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Accounting | Tax

Total write-off: Everything you need to know about business expenses

Receive sound counsel as an early entrepreneur on how to handle your expenses to maximum benefit

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When entrepreneurs first launch a business, every penny counts. Cash is tight, losses are frequent, and they need all the tax breaks they can get. The ability to write off certain business expenses is an essential way to save cash and reinvest in a fledgling enterprise.

Jonathan Steinberg, CPA, CA,  knows this all too well. At Toronto-based Steinberg Schatzker Chartered Professional Accountants, he works with owner-operators of small-to-medium sized businesses (and those hoping to, one day, get there). Herewith, Steinberg’s advice on the essential expenses entrepreneurs need to consider with their non-incorporated venture.

Business-use-of-home expenses

Some of the world’s most successful businesses started out in a garage, which isn’t surprising: working from home is (usually) cheaper than leasing office space. Fortunately, the Canada Revenue Agency (CRA) acknowledges this and offers generous deductions.

According to Steinberg, you can deduct a portion of your housing costs, including rent, property taxes, mortgage interest, home insurance, utilities—even cleaning supplies—in proportion to how much of your home is used for your business. Although you can’t use your business-use-of-home expenses to create a business loss, Steinberg notes you can roll forward any unused expenses to future years.

Motor Vehicle Expenses

Like business-use-of-home expenses, you can deduct fuel, car insurance, and maintenance costs in proportion to how much you use your vehicle for business, calculated as a percentage of the total kilometres you drive in a year. Steinberg’s pro-tip: many folks overlook that you can also write off the purchase price of the car, subject to certain limitations and pro-rations. (You can write off lease payments, too.) He observes, however, that the calculation can be complex, so it’s best to consult a CPA.

Interest expense from personal financing

No doubt a new entrepreneur might need to tap into personal credit in order to get the business going. If so, Steinberg advises the interest on the portion used for the business is deductible. This includes personal lines of credit, a mortgage (or second mortgage), and personal loans. However, he also notes that there are strict transparency requirements: “There must be a clear audit trail connecting the proceeds of financing to an identifiable business use.”

Meals and entertainment expenses

Many tax-minded entrepreneurs are familiar with the write-off for meals and entertainment expenses, and diligently book it whenever they take a current or prospective customer out for lunch (50 per cent of the expense is deductible). What they may not know is how generous the category is: it includes the cost of tickets to the performing arts, athletic events, hospitality suites, nightclubs, vacations, and more. Steinberg notes that golfing green fees are not deductible, but the meals and drinks at golf clubhouses are. Another pro-tip: if the proprietorship or partnership has employees, meals and entertainment expenses for employee events are 100 per cent deductible to a maximum of six per year.

Capital cost allowance (CCA)

Capital Cost Allowance is the same provision that allows you to deduct the business portion of your vehicle, but it includes any assets—buildings, furniture, and equipment—you buy to run your business that wear out over one year or more. Steinberg’s advice is to carefully consider when to claim the deductions, since they can be deferred to future years. There are plenty of rules on calculating the deductions, however, so he strongly suggests consulting a CPA.

Professional services

Speaking of which: fees paid to accountants are 100 per cent deductible. Consult a CPA to ensure you’re not overpaying tax and shorting yourself on proceeds or reinvestment opportunities. In those early days, it can make all the difference.