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As a small or medium business owner in Alberta, you are constantly looking for ways to maximize your savings and reduce your tax liability. One effective strategy is to take advantage of eligible business expenses that can be claimed as write-offs. At Richardson Miller LLP, we understand the importance of optimizing your tax deductions and reducing your business tax liability. In this blog, we will highlight the top 11 tax write-offs available for small and medium businesses in Alberta, helping you save money and achieve financial success.

What is a Tax Write-Off?
A tax write-off, also known as a tax deduction, is an expense that can be legally deducted from your taxable income. By strategically identifying and claiming eligible expenses, you can reduce the amount of income subject to taxation. This ultimately helps you lower your overall tax liability in that tax year and keep more money in your pocket.

Tax Write-Offs for Small Businesses

1. Office Rent and Utilities

Do your run your business in office or building? Did you know that you can deduct a portion of your office rent and utility expenses? This includes rent payments, property taxes, insurance, and utilities such as electricity and internet.

When it comes to office rent, small business owners can deduct a portion of their monthly rent payments. This applies whether you have a dedicated office space or if you work from a home office. The key is to calculate the percentage of your home or office space that is used exclusively for business purposes. This percentage will determine the portion of your rent that can be deducted.

In addition to rent, other expenses related to your office space can also be deducted. This includes property taxes and insurance premiums specifically tied to the business portion of your property.

Utility expenses such as electricity and internet are also eligible for deductions. Just like with rent, you will need to determine the percentage of these utilities that are used for business purposes. This can be done by calculating the square footage of your office space in relation to the total square footage of your home or office.

Small businesses spend an average of 11% of their total expenses on rent and utilities. Source: Statistics Canada

 2. Business Travel Expenses

If you travel for business purposes, you can deduct expenses such as airfare, hotel accommodations, meals, and transportation.

The Canada Revenue Agency (CRA) allows you to claim reasonable and necessary travel expenses incurred for business purposes. This includes travel within Canada, as well as international travel. However, it’s important to note that personal travel expenses cannot be claimed under the guise of business use.

When it comes to airfare, small business owners can deduct the cost of flights or other transportation expenses related to business travel. This includes airfare, train tickets, and rental cars. Hotel accommodations are also eligible for deductions, as long as they are reasonable and necessary for business purposes.

Meals and entertainment expenses can also be deducted, but only up to a certain percentage. Generally, the CRA allows for a 50% deduction on meals and entertainment expenses. However, it’s important to keep detailed records of these expenses, including who was present and the purpose of the meal or entertainment.

 3. Vehicle Expenses

Do you have a vehicle that you use for your business? If so, you can claim deductions for expenses such as gas, maintenance, insurance, and lease payments. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to keep detailed records of your business mileage to support your claims.

To claim vehicle expense deductions, it’s critical to maintain accurate records of your business mileage. This includes tracking the date, starting and ending locations, and purpose of each trip. You can use a mileage logbook or smartphone app to make this process easier. With detailed records, you can confidently claim the deductions you’re entitled to while minimizing the risk of an audit.

Benefits of Vehicle Expense Deductions

By taking advantage of vehicle expense deductions, you can:

  • Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  • Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  • Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Business Efficiency: Use your vehicle expenses to streamline your operations and improve productivity.

4. Home Office Expenses

If you operate your business from a home office, you may be eligible to deduct a portion of your home expenses such as rent or mortgage interest, property taxes, utilities, and maintenance costs. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to ensure that you meet the specific criteria set by the Canada Revenue Agency for claiming home office expenses.

For example, your home office must be your primary place of business, and it must be used exclusively for business purposes. You must also be able to demonstrate that your home office is a clearly defined workspace and that it is used regularly and continuously for business purposes.

Benefits of Home Office Expense Deductions

By taking advantage of home office expense deductions, you can:

  •  Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  •  Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  •  Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Work-Life Balance: Operating from a home office can provide flexibility and improve work-life balance.

