If you own a small business in Canada, you can claim – or “write off” – certain expenses provided that they contributed to your ability to earn an income.
On your personal taxes, you can list expenses for such items as childcare, tuition, and prescription drugs.
In both cases, these write offs serve to reduce your taxes owing. Nobody likes to pay extra taxes, so read on for some tips.
Business Write Offs
There are many expenses that can be taken as business write offs if you are self-employed. However, it’s important to keep these reasonable so that you don’t trigger a Canada Revenue Agency (CRA) audit. Those are definitely no fun!
Can you write off rent if you work from home?
Yes. If you operate your business from your home, you can deduct a portion of your expenses such as rent or mortgage interest. You can also claim utilities, property taxes, insurance and repairs.
However, you can only deduct based on the size of your workspace compared with the total square footage of your home. For example, if you own a home with 1,500 square feet of living space and have a home office that is 150 square feet, you can claim 10 percent of your total costs.
Can you write off car insurance as a business expense?
You can claim vehicle expenses, including insurance, fuel, parking, registration, maintenance and the lease/capital cost. However, if you use the vehicle for both business and personal purposes, you must maintain a log of your business activities showing the kilometres traveled and the purpose of the trip. At the end of the year, you compare the business and personal travel. For example, if you put 20,000 kilometres on your car during the year and 10,000 of these were for business, you could claim 50 percent as a business write off.
In the event of a CRA audit, you must be able to produce a travel log and receipts. So be sure to keep careful records. In summary: You can write off car costs, just not 100 percent.
Can you write off gift cards?
You can expense reasonable amounts for gift cards for clients as an advertising cost. However, you can’t buy Starbucks gift cards and then treat yourself to coffee every day while claiming it as an expense!
Can you write off alcohol as a business expense?
You can expense 50 percent of client meals and entertainment, including alcohol. Again, it’s important to keep records of which clients you entertained and how the event contributed to your business.
Can you write off medical expenses in your business?
If you want to write off medical expenses, you will need to open a Health Care Spending Account (HCSA). It provides health and dental coverage while allowing you to deduct the costs as a business expense. Best of all, it’s a tax-free benefit that can be extended to your employees (if there are any).
Can you write off a bad debt?
Yes. If a client owes you money and it looks like they will not be able to pay you, you can claim it as a bad debt expense. This will serve to counterbalance any income from this client that you have already included on your income statement.
Can you write off unsold inventory?
Yes, as long as there is a reasonable expectation that you won’t be able to sell it eventually. For example, if you are a food manufacturer and you have inventory that is past its best before date you can claim a write off. Or perhaps you are a book publisher and you printed too many copies of a book that is just not flying off the shelves. Then you can write it off.
Tax Write Offs for Individuals
There are a number of ways to reduce your personal tax owing in Canada. Here’s are some of the most popular write offs. Be sure to take advantage of them when filing your tax return.
How much can you write off for daycare?
It’s not just daycare that provides a tax deduction. Summer camps for older children also deliver a write off. You can claim up to $8,000 per year for a child under 7 and $5,000 per year for kids 7-16. Again, be sure to keep receipts in the event that you are audited by the CRA.
While it’s not a write off, the Canada Child Benefit is a great way for parents to help defray the cost of raising a child. The amount you can receive varies depending on your family income. The maximum is $6,765 for a child under 6 and $5,708 for children age 6-17.
How much tuition can I write off?
If you are a student, you are eligible for a deduction for both tuition and for each month you spent at a post-secondary institution. Some provinces offer additional tax credits. Plus students can claim moving expenses if they move out of town to study.
Most importantly, these credits can be transferred to a relative, such a spouse, parent or grandparent. Since students usually have low incomes, they may not need the credit – but it can make a big difference to a parent with a higher income.
A student can transfer a maximum of $5,000 per year to a supporting person.
Can you write off medical expenses on taxes?
You can claim medical expenses, prescription drugs and dental treatment. Keep your receipts and add them up when you are ready to file your tax return. Take a look at the Medical Expense Tax Credit to learn more
Can you write off pet expenses?
Unfortunately, no. You have to shoulder the cost burden of Fido or Fluffy on your own. You can only claim if you have a specially trained service animal.
There is a wide range of business write offs, as well as personal expenses that you can claim. The key is to make reasonable claims for automobile expenses, medical costs and other deductions. If your deductions seem to be too high, you may trigger a CRA audit.
Are you incorporated in Canada?
Small business owners and incorporated individuals in Canada can use a Health Spending Account (HSA) to save on medical expenses. An HSA is a cost effective alternative to traditional health insurance. The plan covers a wide variety of health and dental expenses. You could save thousands of dollars in taxes with an HSA.
Find out more about Health Spending Account (HSA), download my free guides: