Salute to every small business owner who has pulled through this far. Indeed, owning a business in a time of pandemic can be daunting. But with a silver lining, a few incentives have come to your aid, including deductible tax credits. It is no secret that any expenses you have incurred for running or expanding your business are deductible with a few caveats such as not stretching the rules. Let’s go through all the benefits at your disposal and how to avail yourself of them.
First and foremost, major investments in equipment, building (rents or mortgage), construction, furniture, and vehicles can yield long-term benefits for your business. While you can’t deduct the amount of such investment in full, you may claim a percentage of the costs each year over the expected life of the item bought, using Capital Cost Allowance (CCA). As per the CRA, expenses under the scrutiny of CCA are categorized as either current or capital and the rules that applied vary. Long story short, if the investment orients to the purpose of repair and maintenance, it’s likely to be considered a current expense. If the investment intends for long-term benefits, however, it’s more likely to err on the side of capital expense. Click here for a recap.
That aside, capital assets are divided into many subcategories, or CCA classes, which allot a different percentage predicated on the general life expectancy of the same class. For example, Class 10 refers to general equipment for processing electronic data, such as computer hardware. The rate you can claim for items bought in this class is 30%. For a detailed annual depreciation rate for each class, you can refer to the CRA’s list here.
Now you’ve got all the assets at your disposal, it’s time to get cracking with your business. As you hustle to scale up your business, operating expenses are ineluctable. While some businesses are more social-oriented and pay influencers to be the mouthpiece, others rely on word of mouth and focus on client relationships by investing on gift cards, concert tickets, or coupons. One way or another, you spend money to build your reputation, say advertising, as well connections, partnerships, liaisons, and whatever else to achieve growth and fulfill your entrepreneurial ambition. Such expenses can be deductible with caveats. Here is a full list of what you can deduct and for how much. FYI, payrolls are also deductible.
Office & Home Office
As for traditional office expenses, they entail but are not limited to the following, such as prints and paper and other stationery. But do be aware of the definition of the home office. If you have an office but decide to take your business home to keep a work-life balance, the cost for the part of the business conducted at home is NOT considered a home office expense.
In general, if your home is the primary place where your business takes place, it is considered a home office. You will have to calculate the percentage of the office space to your home with regards to the time that is used for business, including such expenses as rent, mortgage interest, property taxes, and home insurance. Stay tuned as we will have detailed coverage on the use of mileage and home office deduction.