A Guide to Tax Deductions for Canadian Businesses

While taxes have always been a notorious pain that no income-earning individual or business can escape, you can decrease it legally.

Canadian business owners are eligible for several tax deductions that will reduce their tax liability and save them money. And this is something most small business owners miss.

Below is a list we've compiled that should help you get started in saving money on your taxes. Let's get started.

What Is a Tax Deduction?

Tax deductions are amounts subtracted from your income before you pay taxes, lowering the amount taxed.

Businesses file their income to the Canadian government every tax season, along with supporting documents. However, you don't have to declare all of your business's revenue as taxable income. There are, of course, expenses you incur from that amount.

The Canadian Revenue Agency (CRA) allows businesses to subtract some items and expenses. You just have to know how taxes work and play around with it.

Business operating expenses are the most common (and obvious) forms of tax deductions. Not all expenses can be subtracted from your taxable income, though.

Remember, your business is a distinct entity from you. So paying for gas for your family outing is different from paying for gas for delivering your merchandise (even if you used your business's bank account). With that, qualified deductible expenses can be the following:

• Materials used in business (office supplies, equipment, etc.)
• Utilities and other expenses at your office provided that you only use your office for business.
• Expenses incurred for operation (gas, accommodation, etc.)
• Aside from the expenses your business incurs, there are other uncommon deductibles you may present on your income tax return, which we will discuss later.

What Are The Most Common Items Qualified For Tax Deductions?

Tax law and legal deductions can be confusing. You may have to pay more taxes and penalties if you're not careful. But if you do it right, tax deductions will save you a fortune in the long run.

Here are some ways to lower your taxable income and move into a lower tax bracket.

Start-up Expenses

Newly established businesses usually spend more, as they have to start from scratch. With that, the CRA finds it reasonable to have your initial expenditures written off your taxable income. These may include your new computer, furniture, machine, and other supplies.

Take note that start-up costs may only include the expenses you got during the first year of your business. This means that you cannot include all the items you'll pay for after in your start-up expenses anymore.

Marketing and Advertising

Marketing and advertising expenses are costs you incur for promoting or introducing your products and services. These may include flyers, pamphlets, billboards, commercials on different media, or fees to brand ambassadors.

In addition, you can also include web hosting in your marketing expenses. If you hire a manager for your business's social media pages, you can include their salaries in marketing and advertising costs.

Supplies

Business supplies are the most common tax deductions. These include business essentials like office paper, printer ink, and pens. If you run a merchandising business, your supplies can also be your inventories.

For manufacturing businesses – like bakeries or novelty item suppliers – the most common supplies you can subtract from your taxable income are your materials.

Even service businesses can also exclude their supplies. Interior designers, for example, can write off samples and printouts of their taxable income.

Rent and Utilities

Determining your business's rent and utility expenses can be simple if you rent out a separate space from your home. Everything you spend to maintain your space will be deducted.

However, things can be tricky if your office is in your house. First, you must specify the exact portion of your office in your home. Say your office takes up 10% of your house's space. With this, only 10% of your rent or mortgage is a valid deduction from your business income.

Electricity, water bills, internet, and telephone expenses related to your business should be specified, too. As mentioned earlier, your personal expenditures differ from your business's.

Salaries and Contractors

Your employees are essential to keep your business running. With that, their salaries, bonuses, and other benefits are considered business expenses, which you can write off your taxable income.

This also includes the fees you paid to independent contractors – advertising agencies, photographers, web designers, writers, and other professionals you hired to save you time for other tasks in your business.

Travel, Entertainment, and Meals

The Canadian government lets businesses exclude 50% of their travel, entertainment, and food expenses from their taxable income. Still, take note of the distinction between your personal affairs and your business.

Treating yourself at a diner after a long day at work will fall under personal expenses. Therefore, it cannot be deducted from your taxes. But if you meet at a restaurant with your client, you can write it off your taxable income.

Delivery, Shipping, and Transportation

All expenses you incur to deliver your products to your customer can be subtracted from your income. It also includes the gas you used for a business trip, car insurance, maintenance, and repairs.

Interest Expenses

All interest incurred related to your business are also deductible. This includes loans you got for your capital and the interest included on your office's mortgage.

Bad Debts

Many businesses cannot avoid having clients or customers who aren't able to pay back debts. Depending on your company's policy on receivables, you can subtract unpaid debts as "expenses" from your taxable income.

Research and Development

Canada allows for deductions for scientific research and development (also called SR&D) that you conduct to further your business. It is important to note that it only covers your research during the taxable year.

Other Qualified Tax Deductions

Aside from the expenses you incurred to further your business, there may be other tax deductions you want to take note of. For instance, the charitable donations you take from your business can be excluded from your taxable income.

But remember that this donation can only include at most 75% of your business's net income. In addition, there should be a carry-forward for five years.

Operating losses are also standard tax deductions for businesses. Take note, though, that deductions from tax losses revolve around special rules in which you may need to consult an expert.

Recommendations

Tax deductions are a great way to maximize your profit. Over time, the deductions you miss may add up to a significant amount, which you could have used to expand your business. With that, you must understand the basics of corporate taxes.

While most items qualify for tax deductions can be easy to determine, others may be tricky. With that, we recommend taking a professional tax accountant's opinion. Despite the extra professional fees, having an independent partner to manage your business's taxes can save you a fortune.

The Bottom Line

There's another way besides tax deductions that business owners can save money. That is by using Remitbee Money Transfer and Currency Exchange.

With Remitbee's Business Account, you can save on transfer fees and exchange rates when you send money to your employees or contractors abroad.

Get your business account now.