How To Maximize Business Tax Deductions

Smart business owners know that taxes should always be top of mind if they want to take advantage of deductions. By understanding tax deductions, you can leverage business expenses to minimize your tax payments. Here, we look at how to maximize business tax deductions to optimize your income. 

How To Maximize Business Tax Deductions

Optimizing tax deductions for business can be complicated, but there are some general deductions most Canadian business owners can take advantage of, such as the following:

Line 8521 – Advertising including:

• Canadian newspapers
• Canadian television and radio stations
• Amounts paid as a finder’s fee

Line 8523 – Meals and entertainment including:

• 50% of food, beverages and entertainment expenses that is the least of the following amounts:
  • Those incurred for these expenses
  • The amount reasonable in the circumstances

Only claim the allowable part for business use, such as meals when travelling for business or attending a conference or business event.

Line 8590 – Bad debts including:

• Amounts included in your account receivable
• Amounts from an account receivable that is a bad debt in the year

Line 8710 – Interest and bank charges, including:

• Interest on money borrowed for business purposes or to acquire property for business purposes
• Some of the interest to borrow a passenger vehicle
• Limited interest for vacant land up to the amount of income from the land that remains after you deduct all other expenses
• Fees, penalties, or bonuses paid for a loan
• Fees paid to reduce the interest rate on a business loan
• Penalties a financial institution charges for early debt repayment
• Fees deducted over five years such as:
  • Application, appraisal, processing, and insurance fees
  • Loan guarantee fees
  • Loan brokerage and finder’s fees
  • Legal fees related to financing
• Fees deductible in the year incurred such as:
  • Standby charges
  • Guarantee fees
  • Service fees
• Interest deductible on property no longer used for business purposes
• Interest on loans made against insurance policies
• Capitalizing interest for money borrowed based on the following:
  • to buy depreciable property
  • to buy a resource property
  • for exploration and development

Note that interest related to workspace in your home is entered on line 9945.

Line 8760 – Business taxes, licenses, and memberships, including:

• Annual license fees such as a trade license
• Vehicle registration permits
• Municipal taxes
• Land transfer taxes
• Gross receipt tax
• Health and education tax
• Hospital tax
• Annual dues or fees for trade and commercial memberships
• Trade publication subscriptions

Line 8810 – Office expenses, including items such as:

• Pens
• Pencils
• Paper clips
• Stationery
• Stamps

Larger items such as filing cabinets, office furniture or even a calculator are considered capital items.

Line 8811 – Office stationery and supplies including, but not limited to:

• Drugs and medication used by a veterinarian
• Cleaning supplies used by a plumber
• Food for children at a daycare
• Company stationery and business cards

Consider the supplies required to run your business for deductions you can include on this line.

Line 8860 – Professional fees including:

• Legal fees
• Accounting fees
• Consulting fees
• External professional advice
• External professional services
• Preparing and filing your income tax and GST/HST returns
• Accounting or legal fees for an objection or appeal prepared against an assessment for income tax, CPP, QPP, or EI premiums

You can’t deduct legal expenses and other fees related to purchasing capital property on this line.

Line 8871 – Management and administration fees, including:

• Fees such as bank charges related to running your business

Line 8910 – Rent

• Rent incurred for properties used for your business, such as your office, land, or warehouse. This does not include a home office, as this is claimed on line 9945.

Line 8963 – Repairs and maintenance, including:

• Labour and material costs for minor repairs or maintenance done to property used for your business

This does not include your own labour, major repairs that are capital in nature, or repairs and maintenance for home workspace. You can claim home workspace repairs on line 9945. 

Line 9200 – Travel expenses, including:

• Public transportation fares
• Hotel accommodation
• Meals

The same limitations apply as those mentioned on Line 8523, with the 50% limit related to meals, beverages, and entertainment.

Line 9220 – Utilities, including:

• Telephone
• Gas or oil
• Electricity
• Water
• Cable

This does not include home telephones unless used for things such as long-distance business calls. Home workspace deductions only apply to a percentage of your utilities and are claimed on line 9945.

Line 9281 – Motor vehicle expenses related to your business, including: 

• Occasional use of a personal vehicle is claimed on a per-trip basis and includes fuel and parking
• Regular use for business and personal trips claimed as part of the total operating expenses for your vehicle, including the total kilometres used  

Line 9936 – Capital cost allowance (CCA) for property you own, including:

• Building
• Motor vehicles
• Furniture
• Office and other equipment

How To Maximize Self-Employed Tax Deductions

The CRA considers business income money earned through an activity for profit, including those who are self-employed. As a result, self-employed individuals qualify for the same tax deductions for small businesses.

What Deductions Might The Average Business Owner Miss?

Some commonly overlooked deductions include:

• Disability-related modifications: This includes modifications to accommodate wheelchairs, such as hand-activated power door openers or ramps, bathroom modifications, etc.
• Payment in kind: This can be deducted based on the same amount as the expense of the payment in kind.
• Convention expenses for business and professional: You can deduct two conventions each year as long as the conventions relate to your business or profession and are held by a business or professional organization in your business area. 
• Computer and other equipment leasing costs: If you lease business equipment, you can deduct the percentage of the lease costs that reasonably relate to earning your business income, including air-time expenses for a cellular telephone for self-employment income.
• Allowable reserves: Reasonable amounts you put aside as a reserve, contingent account, or sinking fund.
• Premiums to a private health services plan: There are several restrictions for this deduction, including regular active engagement in your business and payments paid to yourself and members of your household.

How To Track Receipts For Deductions

The three steps to track receipts for deductions are:

1.      Set up a separate bank account(s) to keep your expenses separate

2.      Have a system to store your receipts properly

3.      Use an effective expense tracking method, such as a mobile app or accounting software that makes it easy to scan and store receipts

However, it also becomes a lot easier to leverage those tax deductions working with a bookkeeping, accounting, or corporate tax service. They will advise you of the deductions available for your business so you are always prepared for tax season.

Call today at 778-800-7976 to learn how Intrepidium can help you maximize business taxes, or click here to schedule a consultation.