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Are you starting a new small business in Canada? Are you operating one already? If you are self-employed and have a business by yourself, we consider you have a sole proprietorship. If you have a business with a partner, we consider you have a partnership. If your business is incorporated, CRA will consider your business structure as a corporation.

Adequate records
After setting up the necessary requirements in setting up your business such as your registrations, permits and incorporation documents, as applicable, you are required to maintain adequate records of your business activities. These records must provide sufficient details to determine your tax obligations and entitlements and they have to be supported by source documents such as receipts and invoices.

Allowed business expenses
During the course of your commercial activities, you might frequently find yourself asking what are allowed business expenses. As a general rule, you can deduct any reasonable current expenses you paid to earn business income. This means, personal expenses are non-deductible. Listed below is a comprehensive list of business expenses (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html):

  • Advertising
  • Allowance on eligible capital property
  • Bad debts
  • Business start-up costs
  • Business tax, fees, licenses, dues, memberships, and subscriptions
  • Business-use-of-home expenses
  • Capital cost allowance
  • Current or capital expenses
  • Delivery, freight, and express
  • Fuel costs (except for motor vehicles)
  • Insurance
  • Interest
  • Legal, accounting, and other professional fees
  • Maintenance and repairs
  • Management and administration fees
  • Meals and entertainment (allowable part only)
  • Motor vehicle expenses
  • Office expenses
  • Prepaid expenses
  • Property taxes
  • Rent
  • Salaries, wages, and benefits (including employer's contribution)
  • Supplies
  • Telephone and utilities
  • Travel
  • Other expenses

Capital assets

Some expenses may be considered as capital expenses (assets) and its cost would only be deductible over the life of the assets. It actually prevents businesses from claiming the whole costs from being deducted in the year of purchase. 

It's very important to separate personal expenses from business expenses. Designating a personal expense as a business expense does not make it so and CRA will not hesitate to disallow these expenses in their audits.

As you can see above, it's a long list and it could sometimes be difficult to account for these transactions, but don't worry, we are here to help.