With veterinary bills and pet expenses including food costs, never mind the cost of buying one in the first place, dogs are expensive. Every little bit of a tax break helps. Unfortunately, dogs are ordinarily seen as a personal expense, and can’t be claimed as a work expense, However, there are always those rare exceptions. My grandpa had a guard dog, a German Shepherd, that lived at his auto repair shop. That dog saved a break-in (or worse) at least a couple of times that we know about.
To write off your dog as an expense, you must show clear evidence as to why the expense directly relates to earning business income. If you use a dog to guard your business premises, you can deduct the cost as a business expense. However, you can’t claim that your family pet is a guard dog. It should be a certified guard dog and be a member of a traditional guard dog breed such as a Rottweiler, German Shepherd, or Doberman Pinscher for examples.
The CRA has a list of the common business expenses that you can deduct.
The main operating expenses you can deduct from your taxes:
- Business start-up costs
- Business tax, fees, licenses, and dues
- Office expenses
- Business use-of-home expense
- Salaries, wages, benefits
- Management and administration fees
- Interest and bank charges
- Property taxes
- Telephone and utilities
- Bad debt
A dog breeder can deduct all his or her business-related expenses, just like any other business. This includes things like dog food and veterinary care, as well as rent, advertising, and other business expenses. A farmer or shepherd who uses a dog to herd or guard cattle, sheep, pigs, or other farm animals can deduct the cost of keeping the dog as a business expense.
Deductions vs. Credits
Tax credits and deductions decrease what you’ll pay in taxes, but in different ways. Tax deductions lower your taxable income and will reduce what you’ll pay in taxes as a result, while tax credits reduce your tax bill, though not dollar for dollar and may even increase your refund. Your net business income (sales minus expenses) is the number that is taxed. Meanwhile, credits only provide a percentage of the amount spent to ‘credit’ the income tax you need to pay on your income. Like donations, medical not reimbursed, and the disability tax credit to name just a few.
How to decide when you are on the fence
Your dog is not a certified guard dog, you’re not a breeder or a farmer…but you think you still might have a case? Time to ask your accountant or bookkeeper if you work with one.
If you belong to a mastermind business group, ask them if they have any experience with this situation. Remember that you must be able to document why the dog is directly related to earning business income (in case CRA comes back and asks about it). Don’t Google anymore about it, as every small business has different circumstances.
Keep in mind that credit card statements and bank statements cannot make up for proper receipts, as they do not give enough information to support a claim. For every amount you write off, you must have the documentation to back it up. A true receipt has the shop’s name, date of purchase, description, amount, and taxes. But how do you keep every receipt organized for years and years? Not by keeping all of your records in a messy desk drawer or boxes in your basement. Embrace technology and download a receipt scanner app.
Receipt management apps
Receipt scanning apps, like Dext Prepare, take pictures and generate digital versions of your receipts. The app’s OCR (Optical Character Recognition) technology digitizes all of the information on receipts and stores digital versions of them in a filing system. The CRA accepts these “smart receipts” as they are “an accessible and readable electronic format.” You can feel free to throw away that paper copy.
You or your accountant can connect the receipt app with an accounting platform like QuickBooks Online for automated publishing and transaction matching. You can scan receipts and upload them instantly. An image of the document and its associated data will be kept on file for a minimum of 10 years. And, bonus! Dext Prepare can connect with more than 1,400 suppliers, from Amazon to Hydro One to Rogers Communications.
Your dog is your best friend, but might also be a source of tax deductions in Canada. Keep all of your receipts and contact your accountant or bookkeeper to find out whether your pooch receipts qualify.