The exercise of claiming expenses is surprisingly subjective. Here are some common occurrences that are frequently missed when claiming business expenses:
Joint ownership (project, real estate) and partnerships can change the % of allocation of losses/gains among co-owners for any period at any time. So, if the partners agree (more common in close relationships) and the partnership agreement allows (change the agreement if it does not), split the net income/losses as would benefit each partners’ tax position in line with their contribution of money and effort to the business or property. This also affects each partner’s entitlements to profits/losses but in many instances the tax benefits make the argument a no-brainer.
Employee Taxable Benefits
For corporations, watch for expenses paid by the company that create employee taxable benefits (especially to shareholders). It is an exercise in itself to minimize tax on employee benefits. Typical and costly taxable benefit items are standby charges and GST on standby charges for corporate owned vehicles, deemed interest and tax on ineligible loans, stock options, personal portion of reimbursement of expenses like travel or tuition fees, and club dues if 50% of activities are not business related. There are many more benefits to review for tax consequences.
Personal Expenses Incurred for Business
Deduct business expenses paid personally from net income of partnerships or co-mingled activities that don’t reimburse your additional business expenses. Professional fees, dues, home office, travel, insurance, vehicle, promotion expenses come to mind.
Instead of having a corporate vehicle resulting in CCA restrictions and standby charges, own the vehicle personally and have the company pay you a tax free (if allowance is reasonable) car allowance for business use.
Deduct computer system software 100% (split the cost of hardware to capitalize and software to expense).
Little Gems That Add Up
Some expenses don’t need to be prorated to comply with CRA regulations (e.g. parking for business use, minor expenses like coffee and donuts that are not meals etc…).
Charges and Reimbursements
Review those charges to shareholder accounts or personal reimbursements to the company for expenses not allowed by company policy. Some may be deductible.
Don’t think the expenses on CRA forms T2125 and T2032 are the only expenses allowed.
Talk with your tax professional
Many accountants can be rather hesitant to include on the tax return what they may consider to be inexact or obscure expenses. Professional liability, risk tolerance and civil penalties are serious concerns for your accountant. Be sure to clarify expenses with your accountant and they will be less reluctant to not include them.
There is no definition of a deductible expense; it depends on intention and circumstance. However, some types of expenditures are denied as tax deduction outright.
Discuss the risk of claiming expenses that may be disputed by CRA. Sometimes an argument with CRA is worth having. Just do not misrepresent the facts or claim obviously personal items.
Travel, vehicle, entertainment, home office, repairs vs. capital items – the grey areas of tax deductibility make the list very long.
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