We are often asked by our clients what constitutes an allowable business expense. The answer is simple, a deductible business expense is any reasonable current expense you paid or will be paid in order to earn business income.
This means that personal expenses are specifically excluded. The Canada Revenue Agency (CRA) has put together an army of auditors designed specifically to discover false expense claims.
Commonly Audited Personal Expenses Claimed as Business Expenses
- Travel expense: Any trip and its related expenses that are not predominately for business purposes are not allowable expense deductions.
- Medical expenses: Unless the corporation has set up a private health service plan in the business, medical expenses paid on behalf of a shareholder are not allowable business expenses and should be claimed on their personal tax return.
- Meals: Meals are deductible for tax purposes if they pertain to earning business income. This would include taking a client out for dinner. However, a shareholder going for lunch alone is not considered an allowable business deduction.
Expenses Deductible for Business Purposes
Here is a list of commonly allowable deductions for business purposes provided by the CRA. Click on the links below for a detailed description of each allowable deduction.
- Allowance on eligible capital property
- Bad debts
- Business start-up costs
- Business taxes, fees, licenses, dues, memberships, and subscriptions
- Business-use-of-home expenses
- Capital cost allowance
- Current or capital expenses
- Delivery, freight, and express
- Fuel costs
- Legal, accounting, and other professional fees
- Maintenance and repairs
- Management and administration fees
- Meals and entertainment
- Motor vehicle expenses
- Office expenses
- Prepaid expenses
- Property taxes
- Salaries, wages, and benefits
- Telephone and utilities
As you can see, there is an extensive list of allowable and non-allowable deductions for business purposes. The rules provided by CRA are important to follow but can be quite complicated. Contact us to ensure that your company is onside with the rules of CRA and that your company’s expenses are being properly accounted for.