 5. Professional Services

When you run a business, you will inevitably use professional services such as lawyers, accountants, and consultants. These fees can be claimed as business expenses, which can help reduce your taxable income and lower your tax liability.

Hiring professionals such as lawyers, accountants, and consultants can help ensure compliance with tax laws and provide valuable advice for your business. For example, an accountant can help you keep accurate financial records, file your taxes on time, and identify areas where you can save money on taxes. A lawyer can help you navigate legal issues related to your business, such as contracts and intellectual property. A consultant can provide specialized expertise in areas such as marketing, human resources, or operations.

It’s important to keep detailed records of the services provided and the fees charged. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the fees paid are reasonable and necessary for your business.

Overall, hiring professionals can provide valuable support for your small business and help ensure compliance with tax laws. By claiming these fees as business expenses, you can reduce your tax liability and reinvest those savings back into your business. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the Canada Revenue Agency (CRA).

 6. Advertising and Marketing

Expenses related to advertising and marketing your business can include a wide range of costs. This includes the cost of online ads, such as pay-per-click campaigns or social media advertising. It also includes expenses for print ads, such as newspaper or magazine advertisements. Additionally, costs associated with website development and maintenance can be claimed, as having a strong online presence is crucial for many businesses today. Furthermore, expenses for promotional materials like business cards, brochures, and branded merchandise are also eligible for write-offs.

Small businesses spend an average of 2% of their total expenses on advertising. source: – Canadian Federation of Independent Business (CFIB). 

7. Office Supplies and Equipment

Purchases of office supplies such as stationery, printer ink, and computer software can be claimed as write-offs. These expenses are necessary for the day-to-day operations of your business and can add up quickly.

In addition to office supplies, if you buy equipment such as computers or furniture for your business, you may be eligible for capital cost allowance (CCA) deductions. This allows you to deduct a portion of the cost of the equipment each year, based on the depreciation of its value over time. This deduction can help reduce your tax liability in the year that the equipment is purchased and in subsequent years.

It’s important to keep accurate records of these expenses and equipment purchases, including receipts and invoices. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the expenses and equipment purchases are reasonable and necessary for your business.

 8. Employee Salaries and Benefits

Salaries, wages, and bonuses paid to employees are considered necessary expenses for the operation of your business. These payments are eligible for deduction as long as they are reasonable and directly related to the services provided by the employees.

In addition to salaries and wages, contributions to employee benefit plans are also deductible expenses. This includes contributions made towards health insurance plans, retirement savings plans (such as Registered Retirement Savings Plans or RRSPs), or other employee benefit programs. These contributions not only provide valuable benefits to your employees but also offer tax advantages for your business.

It’s important to keep accurate records of these payments and contributions, including payroll records, benefit plan statements, and receipts. This will help you accurately calculate the amount that can be deducted on your tax return. Additionally, it’s crucial to ensure that the salaries, wages, bonuses, and benefits provided are reasonable and in line with industry standards.

Small businesses in Canada employ approximately 8.3 million people, accounting for 70.5% of private sector employment. Source: Canadian Federation of Independent Business (CFIB)

9. Training and Professional Development

Expenses related to training and professional development for yourself or your employees are considered necessary for the growth and improvement of your business. This includes registration fees for conferences, seminars, courses, and workshops. These events and programs provide valuable opportunities to enhance skills, gain knowledge, and stay updated with industry trends and best practices.

By claiming these expense as small business tax deductions, you can not only invest in the development of yourself or your employees but also reduce your tax liability. It’s important to keep accurate records of these expenses, including receipts, invoices, and proof of attendance.

Small business owners can foster a culture of continuous learning and development within their organizations. This can lead to improved skills, increased productivity, and ultimately, business growth. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the CRA.

10. Bad Debts

It has happened to so many businesses, bad debts! If you have outstanding invoices that have gone unpaid or debts that are deemed uncollectible, you may be able to claim them as write-offs, helping to reduce your taxable income and lower your overall tax liability.

