In order to maximize the profits generated by your business, you will likely try to minimize many of your expenses. Claiming all your tax deductions will certainly help.
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.
The following 7 legitimate tax deductions are commonly overlooked:
Six fully deductible meals – Generally, you are allowed a 50% deduction for tax purposes for meals and entertainment, however, when meal and entertainment expenses are incurred to provide a party (such as a Christmas party) or other event which is available to all employees, Canada Revenue Agency (CRA) allows you to take 100% for tax deductions (maximum of 6 per year). Keep track of these 6 events separately from other meals and entertainment to maximize these tax deductions.
Home office expense – If you work out of your house and your home office is your principle work space for your business you can claim the portion of household expenses that relate to the space occupied by your home office. Expenses include insurance, property taxes, mortgage interest as well as utility costs such as heating and lighting.
Automobile expenses – If you use an automobile for work, the expenses incurred are deductible from income. The manner in which the expenses are deducted is dependent on the ownership of the vehicle (owned by the company or owned personally).
If owned by the company, expenses such as fuel, maintenance and repairs, insurance, license and registration, depreciation, and leasing costs are deducted directly. Depending on the amount of kilometers driven personally versus for business, a personal taxable benefit may apply.
If owned personally, actual vehicle expenses, like those listed above, which are incurred for business purposes can be charged to the company, or our preferred method is to charge CRA’s prescribed mileage amount of $0.53 per km for the first 5,000 kms and $0.47 per additional km driven for business purposes.
Keep records though! It is critical that for either method used, a driving log is maintained documenting the total kilometers used for business versus personal use. Contact us for your free driving log book to make tracking your mileage easier.
Moving expenses – If a business owner or employee of the business is required to move more than 40km for employment the company can pay for and deduct any moving expenses incurred (moving vans, meals, hotel expenses, packing and unpacking and even travel to the new residence). Expenses paid for by the company are not deductible by the employee on their personal tax return.
Non taxable gifts to employees – Gifts are a way to recognize an employee’s contributions to your company. Canada Revenue Agency allows employers to give to their employees an annual non-cash gift of no more than $500 which is fully deductible from business income and is not taxed as income to the employee. Any amounts greater than the $500 are taxable. It is very important to note that cash and near cash items such as gift cards are not deductible.
Education expenses – Education expenses that are related to your current business, trade or occupation are deductible in the company if the expense is to maintain or improve skills required in your business.
Annual General Meeting expenses – CRA will allow a reasonable deduction for travel expenses for shareholders and directors to travel to a destination for the company’s annual general meeting. These expenses must be reasonable like travel costs to a nearby location such as Banff. Travel costs to Hawaii or a more distant location could be considered unreasonable. This is an opportunity for shareholders to mix business with pleasure.
If you need more information on tax deductions or have any questions, feel free to contact us at 780.466.6204, or firstname.lastname@example.org.
Heather Bowie, CPA, CA
Heather Bowie joined KWB in March 2019. Heather received her Bachelor of Commerce from the University of Alberta in 2003. She articled with Grant Thornton during which time she received her CA designation in 2006. Over the years, Heather received a variety of experiences including working as an online facilitator for the CA program, working in industry as well as a practice reviewer for CPA Alberta.
Heather works part-time, is married and has two girls. Away from work, Heather and her husband own an HVAC business in Sherwood Park allowing her to understand business from both the client and the accountant perspective. In her spare time Heather enjoys attending her girls sporting events and dance performances, keeping active and playing board games.