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Tax Deductions for Small Business Canada

June 25, 2024

Tax deductions or tax write-offs are the cash amounts that the Canada Revenue Agency (CRA) lets you take away from your total taxable income.

If your business qualifies for sufficient tax deductions, this can bump you down into a lower tax bracket. That could then reduces your tax bill for the year. All expenses you can claim will count, even the small ones. That’s why it’s important to keep track of all receipts.

Find out what you could claim as we give you the lowdown on tax deductions for small businesses in Canada.

Table of Contents

25 Small Business Tax Deductions in Canada

Key Takeaways

Frequently Asked Questions

25 Small Business Tax Deductions in Canada

The CRA details some of the common business expenses that your business could write off. Any write-off incurred has to earn the business income and must be reasonable.

It requires a little digging to get the complete picture. That’s why we’ve compiled a guide about the tax breaks you need to know about as a small business.

Business Meals

You can claim 50 percent of what you spend on meals and entertainment as tax-deductible business expenses on your tax return. That’s as long as they relate to the business and provide that you can support them with receipts.

Work-Related Travel Expenses

As a small business owner, you can claim any travel expenses incurred for business purposes. These can include the costs for taxis, train or plane tickets as well as accommodation. You could also claim for car hire related to business travel or other business purposes.

Work-Related Car Use

Writing off vehicle expenses is another highly beneficial tax deduction. First up, there is a capital cost allowance (CCA) on any vehicle you may own.

Owners can only deduct 30 percent of their vehicle’s cost each year as depreciation. That’s until they’ve deducted the total value of the vehicle. This depreciation has an upper limit of $30,000 + HST of the purchase price of the vehicle.

Fuel, oil, car insurance, repairs and maintenance all count. You can include lease payments, parking fees and toll charges. You can claim vehicle registration fees as well.

It’s mandatory to keep an accurate logbook that distinguishes private and business mileage. Any claim can only relate to business mileage, and to streamline this process, consider using the best mileage tracker app available.

Business Insurance

Ordinary commercial insurance premiums are tax deductible. Categories can include:

General Business Liability Insurance
Business Property Insurance
Business Interruption Insurance

Life insurance premiums can be a tax write-off in certain instances when used as collateral.

Home Office Expenses

To qualify as a business expense, a home office space has to be a small business owner’s primary place of work. The expenses included when filing taxes are mortgage interest, utilities, and property taxes.

Repairs and maintenance as well as home insurance count as well. The amounts eligible will depend on the proportion in size of the office compared to the home.

Office Supplies

You can claim for items such as:

Stationery
Pencils, pens, and stamps
Thumbtacks and cleaning products

You wouldn’t be able to deduct the cost of larger pieces of office furniture like desks and chairs or computers as they are capital assets.

Phone and Internet Expenses

You can claim expenses such as cell phones, cable and internet used for business purposes from your income tax return. If your main office space is at home, you’re likely to use some of these services for both work and pleasure. You must therefore keep a careful record of how you use them and apportion the correct business claim to your tax return.

Business Interest and Bank Fees

You can write off any interest and bank charges on a business loan to earn a profit through dividends, royalties, interest, rent, or income. You can deduct expenses such as bank transaction fees. You’d incur these when processing payments through your business’s bank account, for example.

On a separate note, bad debt expenses are tax deductible. These are sums of money owed to you but which you’ve been unable to collect. The CRA lets businesses claim all bad debts, other than those related to mortgages or due to a conditional sales agreement.

Depreciation

Depreciation on capital assets like computers and office equipment is one of the key tax write-offs for small businesses. You can’t, however, write off a capital asset in its entirety over a given year.

The assets would get written off over a period of time at variable rates specified by the CRA. Previous rates have included 20 per year for fixtures and fittings and 30 percent per year for vehicles, for example.

It’s worth remembering to try and make capital purchases just before the end of the year. This lets you take advantage of the best depreciation deductions on purchased assets.

Professional Service Fees

Bookkeeping, accounting and legal fees are all tax deductible.

Salaries and Benefits

You can claim tax deductions for the gross wages and for any taxable benefits like Employment Insurance that you pay for any members of staff.

As the employer, you can deduct your part of these components that form part of an employee’s salary package:

Government pension plans (Canada and Québec)
Provincial parental insurance plan premiums (an income replacement plan in Québec)
Workers’ compensation costs for your employees

Charitable Contributions

Only donations to a registered Canadian charity would qualify. If a charity provides a receipt, keep it for your tax return.

Education

Many small business owners see the benefit of investing in training. It enhances professional development and is a way to keep up with current industry trends.

The costs of attending conferences, conventions and seminars are tax deductible. That includes any travel expenses incurred. However, they are subject to specific guidelines. As an example, some types of training get treated as capital expenditures instead.

