Are you paying too much in taxes? Are you getting all the tax deductions available for your business?
An effective way to minimize your company’s tax expense, in addition to good planning, is to ensure the company is claiming all of the expenses legitimately allowed under the tax act. Take a look and see if any of these deductions could apply to you.
The following are the top 7 tax deductions commonly overlooked:
Six fully deductible meals – Generally, you are allowed a 50% tax deduction for meals and entertainment, however, when meal and entertainment expenses are incurred to provide a party (such as a Christmas party) or other event which is available to all employees, Canada Revenue Agency (CRA) allows a 100% tax deduction (maximum of 6 per year). Keep track of these 6 events separately from other meals and entertainment to maximize this tax deduction.
Home office expense – If you work out of your house and your home office is your principle work space for your business you can claim the portion of household expenses that relate to the space occupied by your home office. “Principle” is generally interpreted as more than 50% of the time. Eligible expenses include insurance, property taxes, mortgage interest as well as utility costs such as heating and lighting. These expenses will be prorated based on the total area of the home office compared to your total area of the residence.
Automobile expenses – If you use an automobile for work, the expenses incurred are deductible from income. The manner in which the expenses are deducted is dependent on the ownership of the vehicle, owned by the company or owned personally.
If owned by the company, expenses such as fuel, maintenance and repairs, insurance, license and registration, depreciation, and leasing costs are deducted directly. Depending on the amount of kilometers driven personally versus for business, a personal taxable benefit may apply.
If owned personally, actual vehicle expenses, like those listed above, which are incurred for business purposes can be charged to the company, or our preferred method is to charge CRA’s prescribed mileage amount of $0.54 per km for the first 5,000 kms and $0.48 per additional km driven for business purposes. (For current year rates, please see CRA online document)
It is critical that for either method used, a driving log is maintained documenting the total kilometers used for business versus personal use.
Moving expenses – If a business owner or employee of the business is required to move more than 40km for employment the company can pay for and deduct any moving expenses incurred as tax deductions. This would include: selling expenses, moving vans, meals, hotel expenses, packing and unpacking and even travel to the new residence. Expenses paid for by the company are not deductible by the employee on their personal tax return.
Nontaxable gifts to employees – Gifts are a way to recognize an employee’s contributions to your company. Canada Revenue Agency allows employers to give to their employees an annual non-cash gift of no more than $500 which is a fully deductible tax deduction from business income and is not taxed as income to the employee. Any amounts greater than the $500 are taxable. It is very important to note that cash and near cash items such as gift cards are not tax deductions.
Education expenses – Education expenses that are related to your current business, trade or occupation are tax deductions in the company if the expense is to maintain or improve skills required in your business.
Annual General Meeting expenses – CRA will allow a reasonable tax deduction for travel expenses for shareholders and directors to travel to a destination for the company’s annual general meeting. These tax deductions must be reasonable.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.
Thanks to Richard Ouellette of KWB Chartered Accountants for providing this content.