Tax time can be stressful in the best of situations. For Canadians running their own businesses, this time of year can be especially daunting. Dealing with different sources of income, managing business expenses, claiming GST/HST and possibly dealing with a tax bill to the Canada Revenue Agency (CRA) in April: all of this can be overwhelming. If you’re self-employed, there are a variety of business expenses you can deduct to offset your income and save you money. If you’re a small business owner or a sole proprietor, here is what you need to know about the 2019 tax season.
What is business income?
Any income earned because of business activity is considered business income. This could include money you earn from self employment, freelance work, your trade or selling a service or product that you created. You may be required to register and charge the HST or the GST on your business income for goods and services provided. That sales tax you collect on your business income is then remitted to the CRA.
Different deadlines for self-employed
Self-employed Canadians have until June 15 to file their tax return. That means you have six weeks longer than individual filers to get your paperwork in order. But if you owe money on your 2018 return, that balance is still due by April 30 at midnight like everyone else.
Generally speaking, you can deduct all expenses you incur to run your business. This can include:
- Office supplies
- Marketing material
- Advertising costs
If you’re are running a home-based business, it can sometimes be tricky to separate personal expenditures and business costs. Using business accounting software or speaking to an accountant can help clear things up for you. You can also refer to the this CRA page for more information.
If you rent a space for your office, you can deduct the entire cost as a business expense. If you have a home office, though, you must first determine how much space it takes up in your home and deduct expenses accordingly. One easy way is to divide the square footage of your office by the square footage of your home. For example, if your office is 250 square feet and your home is 2500 square feet, your home office takes up 10 per cent of you home. The CRA says this means you can deduct 10 per cent mortgage interest, rent, utilities, home insurance, security monitoring fees, repairs and other related costs on your self-employment income tax return.
Capital cost allowance
If you acquire a depreciable property, such as furniture or equipment that you need to run your business, it is deductible, but over the life of the item. As the CRA says, these properties wear out or become obsolete over time, so you can deduct their cost over a period of several years. This yearly deduction is called a capital cost allowance (CCA). In this case, the CRA says you cannot deduct the full cost of depreciable property when you calculate your net business or professional income for the year in which you acquired the property.
Keep your receipts
The CRA can ask you for proof of a business expense for up to seven years after the expense is incurred. The CRA states when it comes to business expense claims, you must support them with a sales invoice, an agreement of purchase and sale, a receipt, or some other voucher that supports the expenditure.
The CRA also says that if you pay cash for any business expenses, be sure to get receipts or other vouchers. Receipts should include the vendor’s name and the date. When you file your return, do not send your records or receipts.
Here’s a short (incomplete) list of common and uncommon business expenses to deduct.
- Business operations
- Start-up costs (including interest and fees on money borrowed for your business)
- Delivery or shipping costs
- Legal, accounting and similar professional fees
- Telephone, Internet and cable
- Utility costs
- Entertainment and travel
- Cost of cheques
- Bank fees
- Yearly dues for commercial and trade organizations
- Parking fees
- Private health service plan premiums
- Interest on vehicle payments
- Office cleaning supplies
- Yearly dues for commercial or trade organizations
- Parking fees
- Private health services plan premiums
- Interest on vehicle payments
- Cleaning supplies for home office
- Deductions for bad debts
- Cost of recovering balances owing to you
As a small business owner, tax time doesn’t have to be stressful. There are online tools and professionals available to help you. In the case of a small business, the fees charged by a tax professional are also deductible in your following year tax return.