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Understanding Tax Deductible Business Expenses

Generally speaking, every businesses can deduct from their income expenses that are incurred not only to make the business operational, but also to keep that business up and running. The best way to look at this is to view it from tax law, which is the final arbiter of what is Tax Deductible Business Expenses.

The tax deductible law states that any expense incurred by a business in order to generate income is a legitimately deductible expense. However, this does not only relates to the purchase of goods and other supplies, but also to the many fees as well as other expenses that are involved in starting a business. Again, all expenses incurred to maintain that business, such as rents and marketing costs, are also deductible from any income the business earns.

In terms of timing, the only restriction is that incurred expenses in a business’s fiscal year must be claimed against income earned in that same year. There are wrinkles to this process relating to accounting methods (income or expenses secured in a fiscal year, but not actually paid until the following year, must be included, for example).

As to what is deductible, the tax form lists allowable expenses, including such direct expenses as:

  • Advertising
  • Bad debts
  • Business taxes, fees, licenses, dues and memberships
  • Delivery, freight and express
  • Fuel costs (except for motor vehicles)
  • Insurance (fire, theft and liability)
  • Interest
  • Maintenance and repairs
  • Management and administration fees
  • Meals and entertainment (50%)
  • Motor vehicle expenses
  • Office expenses
  • Supplies
  • Legal, accounting and other professional fees
  • Property taxes
  • Rent; salaries, wages and benefits
  • Travel
  • Telephone and utilities
  • “Other” expenses

Additionally, a business can indirectly deduct capital expenses for the purpose of equipment and motor vehicles that are exclusively used for the business. Part-time vehicles used for the business are in another category entirely.

The capital cost allowance formula uses a sliding scale of depreciation costs that includes several classes and allowable yearly deduction rates. For instance, a computer is a class 10 piece of equipment that can be deducted at a rate of 30% yearly (but just 15% in the first year).

Operating expenses for motor vehicles represent another category such as fuel and oil, interest, insurance, license and registration, maintenance and repairs, leasing costs and other expenses. These may be deducted proportionate to use by the business.

In terms of home businesses, home expenses can be deducted such as deducting for heat, electricity, insurance, maintenance, mortgage interest (or rent), property taxes and “other expenses.” Again, this must be proportionate to the portion of the home used for the business.

You can also see the 2019 guide to tax season in Canada.