To maximize business expense write-offs in Canada, a business must first ensure all expenses are eligible, meaning they are necessary to run the business and generate income. Key strategies include diligent tracking, claiming all eligible expenses across various categories, and understanding how different expense types (like capital assets versus operating costs) are treated by the Canada Revenue Agency (CRA).
Track all eligible expenses meticulously
The golden rule for maximizing deductions is to keep comprehensive and accurate records.
Maintain separate accounts: Use a dedicated bank account and credit card for all business transactions to simplify tracking and avoid mixing personal and business finances.
Use software: Accounting software can help streamline bookkeeping, automatically categorize expenses, and simplify reconciliation.
Keep digital records: Store digital copies of all receipts and invoices in case of an audit. The CRA recommends keeping all records for at least six years.
Claim a portion of personal expenses for business use
For many small business owners, personal expenses can be partially written off if they serve a business purpose.
Home office expenses: If your workspace at home is your primary place of business, you can deduct a percentage of your total home expenses. This includes:
Rent or mortgage interest
Utilities (electricity, heat, water)
Property taxes
Home insurance
Maintenance and repairs
Vehicle expenses: If you use your vehicle for business, you can deduct the portion of vehicle expenses (gas, insurance, maintenance) that corresponds to your business usage. Keep a logbook to track your business kilometers.
Telephone and internet: A percentage of your phone and internet bills can be written off if they are used for business purposes.
Maximize deductions on large purchases
Large purchases, known as capital assets, cannot be written off in the year they are bought. Instead, they are deducted over several years through Capital Cost Allowance (CCA), or depreciation.
Understand CCA rules: The CRA sets specific rates for depreciation on different assets, such as vehicles, computers, and furniture.
Time purchases strategically: You can take advantage of the maximum CCA deduction by purchasing assets before the end of your fiscal year.
Leverage professional and operating expenses
Many day-to-day and professional service costs are fully deductible.
Professional fees: Fees paid to accountants, lawyers, or consultants for business-related advice are deductible.
Marketing and advertising: Most advertising costs, including digital ads, website development, and printing materials, can be written off.
Insurance: Premiums for general business liability, property, and business interruption insurance are deductible.
Salaries and wages: Salaries, wages, and benefits paid to employees are fully deductible.
Interest and bank charges: Interest on money borrowed for business purposes and bank fees are deductible.