Business Deductions to Keep Top of Mind During This Tax Season
With rising inflation and interest rates, Canadian business owners are looking for ways to weather the storm. To help navigate these challenges, we’ve outlined some key tax deductions to keep in mind as you go through your annual tax cycle. For a detailed overview of the 2022 tax changes, refer to our recent article, "What You Need to Know for the 2022 Tax Season."
Key Business Deductions to Keep in Mind
Motor Vehicle Expense Deductions
If you use your vehicle for business purposes, you may be eligible for tax deductions. With proper documentation, the Canada Revenue Agency (CRA) allows the following 2022 automobile allowance rates:
$0.61 per kilometre for the first 5,000 kilometres driven
$0.55 per kilometre after the first 5,000
An additional $0.04 per kilometre for travel in the Northwest Territories, Yukon, and Nunavut
Self-employed business owners can deduct mileage driven for business purposes on their taxes. If the vehicle is used solely for business, all car-related expenses for the year can be claimed. For vehicles used for both personal and business purposes, only the business portion can be deducted. This includes registration fees, fuel, insurance, interest on loan payments, and maintenance.
Maintain a log of your business travel, including the date, starting location, destination, kilometres traveled, and the business purpose. Apps like Tallie and MileIQ, or accounting software like QuickBooks and Xero, can help track mileage and expenses accurately.
Meals and Entertainment
Business owners can claim up to 50% of meals and entertainment expenses used for business operations, such as entertaining clients or employees. To qualify, these expenses must relate directly to business activities. The CRA defines “entertainment” broadly, including dinners with colleagues, tickets to shows, or sporting events.
Capital Cost Allowance
Capital Cost Allowances (CCA) allow businesses to deduct the depreciation of certain assets, such as machinery, buildings, furniture, and software, over multiple years. This reduces the total taxable income. Additionally, non-capital losses can be used to offset income in the current or future years.
Research and Development
The Canadian government offers tax credits and deductions for businesses performing qualifying research and development (R&D) activities. Companies can earn up to 65% of wages paid as refundable tax credits. Deductions are also available for wages paid to staff, amounts paid to contractors, and materials used in R&D projects. Tax credits for apprenticeship programs or work placements completed by employees are also available.
The Importance of Working with an Accountant
These deductions are just a few of the many available to Canadian business owners. The Canadian tax system generally allows for the deductibility of expenses incurred for earning income from a business or property. However, specific rules apply to certain expenses.
Working with an accountant can save you time, money, and stress while ensuring compliance with applicable laws. Your accountant can provide guidance to maximize deductions and minimize your tax burden. They can also ensure all details are reported accurately and timely, helping you stay ahead of potential problems. This allows you to focus on achieving your business goals throughout the year, not just during tax season.
At WealthCo, we are here to support you in navigating your tax planning with confidence and clarity. Contact us today to discuss how we can assist you in maximizing your deductions and optimizing your tax strategy.
The Integrated Advisory Network consists of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help clients reach their goals.