Written by Richard Ouellette, CPA, CA on Aug. 4, 2015
Often deductible business expenses are overlooked or missed as business owners are unsure whether they are deductible.
A business expense is any cost incurred by the company to generate income. These expenses must be supported by physical documents such as invoices, purchase contracts, sales receipt, etc. If cash is used to purchase items, it is especially important to ensure that a physical receipt is obtained. If a credit or debit card is used, the merchant receipt, not the credit/debit card receipt must be kept. Credit card statements do not qualify as a receipt. Receipts should typically include the seller’s name, date of the purchase, and description of the item that was purchased.
The following expenses are some of the deductible business expenses often overlooked;
Home office expenses are expenses relating to a workspace in your home. The space must only be used to produce income, or to meet with clients and customers. You may deduct a prorated amount of the following house costs;
1) Utilities (gas, power, water)
2) Home insurance
3) Mortgage interest
4) Repairs and maintenance
5) Property taxes
The portion of the expenses considered deductible is based on the ratio of total square footage of the workspace in comparison to total square footage of the home. For example, assuming a 2,000 sqft home had annual deductible expenses of $5,000, and the office is 200 sq. ft, the total deduction would be $500 (200sqft/2000sqft * $5K). It is important to note that claiming a capital cost allowance is allowed on a home office, but is not recommended as it would impact the principal residence exemption should the shareholder decide to sell their personal home. This could end up being costly in the long run due to potential capital gains that would be taxable in the hands of the shareholder.
Bad debts should be supported with documentation. The documentation should show that all measures of collection on the debt have been exhausted and that collection of the debt is highly unlikely.
Donations are eligible for deduction but are treated differently for tax purposes from other business expenses. There are often significantly better tax benefits when making donations personally rather than through the company.
Licenses, dues and fees relating to annual licenses, business taxes, commercial memberships, trade group membership, etc are eligible deductions. An important note is that club membership dues relating to dining, recreational activities or sport (ie. golf) are not deductible for tax purposes.
Interest and bank charges are for the most part deductible. It is important to note that interest and penalty relating to federal and provincial taxes are not deductible. It is best to separate out interest and penalty relating to government when preparing your bookkeeping.
Meals and entertainment can be deducted up to 50% for tax purposes. It is important to note that these meals must be for the purpose of earning income. GST on meals and entertainment is also only claimable at 50%.
Subcontracting costs which are paid to subcontractors are considered deductible expenses. Please note there is additional filing requirements related to payments made to subcontractor providing construction services. CRA requires an annual information return to be filed stating all payments made to construction subcontractors.
Telephone expense paid on phone and fax lines for a business space and used specifically for business purposes are fully deductible. These telephone expenses may include a home phone if the company office is located in the home.
If the vehicle is owned by the corporation, ensure that all receipts are maintained and that a mileage log is kept. This mileage log should include the date of travel, the number of kilometers and the purpose of the trip. Receipts that should be kept include;
2) Oil and maintenance expenses
3) Repairs and maintenance
4) License and registration
The expenses are deductible on the vehicle up to the percentage amount that the vehicle is used for business use. If the vehicle is owned by the company and used personally, it is important to note that a personal benefit will be charged to the driver for their personal use.
If the vehicle is owned by the shareholder or employee and used for business, CRA allows a per kilometer allowance to be deducted in the business. In 2015, the rates are 55 cents on the first 5,000 kilometers and 49 cents on each additional kilometer. Using this method, a mileage log must also be kept to track the business kilometers driven but individual receipts for gas, oil, etc. do not need to be retained.
The last item to note is that personal expenses paid by the company or cash draws from the company are not deductible to the company. These transactions must be recorded to the shareholder loan and repaid within a 12 month period.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.
Thanks to Richard Ouellette of KWB Chartered Accountants for providing this content.
Richard Ouellette, CPA, CA
Richard joined KWB in November 2007. He graduated from the University of Lethbridge in 2003 with a Bachelor of Management. Before joining KWB, Richard articled and worked at a national firm. He successfully wrote the 2005 UFE, and obtained his CA designation in 2006.
On his personal time, Richard enjoys going home to his wife and playing with his two young children. He also enjoys traveling, golfing, biking, working out, and spending time with friends and family.
