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
- 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:
- Interest on financing (subject to a limit)
- Licence and registration
- Repairs and maintenance (fixing, car wash, oil changes, parts)
- Parking fees (fully deductible, if relate to specific business travel)
Expenses that you pay for online advertising are currently 100% deductible. That includes ads on Facebook, Fiverr, Google, Twitter, Pinterest etc.
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
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)
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.
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.