Tax deductible business expenses (Canadian perspective).

These are the most common expenses that you can write off in your business to reduce your taxable income however, some limitations may apply.

Deductible business expenses are one that can be deducted from taxable income. These expenses lead to a decrease in taxable income leading to a decrease in tax liability.

In Canada, there are certain rules if some particular expenses can be deducted from taxable income.

Here, it’s important to note that expenses capital in nature cannot be deducted at once.However, as a rule, the current amount can be deducted to the extent that helped in earning current income.

Generally, the following expenses are considered to be deductible from the taxable income.However, all the deductions and expenses must be backed by invoices/supports as you might need to present at the time of tax audit.

The startup cost for the business
The startup expenses can be deducted from the taxable income. However, to claim deductions, you need to do business in the fiscal year in which the expense was made. So,there is a need to ensure you are clear on the date of starting the business. That's because if expenses were made before the commencement of the business, these expenses are not considered to be business expenses and cannot be applied against the income of the business. So, there is a need to differentiate between startup expenses and expenses incurred to run the business on an ongoing basis.

Fees for the business license and tax
The deductions can be made for the fees/taxes paid to run the business. The deductions can also be made for trade subscriptions, publications, commercial and trade associations etc.However, expenses incurred for the club membership cannot be deducted from taxable income.

Delivery and transportation cost
The cost incurred for the transportation of the goods can be deducted from the taxable income. However, it's important to note that transportation should only be for business purposes.

Fuel cost

The cost of fuel can be deducted from the taxable income. However, the fuel must be used for business purposes only. Similarly, if you use a personal vehicle for business purposes, the cost of fuel incurred to earn business revenue can be deducted from taxable income.

Insurance expenses
The insurance premium paid to avail of insurance policies is tax allowable expense. The insurance cover can be obtained on the business machinery, equipment, building, and any other area of the business. Similarly, insurance expense for the motor vehicle is tax allowable. However, the vehicle must be in business use.Further, it’s important to note that the premium paid on life insurance is not tax allowable. However, there is an exception if you use a life insurance policy as collateral to raise the business loan. In this case, the premium paid on the life insurance can be claimed as a business expense and deducted from taxable income.

Professional fees including accounting, legal, and other
Generally, expenses incurred on professional services are tax-allowable expenses. The professional service can be for record-keeping, accounting, accounts preparation, financial reporting, tax return filing etc. Similarly, legal consultancy can be obtained for any business matter and the expense can be deducted. However, if the fee is paid to purchase some item capital in nature, it cannot be deducted from the taxable income. Instead, such expenses should be capitalized in the cost of the items.

Repair and maintenance expenses
Generally, repair and maintenance expenses can be deducted from taxable income. However, it should be a minor expense that should not lead to an increase in the life of an asset. If life is increased with the expense, it can be claimed as a capital cost allowance. Similarly, the repair/maintenance expense cannot be deducted if you have been laboring yourself or if the expense is to be reimbursed from the insurance company. Further, if you have been using your home space as a workspace, the expense incurred on the workspace can be claimed as business use of home expense.

Administration and management expenses
Administration and management expenses can be deducted from taxable income.Administration and management expenses include bank charges. However, other expenses like wages/salaries, rent paid, and property taxes need to be reported separately from
administration and management expenses.

Meals and entertainment expenses
Meals and entertainment expenses can be deducted from the taxable income. However, there are certain limits to the same. Generally, the maximum amount that can be deducted from the taxable income is limited to 50% of the following,
1- The actual amount incurred on the meal/entertainment.
2- The amount that is considered reasonable in the given circumstances.

The given limits are applicable only for conferences/travels/conventions or some events.These limits are not applicable in the following cases,
1- You are a hotel/restaurant/motel that regularly provides meals/beverages to the customers against compensation.
2- You charge the cost of entertainment to the customer and that is also shown on the bill.
3- The meal is provided to the employees working at the temporary site, the employees are not expected to return home daily.
4- If you are raising funds for the registered charity, and during the event meal/entertainment is provided.
5- You are holding an office party and employees are called from a remote location.The limit of such parties is six in a year.
6- The expense incurred for the entertainment is included in the employee’s income.Further, it’s important to note that there are different rules for fishers and long-haul truck drivers.

