8 Biggest Tax Deductions for Your Small Business in Canada

8 Biggest Tax Deductions for Your Small Business in Canada

8 Biggest Tax Deductions for Your Small Business in Canada 960 640 Baranov CPA

Welcome to the wild world of self-employment. No paycheck, no vacation, no benefits. Yes, I know, you are missing these “guaranteed” perks sometimes. But hell, now you are own boss, you can hire and fire your customers. You can set your own hours. You decide what and how you do it. Another benefit is that as a self-employed individual, you have access to multiple tax deductions from your business income.

You take the risk. You pay for your own expenses. Now it is time to deduct them from your tax bill.

Please note that we have also created the ultimate list of small business tax deductions in Canada resource for our visitors. Make sure you also review it and see what other deductions you might miss.

Track Home Office Expenses

You can deduct the following expenses from your taxable income. Note that these should be proportionate to the usage of livable space that you use for business. For example, if you use 20% of your house for an office, then you can deduct 20% of expenses.

  • Rent or Interest on Mortgage (note: mortgage principal is not deductible)
  • Utilities (hydro, water, condo maintenance fees)
  • Property taxes
  • Insurance
  • Repairs and maintenance (painting, flooring, plumbing)

Log all Your Business Mileage

Similar to the home office deduction, you can deduct business-related vehicle expenses. Again, the principle here is that you can deduct % of expenses that relate to business activities. The expenses you can deduct include:

  • Gas
  • Interest on financing (subject to a limit)
  • Licence and registration
  • Insurance
  • Repairs and maintenance (fixing, car wash, oil changes, parts)
  • Parking fees (fully deductible, if relate to specific business travel)

Online advertising

Expenses that you pay for online advertising are currently 100% deductible. That includes ads on Facebook, Fiverr, Google, Twitter, Pinterest etc.

Note that there are certain limitations for radio, newspaper and magazines ads.

Pay salary to family members

This one can be a bit tricky as many business owners misunderstand CRA’s intentions. You can have a family member employed by your business. This will effectively reduce the total family tax bill as the tax rates are progressive. There are certain conditions that need to be met:

  • You need to actually pay the person into their bank account (or by cash with a signed note)
  • The payment must be reasonable (similar to what you would pay a non-related person)
  • The other person needs to declare it as income on his/her taxes

Business-related travel

Travel costs that relate to business are fully deductible. These include, but are not limited to:

  • Plane/Bus/Train tickets
  • Travel insurance
  • Hotel and accommodation
  • Car rental
  • Parking fees
  • Cost of seminar/conventions/conference admission (limited to 2 events per year)
Note that meals and entertainment expenses during the trip are subject to the 50% limitation.
Travel costs that relate to family members are only allowed if they are directly involved in the business.

Gifts to Clients

You can write off reasonable amounts of gifts and gift cards to your clients and customers as an advertising expense. If you bought a bottle of wine or a box of chocolates and gifted it to the client, then it is fully tax deductible. Gifts must be reasonable in nature and proportionate to your revenue.

Note that meals and entertainment gift cards (e.g. Tim Hortons, spa packages, restaurant cards) are only 50% deductible.
Write down the name of the client on the receipt. CRA may want to see that in case of an audit.

Cost of Software Subscriptions

I know you love your beautiful online software. We are using them heavily at our firm as well. Office 365, Quickbooks, Freshbooks, DocuSign, Adobe and all other cloud-based software subscriptions that relate to your business are 100% tax deductible.

Accounting and legal costs

These costs are fully tax deductible, including:

  • Business start-up costs (licensing, incorporation, agreement drafting fees)
  • Legal fees incurred in the regular course of business (contracts, tax appeals, trademarks)
  • Accounting fees (bookkeeping, filing, advice)

Please make sure that you keep legible copies of your receipts. My advice is to buy a tabbed folder and keep the receipts separated by month.

For electronic invoices and receipts, create a folder or a label in your mailbox. Every time you get a receipt just ear-mark it as a business expense (or drag the email into the folder). You will thank yourself when you will get a supporting documentation request from the CRA.

7 Comments
  • sorry Boris,

    just saw the software portion of your article

  • Hi Bois,

    For start up costs as a consultant, are cell phone, laptop software(word, excel, powerpoint, adobe), and business card fully deductible?

  • How much of my bottle service expenses can i write off? i am in the car customization space and it takes alot of flash and taking people out to get and keep clients.

    • Hi Mark,

      You can deduct 50% of client entertainment expenses. Similar to other business deductions, the expenses must be reasonable in amounts and directly linked to generating business revenues. I would recommend keeping detailed records for each event (receipts, client name, business discussed, etc.)

      Hope that helps!
      Boris

  • Avatar
    small business news Canada December 26, 2018 at 3:26 am

    From my view the tax in small business should be less deducted so that the small business man could make the happily and prosperity life as compared to different big business the rate of deduction of money should be lower than the other.

    • Agreed!

      The federal small business tax rate went down to 9% starting from Jan 1, 2019. Hopefully, that will ease the taxation burden on Canadian small businesses.