.
Visit our website for more information on our services and to access informative articles on Canadian corporate taxation. Contact our team of experts for all your Canadian corporate tax needs.
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
