Tax Season is Here – Common Deductions You Can Claim

It’s March, the weather is slowly improving and the time has come to start thinking of taxes. Because of COVID-19, The deadline to file your income tax and benefit return will be deferred until June 1, 2020. However, it always pays to be proactive! That's why we’re going to take a look at some helpful topics for small business owners and their taxes. This week, some of the common deductions business owners can claim.

Tax season has arrived! Rather than treat this annual affair with trepidation, we’re championing a more pro-active approach this year, gathering up our receipts and whipping our annual numbers into shape.

There’s nothing to be gained by worrying about this time of year – especially if you’re completely honest in what you declare. The good news is most business owners can avail of a variety of tax deductions that will lower the amount they owe. Broadly speaking, anything that constitutes a reasonable business expense incurred to generate business revenue can be considered tax deductible. Receipts are recommended, and will prove necessary should you be identified by the CRA for a random audit.

To give you an idea of the kind of things that can be deducted, here are some of the most common CRA-approved tax deductions Canadian business owners can claim.

Home Office Expenses

A lot of entrepreneurs conduct business at home. The good news is the Canada Revenue Agency allows you to deduct expenses relating to your home – if you meet one of the following two conditions:

  • You use your home more than 50% of the time when you work
  • Your home is exclusively used to conduct work and you regularly hold meetings there

Now this doesn’t mean you can write off the entirety of your mortgage or rent. Instead, you’ll need to establish the square footage of your home workspace and work out the percentage of the total square footage of your home. For example, if your home is 1000 sq. ft. and your office is 250 sq. ft. you’ll be able to deduct 25 per cent of your home related expenses from your small business income. This encompasses a swathe of household expenses including:

  • Mortgage/Rent
  • Property Taxes
  • Home/Condo Insurance
  • Strata/Maintenance fees

It’s important to note you can’t deduct home expenses if you are simultaneously renting an office space, even if you’re still conducting some business from home. If you’re unsure of any expenses you may be able to claim in this regard, it’s best to consult with a business bookkeeping expert.

Vehicle Expenses

Vehicle expenses are one of the most common business expenses claimed by entrepreneurs. After all, most business owners use their cars in the line of work. The CRA allows business owners to claim a reasonable portion of their vehicle expenses back as a tax deduction, but only for times the car is being used for work.

This can be applied to most expenses relating to a vehicle:

  • Fuel
  • Repairs/Upkeep
  • Insurance
  • License and Registration
  • Depreciation
  • Toll Charges

Again, make sure to try and keep any receipts that will back up your claim.

Personal Expenses

No matter what industry you’re in, there are personal expenses you will accrue during your business dealings that will be deductible. Here are some of the most common:

  • Home Phone Bill
  • Home Internet Bill
  • Cell Phone Bill
  • Supplies
  • Software Licenses
  • Small Tools
  • Travel
  • Meals and Entertainment

The important point to note is that you can only claim for the above if they were directly relating to your business. You also need to be able to prove this fact.

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