Tax Deduction for Small Businesses

Tax season is approaching once again in Canada, meaning it is time to gather up your piling receipts, contact one of our accountants at Ebrahimi Accounting, and beautifully turn your annual numbers into shape. Although many small business owners see tax season as a complicated and stressful time, if done properly, can be seen as an advantageous season that can help your business, its expenses, and taxes. There are many tax credits and deductions available for small business owners in Canada to claim, helping decrease business taxable income and tax payables.

Home Office Expenses

A wide range of businesses conduct business from the comfort of their home, and after Covid-19, operating a business and working from home is becoming more and more common. The good news is the Canada Revenue Agency (CRA) allows you to deduct expenses relating to your home and home office — if you meet one of the following two conditions:

• You use your home more than 50% of the time when you work
• Your home is exclusively used to conduct business and you regularly hold meetings

Although you are not eligible to entirely write off your mortgage or rent, you'll still be able to get deductions on partial amounts. Firstly, you need to establish the square footage of your home workspace and calculate the percentage used for your work from the total. For example, if your home is 1100 sq. ft. and your office is 286 sq. ft. you will be able to deduct 25% of your home-related expenses from your small business income. This comprises household expenses such as:

• Mortgage/Rent
• Property Taxes
• Home/Condo Insurance
• Strata/Maintenance fees

However, if you rent an office space simultaneously, you won't be able to deduct these home expenses, even if you are still using your home office and conducting business at home.

Accounting and Legal Expenses

Expenses related to your business accounting or legal matters in the regular course of operations can be claimed on the income tax return to lower the tax obligated to pay.

Insurance Expenses

Although subject to only qualifying insurance types, small business owners can write-off premiums paid for these insurances. Insurance categories include General Business Liability Insurance, Business Property Insurance, Business Interruption Insurance, and Life Insurance.

You can be eligible to fully claim General Business Liability Insurance used to protect a business from plausible lawsuits relating to injuries. Business Property Insurance to preserve business assets, including the destruction of equipment and buildings. Similarly to Business Property Insurance, Business Interruption Insurance is used to protect assets, particularly losses incurred from natural disasters. Life Insurance can only be partially claimed, generally used if the small business owner's life insurance policy is used as collateral on a business loan.

Vehicle Expenses

Vehicle expenses are one of the most common business expenses, and they are also eligible to be claimed by small business owners. The CRA allows business owners to claim a reasonable portion of their vehicle expenses back as a tax deduction. These expenses include:

• Fuel
• Repairs/Maintenance
• Insurance
• License and Registration
• Depreciation
• Toll charges

On average, small businesses write off 50% of vehicle expenses, so there is plenty of flexibility depending on your circumstances. Make sure to track your expenses and the travelling distance used to conduct your business for you to back up as you claim these expenses.

Personal Expenses

It is important to note that you can only claim certain personal expenses that relate to your business operation. The most common examples of claimable personal expenses are home phone bills, cell phone bills, and internet expenses — provided they are used for business purposes.

Get Expert Help

Understanding and maximizing your tax deductions can be complex. At Ebrahimi Accounting, our team of experienced accountants specializes in helping small business owners navigate tax season with confidence. Contact us today to ensure you're taking advantage of every deduction available to you.