Running a successful business in Canada is about strategic operations and savvy financial planning. Understanding the Canada Revenue Agency’s available tax write-offs and optimizing charitable donations can significantly impact a company’s bottom line. Canadian business owners should know the strategies and best practices to maximize business tax deductions and bolster charitable contributions within the Canadian tax framework. At Jeremy Scott Law, our Canadian tax lawyers assist our clients with these and other tax matters. Contact us today at (902) 403-7201 to learn more about Canadian business tax write-offs in a custom consultation.
What Business Expenses Are Tax Deductible in Canada?
According to the Canada Revenue Agency (CRA), business owners may deduct any reasonable current expenses that were incurred to help the business earn income. The main tax-deductible operating expenses for Canadian businesses include:
- Start-up costs: Expenses related to the establishment of a business may be claimed if the business was operated during the same fiscal period that the expenses were incurred.
- Supplies: Supplies indirectly used to provide goods or services may be deducted, such as gas for equipment used by a landscaping business.
- Business taxes, fees, licenses, and dues: These are all deductible, but club membership fees are not deductible if the club’s main purpose is recreation, dining, or sporting activities.
- Office expenses: The cost of small office items such as pens, pencils, stationery, stamps, and paperclips may be deducted. Larger items like filing cabinets, desks, and chairs are not deductible because the CRA considers them capital items.
- Home business expenses: Entrepreneurs who run businesses out of their homes are allowed to claim deductions for the portion of the home dedicated to business operations. For instance, if a home is 2,000 square meters and a home office takes up 400 meters, the owner could deduct 20% of certain home expenses (including electricity, insurance, heat, property taxes, maintenance, and mortgage interest or rent) as home office expenses.
- Wages, salaries, and benefits: Gross salaries and other employee benefits are deductible, including Canada Pension Plan and Employment Insurance premiums.
- Business travel expenses: The CRA allows business owners to deduct 50% of either the amount of the costs or a sum that is deemed fair based on the circumstances. This includes meals, beverages, and entertainment.
- Commercial rent: The amount of rent paid for the property used to house a business may be deducted when filing taxes.
- Management and administration fees: All management and administration fees are deductible, including bank charges for payment processing.
- Interest and bank charges: Interest incurred on borrowed funds for the business or to acquire property for the business may be deducted.
- Property taxes: Business owners may deduct property taxes for both the land and the building that houses their business.
- Telephone and utilities: All telephone and utility payments used to earn income are deductible, such as water, electricity, oil, gas, and cable.
- Insurance: Commercial insurance premiums for buildings, equipment, and machinery used in the business may be deducted.
- Bad debt: Account receivables that cannot reasonably be expected to be paid may be deducted if the amount was already included as income for the fiscal year.
- Advertising: Advertising expenses are deductible, including Canadian radio and television advertisements as well as digital advertising.
Calculating business expenses accurately can be a complicated and time-consuming undertaking, but business expense accuracy is paramount for maximizing your company’s bottom line and preventing issues with the CRA. You can learn more about which Canadian business tax write-offs apply to your business by speaking with the Canadian tax lawyers at Jeremy Scott Law.
Are Charitable Donations Tax Deductible?
In Canada, charitable donations are tax-deductible for both individuals and businesses, as long as they are made to registered charities. The CRA allows taxpayers to claim non-refundable charitable tax credits, which reduce the amount of taxes owed to both federal and provincial tax authorities. This allows Canadian businesses and individuals to reduce their tax liabilities while contributing to good causes. Charitable donation tax credits are available for cash donations as well as other donations of value, including stocks, property, and gifts.
How Are Charitable Tax Credits Calculated?
When calculating charitable tax credits, business owners should first determine the eligible amount for all charitable donations in the fiscal year. Check the Canada Revenue Agency website for a list of organizations that are authorized to issue official donation receipts and which gifts are eligible. After determining which donations qualify, calculate the total amount of donations that the business can claim. The CRA allows taxpayers to claim donations made by December 31 for the current tax year and any unclaimed donations from the previous five years, as well as any unclaimed donations made by a spouse or common-law partner.
Next, use the official charitable donation tax credit rates to calculate the total charitable tax credit. There are separate charitable tax credit rates for federal and provincial tax authorities. Eligible amounts given over $200 qualify for a higher rate. At the federal level, the first $200 in donations has a tax credit rate of 15%, while amounts over $200 are at 29%.
How Can Business Owners Make the Most of Charitable Donations?
Certain strategies can help Canadians maximize the tax benefits of charitable donations, allowing for significant savings. Two of the most commonly employed include claiming donations cumulatively and donating appreciated securities assets.
- Wait to claim donations: Consider taking advantage of the higher tax credit for donations over $200 by waiting to accumulate donations before claiming them. Taxpayers may wait as long as five years to claim donations, and donations can also be accumulated by combining them with donations from a spouse or common-law partner.
- Donate securities: Publicly traded securities such as stocks, mutual funds, and exchange-traded funds may be donated to eligible charities. Investments that have increased in value are not assessed with capital gains taxes if they are donated to charity.
Learn More About Tax Deductions and Charitable Donations
Taking the right approach to tax matters can result in major savings for your business. At Jeremy Scott Law, our Canadian tax lawyers help businesses maximize their profits by claiming all relevant business expenses and taking a strategic approach to charitable donations. Get in touch with us today at (902) 403-7201 to learn more about Canadian business tax write-offs and charitable donations.