Examples of common expenses and whether or not they are deductible
| Expense | Eligible | Ineligible | Note |
| Telephone Charges (see note for amounts that may be eligible) | X | No claim available for home phone line. Can claim long-distance and cellular phone airtime charges. | |
| Repairs & Maintenance to Home | X | If business use of home claimed, can claim % of costs for repairs to home. | |
| Clothing Expenses (including dry cleaning) | X | These are personal expenses and not deductible (including uniforms) | |
| Golf Expenses (including membership or green fees) | X | No expenses related to golf are deductible. | |
| Motor Vehicle Expenses based on cents per kilometer | X | See listing for Motor Vehicle Expenses on following page. A per cent kilometer rate is NOT allowable. | |
| Gift Certificates as incentive rewards, etc. (to sporting events, restaurants or other activities) | X | These are deductible but only at 50%. See Meals and Entertainment Expenses. | |
| Fees paid to have books and records and income tax return done | X | These are eligible accounting fees |
General Information:
In order for an expense to be deductible, the Income Tax Act states the the outlay or expense must have been made or incurred by the taxpayer for the purpose of gaining or producing income from the business. It is not necessary to show that income actually resulted from the particular expenditure itself. It is sufficient that the expense was a part of the income-earning process. An expense would not be disallowed simply because there was no income produced, and a loss resulted, as long as the intention in making the expenditure was to produce income. You have to keep all of the records and supporting documents that are required to determine your tax obligations and entitlements for a period of six years.
Your records whether in paper or electronic format, have to:
- be reliable and complete;
- provide you with the correct information you need to assist in fulfilling your tax obligations and to calculate your entitlements;
- be supported by source documents to verify the information contained in the records; and
include other documents, such as appointment books, logbooks, income tax returns, and certain accountants’ working papers, that assist in determining your obligations.
To help keep your information organized and to assist either yourself or your accountant in preparing your tax return, it is suggested that you keep all receipts, vouchers, etc. An easy way to organize this information is in an expandable file folder with tabs or headings relating to the expense categories. (you may use the most common as listed below or whatever works best for your business.)
Common expenses and descriptions:
You can deduct any annual licence fees and business taxes you incur to run your business. You can also deduct annual dues or fees to keep your membership in a trade or commercial association. You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation, or sporting activities.
To be eligible, the home must be: (a) the principal place of the business of the individual, or (b) used exclusively to earn business income and on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business.
Where an individual has two or more places of business in respect of the same business, the work space must be the principal place of business in order to meet the requirement in (a) above. Example, a room in a contractor’s residence is used to accomplish the functions relating to a contracting business, such as, receiving work orders, bookkeeping, purchasing and preparing payrolls while the remaining activities of the business, the performance of the contracts, are carried out at the customer’s location, the room would be considered as the contractor’s principal place of business.
You can deduct a part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct a part of your property taxes, mortgage interest, and capital cost allowance. To calculate the part you can deduct, use a reasonable basis such as the area of the work space divided by the total area of your home. Although telephone, consumed supplies and other similar expenses may relate to the business, they do not relate to the work space and, accordingly, are not subject to the conditions and restrictions of subsection 18(12).
http://www.cra-arc.gc.ca/E/pub/tp/it514/README.html
You may lease computers; cellular telephones; fax machines; and other equipment. If so, you can deduct the percentage of the lease costs that reasonably relates to earning your business income. You can also deduct the percentage of airtime expenses for a cellular telephone that reasonably relates to earning your business income.
If you buy a computer, cellular telephone, fax machine, or other such equipment, you cannot deduct the cost. However, you may claim Capital Cost Allowance on them.
You can deduct the cost of going to a maximum of two conventions a year. The conventions have to: relate to your business or your professional activity; and be held by a business or professional organization within the geographical area where the organization normally conducts its business. This second limit may not apply if an organization from another country sponsors the convention, and if the convention relates to your business or professional activity.
Sometimes, convention fees include the cost of food, beverages, or entertainment. However, the convention organizer may not show these amounts separately on your bill. For each day the organizer provides food, beverages, or entertainment, subtract $50 from the total convention fee. You can deduct this daily $50 amount as a meal and entertainment expense. However, the 50% limit applies to the daily $50 amount. Food, beverages, or entertainment at a convention do not include incidental items such as coffee and doughnuts available at meetings or receptions at the convention.
Where a taxpayer incurs expenses for food, beverages or entertainment in attending a convention and the costs thereof are not included in the convention fee, the normal 50% limitation applies.
- Delivery, freight, and express
- Interest
- Leasing costs
- Legal, accounting, and other fees
- Management and administration fees
You can deduct management and administration fees incurred to operate your business, including bank charges.
The maximum part you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less. These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event.
Entertainment expenses include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges, and room rentals such as for hospitality suites. The 50% limitation applies to the cost of food or beverages for human consumption including any related expenses such as taxes and tips. In addition, the cost of a restaurant gift certificate is considered to be an expense for food or beverages and is subject to this limitation.
Expenses may include the cost of fuel, maintenance (for example, car washes, grease, oil and servicing charges), repairs (other than accident repairs whether incurred to repair damages resulting from the accident to a “motor vehicle” driven by the individual or to the property of others, are deductible in full if the vehicle was being used for business purposes at the time of the accident. Any amount deductible is net after recoveries through insurance or damage claims. No portion of such expenses is deductible if the vehicle was being used for personal purposes at the time of the accident), licences, insurance and, “eligible” leasing costs
To be deductible, “motor vehicle” expenses must be reasonable in the circumstances and supportable by vouchers. (The vouchers need not be filed with the income tax return; however, they must be retained for examination on request.) A claim by an individual for “motor vehicle” expenses calculated on a cents-per-kilometre (mile) basis is not acceptable. To support a claim where a “motor vehicle” is used in part for business purposes and in part for personal purposes, a record should be kept of total distance travelled and distance travelled for business purposes in a year. The record should contain at least the date, destination and distance travelled for each trip.
Although expenses incurred in travelling between different premises of the same business are deductible by an individual who otherwise qualifies, expenses incurred by the individual for the purpose of travelling between the individual’s home and place of business are not, unless it is established that the home is the base of business operations. If the individual has an office or other fixed place of business located elsewhere, the home is normally regarded as not being the base of business operations. The fact that all services are rendered at some other person’s place of business does not necessarily make that place the individual’s base of business operations. The individual’s home may be the base of business operations even though a room therein is not set aside and used solely for the purpose of earning income. The following are examples of homes that may be regarded as the base of business operations: (b) the home of an independent real estate agent who has an office there, has no business accommodation elsewhere and renders services to clients at their homes or at the sites of real properties;
You can deduct the cost of office expenses. These include small items such as pens, pencils, paper clips, stationery, and stamps. Office expenses do not include items such as calculators, filing cabinets, chairs, and desks.
You can deduct the cost of items used indirectly to provide the business’s goods or services. This may include printed materials.
You can deduct travel expenses you incur to earn business and professional income. Travel expenses include: public transportation fares; hotel accommodations; and meals.
In most cases, the 50% limit applies to the cost of meals, beverages, and entertainment when you travel.
While this is not an exhaustive list, information can be found on the CRA website, which is www.cra.gc.ca. In addition, the general enquiries line is 1-800-959-8281. Some information used in this handout were complied from several forms (T2124 Statement of Business Activities, copy attached) Interpretation Bulletins IT487, IT514, IT518, IT521R and the Business and Professional Income Guide T4002.
Also, you can reach me by email for any questions: raftery@shaw.ca.