Ultimate Guide to tax write offs for Small Business Owners in Canada

If you’re a small business owner who wants to pay less tax without feeling shady, this guide to tax write offs for small business owners in Canada is just a fraction of what you get in my full (and FREE) write off guide. 

So if you’re a hands-on person, who wants to know EXACTLY what you can claim and what you can’t without the jargon and overwhelm, grab this downloadable checklist so you don’t miss any tax write offs for your business, home office or side gig. 

In today’s piece, I’ll cover some basics every business owner who’s looking to get a little more financially savvy needs to know. 

I’ll be sharing little-known tax write offs for a business or freelancer and giving you a heads up on the common pitfalls I see entrepreneurs like you make when keeping records for your taxes so we’re all on the same page.

What are Tax Write Offs/Tax Deductions?

You’ve probably heard the term tax write offs/deductions bandied around a bit and to be honest, they’re the same thing really..terms that are used interchangeably.

A tax write off – small business or personal– is an expense that can go against how much you owe – offsetting your final tax bill. 

It’s not free money though…as much as I’d love that for you. 

Don’t buy something just because you might offset your taxes against it – you’re still spending money at the end of the day. Only make purchases when you need to. But, when you do buy things for your business, getting a tax deduction for working from home or running a small office will help you save on your tax bill.

Oh, and ‘write off’ is the informal word for them. So, if you’re in a more professional setting, “tax deduction for working from home” is preferred to “tax write offs for a business” – just FYI. 

(But we’re friends right?!, so write off is fine by me.)

Are Business Taxes High in Canada?

I know this sucks to hear, but business tax rates are pretty high in Canada. And that’s not great news for business owners. Fraser Institute warns, “According to projections, from 2020 to 2030, Canada will be the worst-performing advanced economy among 38 OECD countries for growth in per-person GDP, a common measure of a country’s prosperity.” 

Depending on where you are in Canada, federal tax plus your provincial taxes may be higher or lower than the national average of 26.2 per cent, combined.

But, don’t let that freak you out.

If you follow my recommendations to optimise your tax write offs for a business or home office, your final bill doesn’t have to sting that much.

What are the Types of Tax Deductions I Can Claim on my Tax Return?

There are three main kinds of tax write offs for a business that you should claim on your return in Canada. These are:

• The costs associated directly with your product or service
• The costs of the building where you do business
• The incidental costs you get in the pursuit of business

The two tests for what is a business expense (and what isn’t) boils down to “is it reasonable” and was it “incurred for the purpose of earning income”. 

Staying organised and knowing what you could POTENTIALLY write off is your responsibility as an entrepreneur and I’m on a mission to empower more entrepreneurs to feel confident in owning that responsibility. 

If you’re ever unsure about whether or not you can write something off. You can always include it in your bookkeeping using a special category called “Ask My Accountant” (this is one of the tips I provide and go into detail in when you join Chillbooks™)

Then you can use that info to present to your accountant during tax season or call the CRA Business Inquiries line and ask them

Office and Home Office Tax Write Offs

Whether you work from home or have an external office location, here are some of the expenses you might have that are tax write offs for your business:

• Supplies that go into your product or service like paint for a painter or scissors for a hairdresser
• Postal/Shipping costs to get your goods/services to the customer
• Tax deductions for your home office space (typically calculated using a percentage of the space allocated to your home office): rent, mortgage interest, home insurance, utilities (including internet)
• Stationary like paper, pens, printer ink and more
• Commercial rent for your external office or studio space
• Assets such as computers, printers, desk, office chair, machinery, equipment
  

For more detail on home office expenses you can write off, check out my Instagram Live with the incredible Jess here.

Travel/Mileage Tax Write Offs

If you use your car for your business, you might be able to claim registration and licence fees in addition to leasing costs, fuel and more. The amount you can claim is determined by the % of distance you have driven for business use (For example, if you drove the car 25% of the year for business, you can claim up to 25% of your vehicle expenses). If you are incorporated, you can also simplify your expense claim by taking the total kilometres you drove for business and multiplying it by the CRA approved mileage rate here. 

Then, when you’re actually travelling for work, you should claim 50% of the meal cost, entertainment and beverages as tax write offs for a business. 

I recently did this when I travelled to the QuickBooks Connect conference and spilled the tea on exactly what I claimed and why. 

Advertising and Marketing 

The tax write off for advertising includes the cost of ads on Canadian channels, domain names, web hosting and some digital advertising. For marketing, you get to include both the materials and the costs related to making them. 

Think of all the print collateral and signage you might have – it’s all covered.

Hired a freelance Social Media Manager? You also get to claim that as a write off! Woop woop!

Finance/Planning Business Expense

Not only can you get tax write offs for the accounting and tax prep software you use, my recommendation is QuickBooks by the way – it’s super easy to understand for solopreneurs like yourself. 

But if you get a pro to help you, *cough* *cough*. That’s deductible too!

So whether you invest in Chillbooks™ or a VIP Day to support you with your bookkeeping and prepping for taxes, you won’t have to pay taxes on it. 

