Affordable Accounting and Bookkeeping
How I can determine what expenses I claim and what I don’t?
According to the Income Tax Act expense is deductible for tax purposes if it is:
— Deductible using Generally Accepted Accounting Principles;
— Not a capital expenditure;
— Incurred to earn taxable income;
— Not personal or living expense;
— Reasonable in the circumstances.
You cannot claim some of the expenses and among them are:
— Life insurance premiums (there is an exception where such insurance policy is used as a collateral for a business loan);
— “Capital” expenses – those expenditures, for tax purposes, are subject to the capital cost allowance (CCA), which provides for deduction based on a percentage of cost on declining balance basis;
— Personal expenses (there still could be a “business part” in some of them);
— Prepaid expenses (for future periods);
— Financing of business projects (such expenses should be amortized);
— Most types of CRA’s interest and penalties;
— Interest for vacant land (there is a limit you still can deduct);
— Golf/sports clubs memberships (there are circumstances where you can deduct a portion of such fees – consult with your accountant for details);
— Payments for some legal and accounting services;
— Most payments for advertising in a foreign media;
— 50% of meals and entertainment expenses (some of them qualify for 100% deduction, check the CRA’s website or consult with your accountant for details).