If you’ve just started your business, or are realizing that there are only a few months left in the year and you need to find some more tax deductions ASAP, well you’ve come to the right place. We're going to share the top 10 write-offs that small businesses in Canada should know about.
What Is a Write-Off?
A write-off is just another way to say tax deduction. And a tax deduction is simply an amount you can subtract from your taxable income to lower the overall amount of taxes you owe to the CRA.
For example, let’s say your business earned $150,000 in the calendar year. And let’s say you had many qualifying business expenses that added up to $90,000. You would deduct $90,000 from the $150,000 you earned to get to $60,000. $60,000 is the amount you would have to pay taxes on (not the original $150,000). The logic is, the more tax deductions you claim, the lower your taxable income, which subsequently means the lower your tax bill becomes.
New business owners often get excited about write-offs without realizing that not all business expenses qualify as a write-off. These expenses must be seen in the eyes of the CRA to be costs that are incurred to either operate your business and/or generate an income for your business. It’s important to know if something is a write-off before spending money since it may not be deducted from your taxable income after all.
Now that you know what a write-off is, what are some write-offs for your small business?
1. Advertising & Marketing
Now is a great time to mention ReInvestWealth's collaboration with Jessica Moorhouse on creating the top 10 Tax Write-Offs For Canadian Small Businesses. This blog post and associated YouTube video are examples of paid content marketing, also known as advertising and marketing write-offs for ReInvestWealth.
Other examples could be your business spending money on paid search results, website registration and hosting fees, and digital banner ads. Or there’s more traditional advertising like paying for an ad on TV, radio, newspaper, magazine, or podcast. Even hosting an event for customers to promote your business can count too.
2. Travel
When business owners think about travel, they often think about a big business trip with a flight and hotel, but it doesn’t have to be that grand to be eligible to claim as a write-off. You can deduct travel expenses as small as a bus ticket or Uber if you can prove that you incurred those expenses to earn business or professional income.
For example, a speaking engagement across town might require an Uber or taxi to get there and back. You can claim that Uber trip as a travel expense because you incurred that travel cost to get to the speaking engagement and earn that speaking revenue.
3. Professional Dues
Another write-off you may be able to claim are professional dues. For example, a certified accountant will need to pay an annual fee to the CPA order to keep their accreditation. This fee is luckily something that can be written-off.
Another example would be if you were a doctor or lawyer who ran your own practice. You could write off professional dues you had to pay to keep your status or you can even claim premiums you have to pay for professional liability or malpractice liability insurance coverage.
4. Commercial Insurance
This leads us into the next tax-write off on the list. Commercial insurance. If you have to take out insurance for any professional services, buildings, machinery and equipment you use for your business, the good news is you can write-off the premiums you have to pay on your commercial insurance coverage. So not only are you protecting your business with insurance, you also get a tax deduction too!
5. Bank & Payment Processing Fees
When it comes to running a corporation, you will face several expensive banking and payment processing fees which are necessary to running your business.
Not only will you pay fees for certain types of transactions with your bank, but your biggest expense might actually be for payment processing such as Square or Stripe. Every time someone uses a credit card to pay an invoice, your payment processor will charge you a fee to process that payment. And although merchants in Canada (excluding Quebec) are now allowed to pass this fee to customers instead of eating it themselves, that’s not the plan for most businesses for fear of losing customers.
The good thing is, at least, you can claim these fees as a write-off.
6. Interest on Debt
Sort of along the same lines, if you had to take out a small business loan from your bank for business purposes, or to acquire property for business purposes, the interest that you pay on that loan is a write-off. That still means you’re paying interest and have to pay back the loan, but it’s one of the few scenarios that exist in which there is a slight tax benefit to taking on debt.
Not only that, let’s say you wanted to pay off your loan early so you can eliminate that debt, you can also deduct any penalty or fee your bank charges you if you pay off your loan before it is due.
7. Business-Use-Of-Home Expenses
If you are someone who always works from home, you can take advantage of some pretty great write-offs (on your personal taxes), including costs relating to your home’s gas, heating, electricity, water, cable, internet, phone, home insurance and property taxes. The one thing to remember though is you can’t claim 100% of these expenses. You can only claim an amount based on the percentage of your home used for business purposes only. And if you don’t own your home but instead rent, you can also claim part of your rent as a write-off.
8. Professional Fees
Next, we’ve got professional fees such as legal, consulting, and accounting fees. Running a business will likely mean more professional fees to pay. Aside from your accountant (like the great people at ReInvestWealth), you will also probably need a GoodLawyer. And those costs can definitely add up, but luckily they are tax deductible since they are considered professional fees. Your accountant in particular, should help you save money while being tax deductible in the first place. Win, Win!
