Accounting FAQ

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).

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