Richard's Contact Information
Other Posts by Richard
Are you interested in what some of the current economic conditions are in Europe and the U.S.? For a quick and easy to understand snapshot, in a half page summary format, read on.
KWB Client Focus Group Meeting
On June 7th, KWB invited six of its clients to participate in a client focus group with the goal of discovering opportunities to better serve its customers. We learned a lot, and we want to share with you not only what we learned but also what we plan to do with it – to ensure that KWB is your accounting firm of choice today and in the future. For some of the details of what we learned and what we plan to do about it, read on.
Do you own a business - either incorporated or unincorporated - and have a spouse or one or more adult children with an income lower than your own? If so, you may be able to shift your income to these other family members, effectively moving the income from a high tax rate to a low tax rate and decreasing the overall tax burden on your family. This is called income splitting.
KWB Seminar Topics
Vote on Future KWB Seminars
2.Health & wellness
3.Hiring foreign workers
4.Client think tank (Improving customer experience)
5.Customer service ideas
6.Acting as an executor or agent
8.Finance for children, teens
9.Navigating post secondary
11.How to use an on-line portal
Retirement Planning Alternatives
We have all been told to plan for our retirement. Yet, have you ever wondered why? You need to consider the different retirement planning alternatives.
Perhaps you have a plan, most people do, but is it the right plan? In the following example, it is clear how advanced planning can make a huge difference for you
The "Family Tax Cut" credit
Prime Minister Stephen Harper and Finance Minister Joe Oliver recently announced a “Family Tax Cut” credit which allows certain Canadian families to reduce their overall federal income tax. This relief will be available starting in 2014.
The new measure would allow a higher income spouse to shift a portion of their income to a lower
Child Related Benefits, Expenses and Deductions
There’s great news for 2015 for Canadians with children. Stephen Harper has announced a “child care benefit boost” – which includes an increase to, or return of, the monthly Universal Child Care Benefit cheques and an increase to the amount taxpayers can deduct for child care expenses and the child fitness credit.
Change in use of property from capital to inventory or vice versa.
There are no immediate repercussions for the change in business use of property from capital to inventory. The differences arise upon sale of the real estate.
There is no provision in the Income Tax Act which describes the circumstances in which gains from the sale of real estate are to be determined as being either
Alberta Corporate Tax Rate Changes
In addition to personal income tax increases, the Alberta NDP government has also increased general corporate tax rates.
However, businesses that earn $500,000 or less of active business income will not be affected by the tax increases due to an offsetting increase to the Alberta small business deduction rate. Businesses that have more than
Deciding when it’s time to start taking your CPP retirement benefits
You can start receiving CPP pension benefits when you reach age 65 (the month after your 65th birthday) which will entitle you to a full CPP benefit depending on how much and how long you have contributed to the CPP.
However, you have the following choices:
Take a reduced CPP retirement pension as early as
What is director's liability? While the tax debts of a corporation belong to the corporation and the tax debts of an individual belong to that individual, there are some exceptions to the rules. Directors may have liability for certain tax accounts of the corporations they serve.
When a corporation faces insolvency, remittances to the government
HOME ACCESSIBILITY TAX CREDIT (HATC)
The 2015 federal budget announced the introduction of a new Home Accessibility Tax Credit (HATC), beginning in 2016.
The HATC is a non-refundable tax credit for qualifying expenses incurred for work performed or goods acquired in respect of a qualifying renovation of an eligible dwelling of a qualifying individual. A qualifying individual and eligible individuals
CRA Letter Campaign
Every year CRA conducts reviews and audits to sample and educate tax payers on tax compliance, and 2016 will be no different.
CRA estimates that approximately 30,000 letters will be sent out across Canada this year. These letters will give you information about certain claims you have made on one or more of your
Top 7 Overlooked Tax Deductions
Are you paying too much in taxes? Are you getting all the tax deductions available for your business?
An effective way to minimize your company’s tax expense, in addition to good planning, is to ensure the company is claiming all of the expenses legitimately allowed under the tax act. Take a look and see if any
Tax News and Changes – COVID-19
The Prime Minister and the Minister of Finance announced on
March 18th an economic relief package to begin addressing the
economic impacts of the COVID-19 pandemic. Part of the economic relief package includes
tax relief for individuals and businesses.
