If doing your business taxes is a source of frustration, you’re not alone. Although you want to reduce the amount of taxes you owe, you need to ensure you are not inadvertently breaking Canadian tax laws. Understanding deductibles is a daunting task, especially when there are so many categories of deductibles in Canada, including professional fees. Here we answer the question: ‘Are accounting fees tax deductible in Canada?’ and explain what other fees your business can claim.
Are Accounting Fees Tax Deductible In Canada?
Yes, you can claim accounting fees in Canada incurred for preparing your taxes as well as the following expenses:
- Annual fees paid for general accounting services
- External professional advice or services
- Consulting fees
- Keeping your books and records
- Preparing and filing your GST/HST returns
- Fees to file an objection or appeal against an assessment for income tax, Canada or Quebec Pension Plan contributions, or Employment Insurance premiums.
Here is an overview of other fees you can claim on your taxes:
What legal fees are tax deductible in Canada? Along with your accounting fees, any legal fees incurred to file an objection or appeal prepared against an assessment for income tax, Canada or Quebec Pension Plan contributions, or Employment Insurance premiums, are tax deductible. However, if you receive reimbursement for any of these fees, this must be reflected in the amount claimed.
Management and administration fees, such as bank charges related to your business for processing payments, are tax deductible.
If you pay annual license fees and/or certain business taxes related to your business, you can deduct these fees. Annual fees paid to maintain trade or commercial memberships for associations or even publication subscriptions can also be claimed.
Fees your company pays to reduce the interest rate on business loans are deductible. Also, you can claim penalties and bonuses charged by financial institutions when you elect to pay your loan before the term ends. However, these fees are treated as prepaid expenses and must be deducted based on the amount that applies to that tax year.
The following fees can be deducted for loans used to improve or purchase your business property:
- Application, appraisal, processing, and insurance fees
- Loan guarantee fees
- Loan brokerage and finder’s fees
- Legal fees related to financing
However, they must be deducted over a five-year period as follows:
- Deduct 20% (100% divided by five years equals 20%) in the current tax year
- Deduct 20% in each of the next four years
If the fiscal period is less than a year, the 20% limit drops proportionally. Also, if you repay the loan before the five-year period ends, the remaining financing fees can be deducted.
The following fees can usually be deducted in full as long as they relate to the tax year in question:
- Standby charges
- Guarantee fees
- Service fees
- Similar fees
It is easy to misinterpret deductibles when doing your taxes. Therefore, it is important to understand the fees you can’t claim, including:
- Property purchase fees: Legal fees and other fees paid when purchasing a capital property, such as equipment, are not deductible. However, these fees can be added when claiming capital cost allowance (CCA).
- Some membership fees: You can’t claim club membership dues for memberships related to recreational activities such as golf or dining clubs, even if you use these memberships for business meetings and networking.
Although there are a number of fees you can’t claim while doing your business taxes, it is important to understand all the deductions that are available to you.
The more deductions you legally claim, the lower your gross earnings. It’s important to understand what other deductions you can claim, such as rent, salaries, fuel, travel, etc. What you deduct depends on the type of business you run. However, because accountant fees are deductible, you can make the most of accounting services to leverage as many deductions available as possible.
Although you can handle your own tax filing, you could miss out on the many deductions you can claim. A certified accountant understands tax laws and will advise you not only on the business expenses you can claim but also on tax strategies that help reduce the amount of taxes you owe. They reduce tax obligations and risk for liabilities related to tax errors. If you face penalties or a tax audit, they are there to manage the issues with the CRA. As a result, you can reduce your liability and ensure all your records are in order to streamline the audit process.
You’ll appreciate your bookkeeper when tax season rolls around. They maintain accurate, organized tax documentation, so everything you need is sorted and ready for your tax filing. CPA-guided bookkeepers understand tax regulations and have access to an accountant if things become more complicated. They are there to organize and maintain accurate financial records and share tax expertise.
Hopefully, you now have a better understanding of the fees you can deduct for your business taxes. However, you can leverage more deductions with a tax expert by your side. They will provide a monthly bookkeeping plan and act as a tax advisory resource to help make your tax filing go smoothly every year.