What are Tax Deductible Business Expenses?

calculating tax deductions

Running your own business is a thrilling, ambitious and complex proposition. The joy of being your own boss and contributing something substantial to society, be it a service or good, is something amazing, and North America was built on the back of the entrepreneurial spirit. The age old adage that you have to spend money to make money is true, and the Canada Revenue Agency (CRA) recognizes that simply looking at your income doesn’t account for the various expenses that come into play when maintaining a business. Here are a few rules about tax deductible business expenses that can make your life a little easier at tax time.

The distinction between capital costs and current costs is ever important. Capital expenses, like buying a property or doing substantial renovations to said property, are not considered as deductible business expenses; there are other tax advantages to capital costs, which we may look at in another article. Current expenses, which are expected to recur and must be incurred to earn an income for your business, are often considered tax deductible. There are quite a few different eligible benefits, so here are some you may be unaware of.

Bad debt is debt that you cannot collect on; you may include this debt in your income, but you haven’t actually earned it, so it’s deductible.

Food has an interesting number of qualities that can differ depending on your business. Meals and entertainment are often deductible at 50% of the cost you incurred, so long as that cost is reasonable; if you are a hotel, however, meals and entertainment are a part of your business, and expenses incurred on such products are not limited. The food consumed by long haul truckers can be reimbursed at 80%, but only if they’ve been away from their region for more than 24 hours. Rickshaw drivers and bicycle couriers may also consume food, and can be reimbursed for food they consume at a maximum amount $17.50 per 8 hour shift.

Office expenses are interesting too. Paper clips, pens, and other oft replaced goods are considered tax deductible; computers, however, should not be replaced regularly, as they last for years, and are thus considered capital expenses.

The reason a few odd rules about expenses were chosen here is to demonstrate the somewhat baffling complexity of business expense deduction rules. Depending on the nature of your work, you can be reimbursed for a substantial portion of your food expense, or for a fairly small portion. Computers are considered to be capital costs, the same as buying a new home. This means it is imperative that a business owner have an accountant; they can navigate exactly what expenses are tax deductible, and can help you get the most profit out of your business. A well qualified tax accountant is going to help you through the murky waters of tax law; don’t spend your days pouring over spreadsheets to make sure your rickshaw drivers are getting reimbursed for their take-out!