Child and Dependent Care

You might be able to claim this kind of care if you paid for it in order to run a business. This may include payments for daycare centres, child care provided by certain individuals, school fees or day camps.

Energy Efficiency Expenses

The CRA offers tax break incentives to encourage greener working practices. These include a higher upper rate on the capital cost allowance of up to $55,000 + HST for an electric or hybrid vehicle. The CRA also favours clean energy items when calculating the depreciation of office equipment.

Investments

You can claim for interest and any carrying charges you incur to earn income from bonds and securities. This is along with other Canadian or foreign investments and provided they are all earning investment income. That generally means they are paying dividends or interest.

If an investment is never going to earn anything other than capital gains, then the interest expense won’t be deductible.

The CRA allows for the inclusion of the dividend tax credit when calculating the tax implications of your investment income, offering potential benefits for eligible investors.

Foreign-Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is a US tax benefit that lets you exclude income from U.S. taxation. It is typically a key way that U.S. ex-pats living in Canada can avoid double taxation on their Canadian-earned income.

Medical Expenses

You can claim Private health services plan (PHSP) premiums in certain circumstances as part of your medical expenses tax deduction. They can relate to you or any member of your household. They can also include employees who have worked for the business for more than 3 months.

Real Estate Taxes

You can deduct the property taxes you incur for the buildings used for your business. For instance, you can deduct property taxes for the land and office where you base your business.

You would need to claim the property tax related to any workspace in your home as business-use-of-home expenses.

When leasing space in an office building, the rental expense incurred is deductible. You must keep a record of rent receipts and any lease agreement. If the CRA requests an audit, you would need to submit these documents.

Mortgage Interest

If you use your home as your primary place of business, you can deduct part of your mortgage interest. The amount you can claim will be proportional to the office space size compared to the entire home area.

Moving Expenses

Let’s say you were to relocate and set up a new home to run a business in a new town or city. In this instance, you would be able to deduct eligible moving expenses from any income you earn at your new location.

Retirement Contributions

Employee benefits like the Canada Pension Plan (CPP) are tax deductible. In Québec, workers including those self-employed would come under the Québec Pension Plan.

Advertising and Promotion

You can claim most advertising expenses incurred for promoting your small business. Usually, these kinds of promotional costs would appear in your tax return for the year you incurred them.

That’s unless there is a lasting benefit to the business. This might include website development costs. You can claim those over the useful life of the asset.

Exclusions include advertising with a non-Canadian broadcaster. There are also some dependencies related to magazine and newspaper advertising. For example, if they contain less than 80 percent journalistic information, you can only write off 50 percent of the advertising costs.

Client and Employee Entertainment

50 percent of what you spend on meals and entertainment is tax-deductible. Examples would be if you took your client out for dinner or to watch a baseball game. You must be able to provide receipts.

As well as this, small business owners can claim 100 percent for staff events or parties. These come with a limit of 6 each year. They can also claim for registered charity fundraisers.

Startup Expenses

Start-up costs can include equipment and machinery as well as legal advice. You’d need to incur these in the tax year your business began operating in order for them to count.

Keeping track of your receipts and expenses will be a key way to minimise your tax liabilities when you set out on a new business venture. The more qualifying receipts you have, the less tax you are likely to pay.

Let FreshBooks accounting software take care of managing all your business expenses and accounting needs. FreshBooks offers a time-saving and cost-effective set of processes that help set all new small business owners on the road to success.

Find out here how easy it is to create an expense using FreshBooks in a few simple steps.

Key Takeaways

Tax deductions can make a significant impact on the profit margins of small businesses. Rent receipts, insurance expenses, bad debt, and professional fees can all be write-offs.

The better informed you are about what kinds of expenses are tax deductible when filing taxes, the more money you are likely to save.

Keeping hold of your receipts and having a user-friendly software system to record them is essential. This is going to help to maximise the benefits of tax deductions for small business, Canada.

FAQs on Small Business Tax Deductions

How Much Is the Small Business Deduction in Canada?

The small business deduction (SBD) gives corporations a lower tax rate on active business profits of up to $500,000. Profits that qualify for the SBD get taxed at a federal tax rate of 9 percent. That’s compared to the general figure of 15 percent on profits from active businesses.

What Qualifies as a Small Business in Canada?

The definition of a small business in Canada relates to the number of employees it has. A small business has from 1 to 99 paid employees.

What Can I Write Off as a Sole Proprietor in Canada?

As a general rule of thumb, you can deduct any reasonable current expenses you incur to earn income. This excludes buying capital property.

How Much Business Expenses Can I Claim Without Receipts?

You cannot normally make tax claims without receipts. You would need the support of original documents for any tax write-off.

When filing online, you wouldn’t typically need to send your expense receipts to the CRA. However, you would need to produce them when asked.