For small business corporations, partnerships or proprietorships, the following items should be considered when calculating your income for tax purposes and the tax return. 
In determining net income for tax purposes, ensure that only appropriate and documented expenses incurred in the operation of the business are deducted, some examples include:
Accounting | Advertising |
Amortization of capital assets | Bad debts |
Business related memberships and subscriptions | Business related start-up costs |
Business taxes, fees and dues | Certain group benefits |
Collection costs (related to bad debts) | Convention expenses (up to two per year) |
Consulting costs | Delivery and freight |
Equipment rental | Insurance (fire, theft, liability) |
Interest and bank charges | Legal costs |
Utilities (light, heat, water) | Maintenance and repairs |
management and administration fees | Meals & entertainment expenses |
Motor vehicle expenses (fuel, insurance, repairs) | Home office expenses(including postage, stationary, telephone, other supplies) |
Property taxes or rent on business property | Purchases of materials and supplies |
Salaries | Specific courses to improve business skills |
Subcontracting costs | Travel expenses |
Workspace in the home (with certain limitations) |
Notes on Amortization - Planning Your Software and Hardware Purchases
The 2009 Federal budget proposed a new asset class for general office computing equipment and software that can be expensed 100% if purchased between January 29, 2009, and January 31, 2011 inclusive. Furthermore, where normally in the year of acquisition only 50% of the maximum annual deduction would apply, it does not apply to these purchases – 100% can be expensed in one reporting year.
Also, additional expenses of a capital nature, but not included in any other asset class may also be deducted. These include portions of expenses incurred to obtain franchises, copyrights, trademarks, incorporation costs and goodwill.
Tips for Audit Proofing your Tax Return
The Canada Revenue Agency may challenge the expenses claimed if they are deemed to be unreasonable, or there is no or poor record keeping related the expenses claimed. This is especially true for vehicles used for both personal and business purposes. CRA encourages taxpayers in this situation to maintain a log of daily mileage travelled, and the associated business purpose for at least one year. If the mileage is considered typical for the business, the percentage use of the vehicle for business may be used for future claims as a reasonable business expense. The log may be required after several years to confirm the mileage travelled and percentage of use for business purposes.
It is recommended that you contact a tax accountant with any questions you may have regarding your tax planning or corporate tax return preparation. More guides and resources from the Canada Revenue Agency are provided below for your reference.
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Stay tuned for more articles for small business owners!
Regards,
Stephen Beech MBA, CMA
Online Resources and References:
CRA Interpretation Bulletin it IT-521R - Motor Vechicle use by Self-Employed Individuals:
Online resources from CRA - Review of your tax return by CRA:
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© Stephen Beech 2011
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