Office expense
The expenses incurred in the office expense like pens, paper, stamps, stationary, paper clips, etc can be deducted from the taxable income. However, other items like desks, chairs, filing cabinets, and calculators cannot be deducted from the taxable income. That’s because these items are considered to be capital expenditure in nature and you can write off during their useful life.

Property taxes, and rent expense
These expenses can be deducted from the taxable income. However, these expenses must be incurred for business reasons. If you have a business workspace in the home, these expenses can be claimed under the concept of business use of a home.

Supplies, telephone, and utilities
The expense related to supplies, telephone, and utilities can be deducted from the taxable income. However, all of these expenses must be for business reasons only. Supplies are the items that are used indirectly in the provision of services. For instance, a
plumber makes use of the cleaning liquid.Utilities can include bills for water, gas, electricity, cable etc. Further, if you use the home space as a workspace, the deductions/claim can be made as business use of the home. Similarly, the expenses incurred on advertisement can be deducted from the taxable income. However, there are certain rules for the same.

Interest and bank charges
The interest paid on the loan to acquire the property for business purposes can be deducted from the taxable income but there are certain limits on the following items. 
1- The loan is used to pay for the passenger vehicle or zero-emission vehicle.
2- If you’ve used a loan to finance a vacant loan.

3- If the loan proceeds have been used to pay for the real estate mortgage.
Further, fees, penalties, and bonuses paid on the loan can be deducted from the taxable income. For instance, if you early terminate the loan by paying a penalty/bonus, it can be deducted as prepaid interest and deducted over the remaining life of the loan.
The deductions can also be made for the appraisal, processing, insurance, loan guarantees,financing fee, brokerage fee etc.

Travel expenses
Travel expenses can be deducted from taxable income. The travel expenses include a fee for public transportation, hotel accommodation, and meals. However, it should be noted that a 50% limit is applied to the cost of meals in most cases. Further, it’s important to note that a 50% limit is also applicable on the meal and beverages when you are traveling on an airplane and incur meal costs, it's when the cost of meals/beverages is not included in the price of tickets.

Salaries and wages including employer’s contribution
It’s important to determine if you are employed or self-employed to apply the rules for employer deductions. To ensure that you are an employee/self- employed CPP/EI ruling can be obtained from CRA. As an employer, deductions can be made for the salaries/wages that you've paid to the employees. It also includes employment benefits. However, drawings made by business owners are not deductible from a taxation point of view. 

Further, the following deductions can be made from taxable income.
1- The contribution made for the CPP or OPP.
2- Premiums paid for the employment insurance.
3- Worker’s compensation amounts paid for the employee.

If your child works for you, the deductions can be made when you meet the following three conditions.
1- The salary is paid to the child.
2- The work done by your child is necessary to generate business income.
3- The salary is reasonable considering the level of work performed by the child and his/her age.

Further, it's important to keep adequate documentation of the payments made to the child.For instance, if you pay via check, keep the canceled check with you, or keep the signed receipt.On the other hand, if your child is paid via the product of your business. This payment of the goods is considered to be deemed sales. In other words, the value of the product needs to be added to the sales. Similarly, the child has to report this product value as his/her income.

Bad debts

Bad debts can be deducted from taxable income. The deduction for the bad debt can be made from income if,
1- Receivable was included in the receivable balance.
2- It's determined that the balance is bad debt and it cannot be recovered.

Conclusion
Deductible expenses lead to a decrease in taxable income resulting in less tax liability for the individual/company. CRA has given set guidelines for the expenses that can be deducted from the taxable income and the expenses that cannot be deducted from the taxable income. So, if the expense is deductible from the taxable income, you are required to keep an appropriate record to present if required.