There are numerous tax write offs available for small businesses in Canada. Tax write offs can significantly reduce your business' taxable income and taxes payable. For small business owner's in Canada it is important to be aware of all the possible write offs for your business.
A few areas where one can reduce one's taxable income include home, car expenses, transportation and parking costs and expenses incurred by your business. Most business expenses incurred by small businesses in Canada are tax deductible. The Canadian Income Tax Act states that any expense incurred for the purpose of earning income from business, as long as that expense is reasonable, is tax deductible.
Common types of business expenses that Canadian small business owners can write-off include:
- Accounting and tax preparation costs
- Legal fees
- Advertising
- Capital cost allowance on equipment purchases and transportation
- Home office expenses
- Rent
- Phone and internet
- Website charges
- Inventory and lease payments
- 50 per cent of meals and entertainment
- Salary, wages and sub-contractors
- Tools and supplies
Home office expenses can be deducted by self employed individuals and corporations. If you have a home office that is used exclusively for your business, the percentage of your home office expenses that you can actually deduct is equal to the percentage of the space your office occupies in relation to your home. For example if your office is 10 per cent of the total square footage of your home, you can deduct 10 per cent of your home expenses. Even if you do not own your home and rent, a portion of your rent can be allocated as a home office expense. Mortgage interest on your residence, home insurance, property taxes, utilities and repairs and maintenance on your home are all tax deductible.
A common question found online and within business forums is whether or not as a small business owner it is better to lease or own a car. There are a number of factors when determining whether or not to lease or purchase a car. The Capital cost allowance allows small business owners to write off up to 30 per cent of the cost of a vehicle each year. Capital cost allowance must be prorated for business use proportional to your car. Gas, oil, insurance, registration fees, toll charges and parking are all tax deductible. It is not possible to write off 100 per cent of car expenses.
A capital asset is something of tangible value, which will last a long period of time. Capital assets can include furniture and fixtures, equipment and computers. Assets cannot be written off in a single year but over a period of time based on the Canada Revenue Agency's specified depreciation rates.
The Canada Revenue Agency's specified depreciation rates for equipment is at 30 per cent per year, furniture and fixtures at 20 per cent, software at 50 per cent, computers and computer equipment 100 per cent and vehicles 30 per cent per year. Computers and computer related equipment can be written-off entirely in a single year, as long as the purchase was made from January 27, 2009 to February 2011.
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