What Business Expenses Does The CRA Consider as Tax Deductible?

Are you worried about paying a hefty sum of money in the form of taxes to the CRA? Do not worry. You can minimize the excess financial burden on you by writing off the taxes. However, it is important to stick to the guidelines issued by the CRA and implement them properly while deducting business expenses to reap the benefits.

To begin with, a taxpayer needs to know what, according to the CRA, constitutes business expenses that are tax deductible. Read on to improve your knowledge about it.

What Expenses are Eligible for Tax Deduction?

There are various kinds of deductible business expenses. A majority of these expenses relate to the sum of money taken to earn business income. However, the CRA imposes some limits on the deduction of capital expenses as well as GST/HST amounts.

By virtue of the capital cost allowance, those who run businesses are entitled to deducting the amount of money involving depreciable assets in the due course of time. The GST/HST expenses can be recovered through input tax credit over time.

According to the CRA, the following expenses can be deducted for your business

  • Business start-up costs
  • Business fees, tax, dues and licenses
  • Use-of-home expenses involving a business
  • Office expenses,
  • Interest charges
  • Insurance

What Advertising Expenses Are Tax Deductible?

The charges pertaining to the posting of advertisements are tax-deductible as per the rules laid down by the CRA. These include expenses related to the business card, finder’s fees and advertisements in the printed publications, such as magazines, in Canada.

With regard to deductions from advertisements at printed publications, it is necessary to bear the following points in mind:

  • If the actual ad content accounts for either 80% or more of the slot of the content that is not related to the advertisements, you are entitled to deduct the full expense.
  • If the slot covered by the ad content is less than 80% of the slot covered by non-advertising content, you are allowed to deduct only 50% of the overall expense.

Business Start-up Costs

The CRA focuses its attention on determining the actual day when the business had started. This is very important as it helps in the calculation of start-up cost. On the other hand, reporting the actual date of a merger is necessary to ensure correct deductions.

For a business acquisition, the date of the merger is central to the calculation of tax deductions.

Business Tax, Licenses, Fees and Dues

As for this category, you can deduct the following:

  • Any kind of business taxes and annual license fees
  • Yearly fees or dues resulting from membership in a commercial or trade association

Use-of-home Expenses

The expenses related to the following items are included in this category:

  • Electricity
  • Insurance
  • Mortgage Interest
  • Property Taxes
  • Heat

Insurance Costs

Deductible commercial insurance considered on this front include the following:

  • Buildings
  • Machinery
  • Equipment

If you have a car, you can report its insurance with the expenses related to a motor vehicle for business purposes.

Office Expenses

According to the CRA, the costs of the following items are deductible:

  • Pens
  • Pencils
  • Paperclips
  • Stationery
  • Printer paper
  • Stamps

Commodities like filing cabinets and furniture are included in capital expenses.

Feel free to contact us for more information on CRA tax audits, problems & representation in North York Ontario.

What is Considered While Calculating Mileage Tax Relief

Do you use a vehicle to travel from one place to the other place? If yes, then your mileage can result in a tax relief. The sound knowledge of the number of kilometres travelled by you for business purposes can come in handy in the calculation of deductions related to the use of your business vehicle. Precise monitoring of mileage can assist you in saving time at the time of submitting an income tax return.

Why is It Necessary to Monitor Mileage?

Noting down the odometer readings in a timely manner is the sure-fire way of presenting the data about how you have used your vehicle for business purposes to the CRA. For best results in this regard, it is strongly recommended that you should note down the odometer readings on a real-time basis to prevent the possibility of any discrepancy. Keeping a logbook handy can help understand how your vehicle was used during business travel or trips.

How to Mention Mileage to Claim Tax Relief?

Usually, the Statement of Employment Expenses is used for the purpose of reporting vehicle expenses. In order to claim the vehicle expenses, it is important on the part of the owner of the vehicle to report information about it including the following details:

The make, model and the year in which the vehicle was manufactured

  • Total kilometres for which the vehicle was driven throughout the year for business purposes
  • The total distance covered using the car (in kilometres) throughout the tax year
  • The calculation of your motor vehicle expense deduction

In addition, the following information should also be furnished:

  • Maintenance and repairs
  • Fuel
  • Licence and registration
  • Insurance
  • Applicable interest
  • Capital cost
  • Leasing
  • Extra costs
  • Mileage allowances
  • Prescribed rate
  • Automobile benefit

Calculation of Motor Vehicle Expense Deduction

Once you work out the total amount of money which needs to be taken into consideration for the calculation of the vehicle expense deduction of your motor, the rest becomes simple and easy. All you need to do is apply the following formula:

Motor Vehicle Deduction = (Business kilometres/total kilometres) x total vehicle expenses

Allowances Related to Mileage

Regardless of whether or not a vehicle is owned by an employee or their employer, the CRA applies specific rates for the consideration of reasonable per-kilometre allowance. It applies whenever an employer pays for the reimbursement of mileage for an employee.

It is necessary to stay within the rates as specified by the CIA to keep the motor vehicle benefit tax free. Further, it is not necessary on the part of the employees to make a mention of the allowance while reporting the income at the time of filing an income tax return. Any expense which does not come under the allowance is liable to attract taxes.

According to the CRA, an allowance is reasonable when the following conditions are applicable:

  • The allowance is worked out using the number of business kilometres for which a vehicle was driven in a year
  • The amount of money paid towards rate per kilometre is fair and reasonable
  • The employee has not received any reimbursement with regard to vehicle expenses.

Automobile Benefit

At the time of determining an automobile benefit, which is provided by an employer, the calculation is done using the standby charge. The following aspects are taken into consideration:

  • Mileage
  • Operating expenses
  • Costs
  • Fuel
  • Repairs

For more information about CRA tax audits, problems & representation in North York Ontario, contact us now!