When a customer or client fails to pay an invoice, it can have a negative impact on your business’s cash flow. Did you know that the Canada Revenue Agency allows you to claim these unpaid invoices or bad debts as deductions, recognizing the financial loss incurred?

To claim these write-offs, it’s important to keep documentation and evidence of the unpaid invoices or bad debts. This includes maintaining records of the original invoices, communication attempts, and any supporting documentation that demonstrates your reasonable efforts to collect the debts. These efforts may include sending reminders, making phone calls, or engaging in collection activities.

It’s crucial to note that before claiming a bad debt as a write-off, you must make reasonable efforts to collect the debt. This means demonstrating that you have taken appropriate steps to recover the amount owed. The CRA requires that you have exhausted all reasonable means of collection before claiming the debt as uncollectible.

11. Charitable Donations

When you make a donation to a registered charity, you are not only supporting a worthy cause but also receiving a financial benefit. To claim these write-offs, it’s important to keep documentation and evidence of the donations made. This includes maintaining records of the donation receipts, which should include the name and registration number of the charity, the date of the donation, and the amount donated.

It’s important to note that not all charitable donations are tax deductible. The charity must be registered as a qualified donee, and the donation must be made voluntarily, without any expectation of receiving something in return.

Under the Income Tax Act, qualified donees are organizations that can issue official donation receipts for gifts they receive from individuals and corporations. Registered charities can also make gifts to them. source: canada.ca

Supporting charitable causes not only helps the community but also provides tax benefits for your business. By claiming these donations as write-offs, small business owners can reduce their tax liability while also making a positive impact on society.

By leveraging these top 11 tax write-offs for small and medium businesses in Canada, you can reduce your tax liability and maximize your savings. However, it’s important to consult with a professional accountant like Richardson Miller LLP to ensure compliance with tax laws and optimize your deductions. Contact us today to learn more about how we can help you navigate the complex world of business deduction strategy and achieve financial success.

When Bob’s Trucking Inc. started experiencing cash flow problems, Bob found his company was unable to pay all of its bills. He decided to use the money the company did have to pay for fuel and employees to continue operations because without fuel in the trucks or employees to drive the trucks, there was no business. At this point, he stopped paying the company’s GST and source deductions to CRA. He thought that if the trucking company ended up going bankrupt, the business debt to CRA would be taken care of through bankruptcy…WRONG!

Am I personally responsible for my business debts to Canada Revenue Agency?

When a business collects GST from customers or withholds source deductions from employees, it is acting as an agent on behalf of CRA. The company now has an obligation to remit these amounts collected to CRA. If Bob’s Trucking cannot meet this obligation in full, CRA will start arranging payment plans with the company. If this is still unsuccessful, CRA will pursue legal action against Bob’s Trucking Inc. to collect these amounts.

If CRA is still unsuccessful in collecting from the company, they can and they will go after the director of the company to try to collect these amounts. Here is where Bob’s personal bank accounts and assets are now at risk!

It is a slightly different story when Bob’s Trucking Inc. owes corporate income taxes to CRA. Since these amounts have not been collected by a third party on behalf of CRA, the company is not acting as an agent. The same collection process will be followed by CRA to try to collect these amounts from the company. But, if that is unsuccessful, Bob’s personal assets may or may not be at risk.

If Bob’s Trucking Inc. paid Bob dividends, then CRA can go after Bob personally for corporate income taxes owing up to the amount of the dividends he received. The logic behind this is if the company did not have sufficient money to meet its corporate tax obligations, how did it have sufficient money to pay dividends?

No business owner wants to find themselves getting behind with filing or payments with CRA.

When this does happen, most owners put their heads in the sand and try to avoid CRA’s phone calls and correspondence. This is a big mistake! CRA is willing to work with businesses to arrange payment plans to avoid pursuing legal action. But you MUST communicate with CRA.

This is one of the reasons it is important to have a professional accountant on your team. It is important to be proactive as a business owner so you do not find yourself in hot water with CRA. At Richardson Miller LLP, we have decades of experience working with business owners and corresponding with CRA.