Understanding Some Unique Tax Deductions Available in Canada

As a small business owner in Canada, understanding the various tax deductions available can help you minimize your tax burden while maximizing your business’s growth potential. This blog post aims to shed light on some lesser-known deductions for expenses related to guard dogs, vehicles, personal hygiene, and trips. By claiming these deductions correctly, you can potentially reduce your taxable income and boost your bottom line. So, let’s explore these deductions and the requirements set by the Canada Revenue Agency (CRA) to ensure you stay on the right side of the tax law.

 

1. Guard Dogs: A Business Asset 

 

For businesses that require extra security, employing guard dogs can be a wise choice. In Canada, guard dogs are considered a legitimate business asset, allowing you to claim certain expenses related to the acquisition, training, and maintenance of these dogs. 

1. Criteria for Claiming Guard Dogs:

– The primary purpose of the dog must be to protect your business property from theft.

– The area where the dog is typically stationed must be clearly designated and restricted.

– The dog must be trained specifically for security purposes.

– The presence of the dog should be a reasonable necessity due to the nature of your business.

 

2. Allowable Expenses:

– The amount spent to purchase the dog can be deducted as a capital expense.

– Costs related to training the dog for security purposes can be included.

– Routine expenses for the care and maintenance of the dog, like food, veterinary bills, and grooming, are typically not deductible.

 

3. Necessary Documentation:

To claim the guard dog as a tax deduction, you will need to provide the following documentation:

– Proof of purchase: Detailed receipts or invoices for the dog’s purchase, including the cost paid.

– Training documentation: Evidence that the dog has undergone professional training for security purposes. This may include certificates or statements from qualified trainers.

– Detailed records: Maintain a log of when and how the dog is used for security purposes, indicating specific dates, times, and locations. This helps establish that the dog is, indeed, employed for business protection.

 

Additionally, it is recommended to keep any other relevant documentation that supports the necessity and business-related use of the guard dog.

 

2. Vehicles: Turning Necessary Travel into Deductible Expenses 

 

If your small business relies on vehicles for transportation, be it for deliveries, client visits, or any other business-related travel, the expenses can be claimed as deductions. 

 

1. Fuel Expenses: You can claim the cost of fuel for business purposes. To substantiate your claim, keep track of receipts or maintain a mileage log to calculate the business portion of fuel expenses.

 

2. Maintenance and Repairs: Expenses for maintaining and repairing your vehicle, such as oil changes, tire replacements, and regular service, can be deducted if they were incurred for business purposes. Keep invoices and receipts as proof.

 

3. Insurance: If you use your vehicle for business purposes, a portion of your insurance premiums may be deductible. You need to determine the percentage of business use and only deduct that portion of the premiums.

 

4. Lease Payments: If you lease a vehicle and use it for business purposes, a portion of the lease payments can be deducted. Again, you need to calculate the percentage of business use and only deduct that portion.

 

5. Depreciation: If you own your vehicle and use it for business purposes, you may be able to deduct a portion of its depreciation. This is known as Capital Cost Allowance (CCA) and is subject to specific rules and restrictions.

 

It is crucial to differentiate between personal and business use of vehicles to claim expenses accurately. If you use your vehicle for both personal and business purposes, you can only claim expenses related to the business portion. Maintaining thorough records is essential for substantiating your claims, including:

 

1. Mileage Log: Keep a detailed log of your business travel, noting the starting and ending locations, distances travelled, and purpose of the trip. This log can help calculate the business use percentage for various vehicle expenses. Visit CRA’s website to view the prescribed rates per KM to reimburse yourself. 

 

2. Receipts and Invoices: Keep all receipts, invoices, and statements related to vehicle expenses, such as fuel, maintenance, insurance, and lease payments. These documents provide evidence of the expenses claimed.

 

3. Insurance and Lease Agreements: Keep copies of your vehicle insurance policy and lease agreement to support your deductions related to insurance premiums or lease payments.

 

3. Personal Hygiene: Claiming Professional Appearance 

 

Maintaining a professional appearance is crucial for many small business owners. Fortunately, certain personal hygiene expenses can be claimed as deductions when they directly relate to your business. 

 

1. Medical Expenses: The CRA allows certain medical expenses to be claimed as deductions on your tax return. These expenses must be primarily for the prevention or treatment of a medical condition. This could include certain beauty treatments if they are prescribed by a medical professional to treat a specific medical condition.

 

2. Cosmetics and Hair Care: Generally, the cost of cosmetics, hairstyling, and personal care products are considered personal expenses and are not eligible for deductions. However, if you have a medical condition that requires specific cosmetics or hair care products, and these products are recommended by a medical professional, you may be able to deduct the expenses as medical expenses.

 

3. Uniforms: Expenses related to work-related uniforms may be eligible for deductions if certain conditions are met. A uniform generally refers to specialized clothing that is required and distinctive to your job, such as a police officer’s uniform or a nurse’s scrubs. Ordinary clothing that can be worn outside of work is usually not eligible for deductions. If your logo is permanently affixed to any piece of clothing, in a visible spot, this can also be considered a uniform! 

 

4. Trips: Combining Business with Pleasure, Legally 

 

When planning a trip, why not combine business and pleasure? Many small business owners are not aware that certain expenses incurred during business trips can be claimed as tax deductions. 

 

1. Purpose: The travel must be undertaken for the purpose of earning income, carrying on business, or attending a conference related to your employment or business. Personal vacations or non-business-related trips are generally not eligible.

 

2. Distance: The travel must be beyond your regular work location or usual commuting distance. If the trip is within the same city or region where you normally work, it may not be considered eligible.

 

3. Reasonable Expectation of Profit: The travel expenses must be reasonable and necessary to earn taxable income. They should have a clear business purpose, and there should be a reasonable expectation of profit associated with the trip.

 

4. Substantiation: It is important to keep proper documentation to substantiate your travel expenses. This includes retaining original receipts, invoices, boarding passes, hotel bills, and any other related documents. The CRA may ask for this substantiation in case of an audit or review.

 

5. Airfare: The cost of airfare for business travel is generally eligible. However, if you combine personal vacation with business travel, only the portion attributable to business purposes is eligible.

 

6. Accommodation: The cost of accommodations while on business travel, such as hotel rooms or rental properties, can be eligible. Again, if personal time is included, only the portion related to business activities is eligible.

 

7. Meals: The cost of meals during business travel is generally eligible, subject to reasonable limits set by the CRA. Expenses for lavish or extravagant meals are not considered eligible.

 

8. Transportation: Expenses related to local transportation during business travel, such as taxis, rental cars, or public transportation, are generally eligible. However, personal expenses incurred during non-business activities should be separated and excluded.

 

9. Entertainment: Expenses for business-related entertainment, such as hosting clients or attending networking events, may be eligible. However, there are limitations on the deductibility of entertainment expenses, and they must be directly related to earning business income.

 

Navigating the Canadian tax system can be challenging, but knowing the potential deductions available to small business owners can greatly benefit your bottom line. Always consult with an accounting professional to ensure compliance and accuracy when claiming these deductions. Remember, proper documentation is crucial to substantiate your claims and protect your business from potential audits or inquiries.