Filing Deadline Extensions
The deadline for filing personal income tax returns will be
Resources for Canadian Businesses – COVID-19
Small and medium-sized businesses are the backbone of the
Canadian economy. During this extraordinary time, the Government of Canada is
taking strong action to help Canadian businesses as COVID-19 is affecting them,
their employees and their families.
The Government and public health officials are urging all
stay home unless it is absolutely
Support for Employers - Alberta - COVID-19
The Alberta government will provide immediate funding and supportive measures to support local businesses, employers and employees.
Support for employers
Corporate income tax changes
Corporate income tax balances and
instalment payments will be deferred from March 19 until August 31, 2020 to
increase employers’ access to cash so they can pay employees, address debts
Support for Albertans – COVID-19
government will provide immediate financial relief to Alberta’s families and
should be focused on their health and not worry about whether they can pay
their bills so we have put a number of options in place for those struggling
Emergency isolation support
This will be
a temporary program
Frequently Asked Questions – Temporary Wage Subsidy for Employers
1. What is the Temporary Wage Subsidy
Temporary Wage Subsidy for Employers is a three-month measure that will allow
eligible employers to reduce the amount of payroll deductions required to be
remitted to the Canada Revenue Agency (CRA).
2. Which employers are eligible?
You are an
eligible employer if you:
Who qualifies for EI?
Whether you qualify for EI will still depend on your specific situation, such as regional rate of employment, and the number of hours worked in the last 52 weeks.
The government recommends people apply as soon as possible to find out if they qualify; waiting more than four weeks after your last day
Support for entrepreneurs impacted by the coronavirus COVID-19
As announced by the Minister of Finance, BDC puts in place additional measures to provide relief for Canadian
March 18, 2020, new relief measures for qualified businesses include:
Working capital loans of up to
$2 million with flexible repayment terms such as principal postponements
for qualifying businesses;Flexible repayment terms, such
New Information from the Alberta Government – 25 March 2020
In addition, it is now mandatory for travellers returning
from outside of Canada to self-isolate. This legal requirement also applies to
close contacts of confirmed COVID-19 cases, as well as to any individual with
symptoms, such as a fever, cough, sore throat or runny nose.
“We must do everything we can to protect Albertans
Document Deliveries and Meetings through COVID-19
Dear valued KWB clients and business partners,
Our office remains open and functional during this time, however, we no longer have reception coverage until further notice. Please take note of the following procedures that have been implemented:
1. Deliveries to our office
You may continue to deliver or drop-off your documents at our
Breaking News for Small - Medium Size Businesses - 27 March 2020
Ottawa hikes wage subsidy to 75% for small and medium-sized businesses
The federal government is hiking its wage subsidy for small and medium-sized businesses from 10 per cent to 75 per cent, a
move that business leaders have called for amid the coronavirus outbreak.
Prime Minister Justin Trudeau announced the payroll subsidy,
New Information on Wage Subsidy Program - 30 March 2020
Prime Minister Justin Trudeau announced today businesses and non-profit organizations seeing a drop of at least 30 per cent in revenue due to COVID-19 will qualify for the government's 75 per cent wage subsidy program.
The number of people a business employs will not
determine its eligibility. Charities and companies big and small will
Explaining the Business Credit Availability Program (BCAP)
Description of the Business Credit Availability Program (BCAP):
On March 13,
2020, the Government announced the establishment of a Business Credit
Availability Program (BCAP) to help Canadian businesses obtain financing during
the current period of significant uncertainty. The BCAP will support
access to financing for Canadian businesses in all sectors and regions
Essential Services - Is your Business on the List?
businesses and services on the essential services list can continue to provide
services at locations accessible to the public and must have proper risk
mitigation measures in place, such as sanitation stations and appropriate
distancing between customers.
of this list is to provide general guidance to business owners and
KWB Summary of Relief Programs - Federal and Provincial - 3 April 2020
To our friends, clients, and business partners,
We hope this newsletter finds you well and healthy. The volume of information we’ve received from provincial and federal governments over the last few weeks has been significant and a bit of a moving target, so we’ve put together a summary of all the relief programs that