Which brings me to the next thing you can claim.

Training and Courses

Yep.

You might even be able to skill up without paying tax on it! All these benefits of being an entrepreneur are starting to stack up right?

According to the government website, “The Canada Training Credit (CTC) is a refundable tax credit available to help Canadians with the cost of eligible training fees. You can claim the CTC for tuition and other fees paid for courses that you took in the year.” Ca-ching!

The CTC isn’t specific to entrepreneurs and is for anyone. 

However, what is specific to entrepreneurs is professional development & education which you can write off as long as they’re directly related to the industry you’re in. 

For example, let’s say you’re a marketer and you purchased a course on SEO, that would be classed as professional development and you’d be able to write it off.

Likewise you may attend a seminar on AI and it’s trends in marketing, this, too would be classed as a professional development/educational write off. 

Be careful though, there are guidelines when it comes to conventions and you can only claim 2 conventions per year per the CRA’s guidelines.

In short, as long as you can prove the above is going to further develop you in your business then you can write it off – Wahoo! 

Team Salaries and Support

If you hire anyone to help you with your business from copywriters to lawyers, these are eligible tax write offs for a business. It doesn’t matter if they are your employees or not (but salaries and other benefits for employees are also a write off).

Meals and Client Entertainment

Probably the most fun one of them all – entertainment! Take your biggest client to a hockey game, get dinner, knock back a brewski and you can deduct half of the cost of all that as tax write offs for a business!

And those aren’t all of the tax write offs for a business owner in Canada. Don’t leave anything on the table. Make sure to download my free guide if you’re not a fan of leaving money on the table. 

Do I Need Receipts for All my Expenses?

This is such a common question I get from sole proprietors. 

Especially those of you who have a habit of forgetting to take pictures of your receipts before throwing them away – look we’ve ALL been there. 

With amazing tools that make tracking your expenses easy, there’s no reason NOT to have a receipt for all your expenses. 

And whilst some rumours have floated around saying that your bank statements and credit card statements suffice, that’s simply not true.

If you’re missing a receipt, you could use your bank or credit card statement along with a detailed description of what you purchased. But know that there is a risk this expense will be disallowed due to lack of documentation. Make sure that you’re organizing your receipts accordingly and making use of the softwares that make it easy to do so. 

The Financial Post agrees with me on this one and tells us why you need to invest in proper software, explaining that “while there is no legislation that requires a business to provide a receipt to acknowledge payment for services rendered, the Income Tax Act says that a taxpayer must keep adequate books and records “in such form and containing such information, as will enable tax payable to be determined.” But, lucky for you, a clear scan of your receipts is fine. You can bin that scrap of paper after.

This is why I always use QuickBooks to store my receipts when I’m doing my bookkeeping each month. It’s super easy because as you’re going through your bank transactions you can attach your invoices/receipts to a particular transaction. This way everything is in one place in case you ever get audited or if the CRA wants to see proof of purchase. 

Tech to Keep You on Track with Tax Writeoffs 

If you want to, you can integrate QuickBooks with third party apps if it’s easier for your type of business. 

So let’s say you’re an ecommerce brand, for example, and you have a ton of receipts. 

In this case, using software to track tax write-offs like Expensify and Dext will enhance your bookkeeping experience. But for the most part the built in features directly in QuickBooks will do the job well enough for you.

Why can’t you just snap a pic with your phone? Well, there are CRA standards of what your software for receipt capturing must look like. And there needs to be an audit trail included so that you can’t be shady and change the receipt down the line. QuickBooks is an approved software for this purpose and that’s why I recommend it and its integration partners.

Oh and if you don’t use QuickBooks yet but you’d like to simplify your tax write off small business experience, have a look at my course Chillbooks™. I’ll handhold you through the whole thing so you can scan receipts, log expenses and file like a total pro.

What Business Expenses Am I NOT Allowed to Write off?

Never try to claim these as tax write offs for a business (even if they seem legit):

• Dry cleaning and non-uniform clothes
• Commuting
• Fines or penalties
• Gym memberships or golf club dues (sucks, because those can get PRICEY)

Little Known Tax Writeoffs for Small Business Owners

Tax write offs for a business can get pretty obscure and -if you’re not aware- you could be missing out on a lot. For example, only 85k people filed for business moving expenses in 2023 but up to 29% of the million or so people who relocate every year, probably should have. 

So, could you claim some of these little-known tax write-offs for small business owners? It includes things like:

• Bad debt or collection charges
• Trade or commercial memberships
• Business Insurance
• Interest and banking fees
• Private health services plan premiums and some medical expenses
• Property taxes & office cleaning services (yes! even for your home office – just make sure you qualify for home office expenses and you can prorate these!)
• Charity/Donations
• Mobile phone bills
• Merchant fees (Ex. Stripe, Square, Etsy Fees)
• Carryforward losses from prior years

So, if you haven’t done so, grab my FREE checklist here. Start ticking off every tax deduction for working from home or running a small business that you can get your hands on. 

And if you need help getting to grips with the proper tools, like QuickBooks, let me guide you through that too!