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The general rule is, you can write off any expenses that are reasonable in generating business income," says Chartered Accountant Dan Thornton, who holds the Chartered Accountants of Ontario Professorship at Queen's University Business School in Kingston. A 'reasonable' expense is defined as any expense that a similar business in the same circumstances would justifiably deduct." Chartered Accountant Peter Bouius with BDO Dunwoody LLP in Hanover advises that keeping detailed records of all your business expenses is critical. While our tax system allows many different deductions, the Canada Revenue Agency (CRA) wants to see a direct link to the business, and the onus will be on you as the taxpayer to prove the validity of your claim if it is challenged." What specific expenses can you deduct? Thornton explains that, if your home office is your principal place of business, you can write off the portion of your home expenses that pertains to the business. If your office is one-sixth of your total square footage, then you can write off one-sixth of your home expenses. This includes utilities, mortgage interest, property taxes, maintenance and repairs. If you do not have any income initially, you can claim a business loss against other kinds of income," clarifies Thornton. Let's say your business earns $30,000, and your expenses to earn that income are $50,000. You can deduct $20,000 as a loss against other income, such as investments or a salary from regular employment." A special rule does apply to home office expenses - they will not increase a loss and must be carried forward separately to deduct against business income in a future year. Be scrupulous in ensuring that all your expenses were incurred against the
business. Keep all of your back tax records and receipts because CRA has six
years to come calling." According to Bouius, salaries paid to a spouse or children are deductible, if the salary is comparable to that of a non-related employee for the same services and if the work performed is necessary. Document the hours and work assignments, and be aware that source deductions may apply such as income tax, CPP and EI (although family employment is generally exempt from EI). You can also deduct the business portion of vehicle expenses for gas, repairs and maintenance, insurance, interest, and leasing costs or capital cost allowance. Travel from home to your principal place of work is not considered business travel. If you schedule business appointments on your way to and from work, you can deduct these trip costs. Use a travel log to record every business trip, and take an odometer reading at the beginning and end of each year to support your deductions," advises Bouius. Look at leasing costs for computer and other equipment, capital cost allowance on equipment purchases, interest incurred to earn business income and the business portion of telephone and internet as other potential deductions. *
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