Most of the business owners always get confused with the types of expenses that can be claimed to minimize corporate tax. Versatile Accounting has put together the list of the expenses that can be deducted for tax purposes:
The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of the lesser of the following amounts:
- the amount you incurred for the expenses
- an amount that is reasonable in the circumstances
These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event.
These limits do not apply if any of the following apply:
- You incur meal and entertainment expenses for an office party or similar event, and you invite all your employees from a particular location. The limit is six such events per year.
- You incur meal and entertainment expenses for a fund-raising event that was mainly for the benefit of a registered charity.
You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:
- it is your principal place of business
- you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients
You can deduct part of your maintenance costs such as heat, home insurance, electricity, and cleaning materials. You can also deduct a portion of your property taxes, mortgage interest, and capital cost allowance (depreciation). 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.
Business tax, fees, licenses, and dues
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 primary purpose of the club is dining, recreation, or sporting activities.
You can deduct interest incurred on money borrowed for business purposes or to acquire property for business purposes. However, there are limits on:
- the interest you can deduct on money you borrow to buy a passenger vehicle.
- the amount of interest you can deduct for vacant land
Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss, and you cannot deduct them from other sources of income.
Fees deductible over five years
You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:
- application, appraisal, processing, and insurance fees
- loan guarantee fees
- loan brokerage and finder’s fees
- legal fees related to financing
You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% in the current year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.
However, if you repay the loan before the end of the five years, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.
Any salary you pay to yourself or any of your employees is a 100% tax-deductible expense. However, it is the responsibility of the employer to deduct CPP and EI for all workers and remit to CRA. If there are some uncertainties that you need to clarify, it is always wise to consult your qualified accountant.
What we’ve covered here is a small number of possible deductions you could make on your taxes. If you have questions or have doubts about items you wish to deduct, contact Versatile Accounting today.