9. Office Expenses
If you have to purchase office expenses for your business, you can claim these as a write-off. These would include any small items necessary to operate your business such as printer ink, paper, pens, notebooks, and highlighters. Most things like office furniture (and other items usually over $500) wouldn’t fall under this category though. They’d instead be categorized as capital items since they are depreciable property and may wear out or become obsolete over time. Because of this, you can’t claim the full deduction on these items in the year you paid for them, but instead you’d have to claim the deduction over a period of years.
10. Office Supplies
And lastly, we’ve got office supplies, which yes, is different than office expenses. Examples of supplies for a business would be a variety of software subscriptions, such as Hubspot, Mailchimp, Monday.com, Loom, Microsoft 365, Google Workspace the list goes on. Basically, all business subscriptions and regular supplies needed to run your business are tax deductible.
How does ReInvestWealth help you find tax write-offs for your small business?
Take advantage of smart and personalized suggestions based on your business transactions. Looking for write-offs, tax credits, real savings, growth opportunities or more? ReInvestWealth's new recommendation engine will figure out what you need and provide actionable insights.
We've also teamed up with partners to provide ReInvestWealth users with the best possible deals on things like marketing solutions, insurance, legal, financing, tech and much more. Just make sure your accounting is on autopilot and watch the suggestions come in.
Best of all, the recommendation engine is completely free to use! Try it today and let us know what you think. Don't have an account? No problem, it only takes a minute to create a profile and try it out!
How ReInvestWealth Helps Canadian Business Owners Get The Most From Their Accounting
Commonly known as “the language of business," accounting serves as the method of communication that is used to comprehend financial data and pass on key information to directors, investors, partners, clients and beyond.
The need for automation to increase efficiency in accounting and decrease the potential for manual time-consuming errors is greater than ever. Startups and businesses in Canada seeking smart accounting tools can sign up for ReInvestWealth's Free Accounting Software to help simplify and automate traditional accounting processes. Need more hands-on support? Book a call with ReInvestWealth for a Free Consultation Session.
Frequently Asked Questions
Are tax write-offs the same as tax credits?
No, tax write-offs and tax credits are different. A tax write-off, also known as a tax deduction, reduces your taxable income, while a tax credit directly reduces the amount of tax you owe. Both can lower your overall tax bill, but they work in different ways.
Can I deduct personal expenses as business write-offs?
No, personal expenses cannot be deducted as business write-offs. Only expenses that are directly related to operating your business or generating income for your business are eligible for tax deductions.
Do I need receipts for tax write-offs?
Yes, it's essential to keep detailed records and receipts for all business expenses you plan to deduct. The Canada Revenue Agency (CRA) may request documentation to support your deductions in the event of an audit, so it's crucial to have proper documentation. ReInvestWealth’s Smart Receipt Shoebox is a great tool to help you digitally store receipts, auto-match them to transactions, and auto-categorize the expense.
Can I claim tax write-offs if I operate my business from home?
Yes, if you use part of your home exclusively for business purposes, you may be eligible to claim home office expenses as tax write-offs. However, there are specific criteria and calculations involved, so it's advisable to consult with a tax professional to ensure compliance with CRA regulations.
Are there any restrictions on claiming tax write-offs for business travel?
Yes, there are restrictions on claiming business travel expenses as tax write-offs. Expenses must be directly related to earning business income and must be reasonable and necessary. Additionally, personal and leisure components of travel expenses are not deductible.
Can I claim tax write-offs for business expenses incurred before I started my business?
Generally, you can only claim tax deductions for expenses incurred after your business has started generating income. Pre-business expenses incurred during the startup phase may be eligible for deduction once your business is operational, subject to certain limitations.
What should I do if I'm unsure about whether an expense qualifies as a tax write-off?
If you're unsure about whether an expense qualifies as a tax write-off, it's best to seek guidance from a tax professional or accountant. They can provide personalized advice based on your specific situation and help ensure compliance with tax regulations.
Are there any tax write-offs specifically available for small businesses in Canada?
Yes, there are several tax write-offs and deductions available specifically for small businesses in Canada, such as the Small Business Deduction, Capital Cost Allowance (CCA), and various industry-specific deductions. You can explore more tax credits and grant opportunities here.
How Jessica Moorhouse Helps Canadians Improve Their Financial Life
Jessica Moorhouse is a millennial money expert, speaker, Accredited Financial Counsellor Canada, and host of the More Money Podcast. Her mission is to help Canadians take control of their lives by taking control of their money. She has a passion for personal finance and teaching others about money. To learn more about Jessica, her personal finance journey, and some of her go-to money tips, check out her profile in MoneySense.
Heads up, ReInvestWealth may receive commission on purchases made through links on this page.