Taxes may not be everyone’s idea of fun, but for a Canadian entrepreneur, they’re a fantastic opportunity to put money back in your pocket using smart deductions at tax time!
As a self-employed/sole proprietor entrepreneur in Canada, you are responsible for reporting your income (from worldwide sales). How much you end up paying in taxes is based on your net taxable income (income – expenses) so maximizing your deductions can actually help reduce your tax bill!
Here are some of the most common tax deductions that Entrepreneurs in Canada will have in their business.
Please remember every tax situation is unique and you’ll want to connect with a tax pro for your individual situation.
1. Office Supplies
Whether it’s stationery, printer ink, or your favourite pens, if you’re purchasing it for your business, it becomes a deductible expense. (Tip: Make sure to keep your receipts to validate your claims!)
2. Social Media Ads
If you are using Online Advertising to sell your products & services in Canada, these become tax deductions for your business. (If you’re advertising internationally, there may be additional considerations in how this tax deductions is used- ask your tax accountant for guidance if this applies to you)
3. Credit Card Processing Fees
If you are using Online Payment Tools like PayPal, Stripe, or Square, you’ll notice there’s usually a difference between the sale price of an item and what actually ends up in your bank account. That is because those payment processors charge a fee to handle the sales side of selling your item- often around 3% and/or a per item charge- before depositing the funds in your account!
Make sure to download these statements monthly/annually to make sure you’re A: reporting your full income (not just what lands in your bank account) and B: keeping track of the processing expenses to use as a tax deduction.
This is a special category as it’s not considered a “direct expense”. Rather, inventory is recorded in a category we call “Cost of Goods Sold” or “Cost of Sales”. When you first purchase inventory (either to be resold or to be incorporated into an item for sale), it’s recorded as a purchased Asset.
When you SELL it, then it moves from that ASSET category into an EXPENSE category called “Cost of Goods Sold” (or COGS, for short).
This is a category that can get quite complex over time, so we encourage you to chat with a pro to maximize this deduction!
5. Insurance Premiums
Insurance is essential for protecting your business when you’re an entrepreneur in Canada, and the premiums you pay for business insurance, (including liability, property insurance, and employee Worksafe/Worker’s Compensation premiums), can be important tax deductions.
6. Bank Charges
If you have a separate account to record income + expenses for your business, you may be able to claim bank fees like monthly activity fee, transfer fees, etc. This is an expense that is often missed by entrepreneurs (since you likely won’t receive a separate receipt for it) but can definitely add up to a big deduction over time!
(If you’re looking for a system to help automate tracking these types of expenses, I love using QuickBooks for my clients!)
7. Vehicle Costs
If you are using a personal vehicle in your business (for things like deliveries, meetings, picking up supplies, etc) you may be able to claim the business-related portion of common expenses like fuel, insurance, lease, parking etc. A mileage log is required; we do a full review of this with our clients at tax time to make sure they’re not missing this awesome deduction.
8. Photo Tools
If you are using a paid tool like Canva Pro to create your product/social media images, this becomes an expense to your business.
A note: this fee is usually charged in USD so you may need to convert to Canadian dollars for tax time reporting (as all info on your tax return has to be reported in CAD dollars)- you can do this using the conversion rate from your credit card statement OR an annual conversion rate issued by the Bank of Canada each year.
9. Accounting Fees
If you are hiring an accountant to prepare things like your GST/HST return, self-employed income tax return, etc these become eligible expenses for your business! Another great reason to work with a fabulous tax nerd 🤓
10. Home Office/Studio
If you have a dedicated space in your home for your business, you may be able to claim the business portion of common expenses like rent, electricity, insurance, etc. This space must be exclusively used for business and as the primary place of business.
Common examples include a home studio to make your goods, a den or office for your administrative tasks, etc. We cover the exact calculations you need for this often-missed deduction at tax time with our clients.
So there you have it: 10 Useful Tax Deductions for Entrepreneurs in Canada! This is just a sampling of available tax deductions for entrepreneurs in Canada, so if you’re interested in learning more about finance & your business, check out our additional training resources on this site (or connect directly with one of our tax pros.)
Money & taxes can feel overwhelming- but they don’t have to be! Focus on getting organized, use your awesome community to help guide you, and take every opportunity you can to learn & grow your business.
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