The Canada Revenue Agency (CRA) allows businesses to deduct a huge range of expenses on their tax returns, and if your clients want to keep their tax liability as low as possible, they need to claim all their eligible expenses. At the same time, your clients also need to ensure they only claim truly deductible expenses. Unfortunately, businesses and individuals often claim nondeductible expenses on their returns without realizing these things don’t count. For the best possible outcomes, you want to both keep your clients in good with the CRA and maximize their savings by helping them accurately claim all possible deductions.
Your clients can deduct some of their meal and entertainment expenses when conducting business. To qualify, the costs must be reasonable, and you must discuss business at the event. If your clients meet this criteria, they can deduct half their meal and entertainment expenses. Due to those rules, some business owners think they can include wedding expenses as deductible business expenses. Many believe that as long as they invite colleagues or clients and discuss business, they can deduct the event’s costs. That isn’t the case. With a wedding, the purpose of the event is the wedding, not business. Even if your client and his associates discuss business at the reception, they can’t claim those expenses as a deduction.
Pets are becoming an increasingly popular fixture in many offices. On top of that, many daycares have pets to amuse the children. As a result, some taxpayers think they can write off the cost of pet food. In most cases, your clients can’t write off pet food or other pet expenses. For example, the CRA denied a daycare operator’s claims for the cost of her iguanas as a business expense, even though she argued she only bought them for the children in her daycare.
Of course, exceptions to this rule. Most notably, a farmer won an appeal when the courts decided the cost of pet food for his working dogs and cats was an eligible business expense. This is because the farmer utilized his cats and dogs to keep wild animals away from his crops. Additionally, if you have a client who requires a service animal due to a medical condition, the client can deduct the costs of pet food as part of their medical expenses.
Most people buy special clothing for work, but you need to make sure your clients don’t claim these costs as business expenses. Even if your clients don’t wear the clothing anywhere else other than work, they can’t claim these expenses. Keep in mind that they can, however, claim the cost of specialized uniforms.
In most cases, your clients can’t claim gambling losses as business expenses or as personal capital losses. On the flip side of the coin, your clients also don’t have to declare their winnings as income either. As a general rule of thumb, the CRA considers gambling wins a nontaxable windfall. In that same vein, the CRA also classifies lottery wins as windfalls and doesn’t subject them to income tax. Exceptions exist for cases where the taxpayer operates a gambling business. The tax courts decide this on a case-by-case basis.
To stay on the safe side, you want to closely review the expenses your clients claim. If any claims look like something the CRA may question, go over them with your clients and make sure they have the supporting documents. If you think they can’t deduct the expense, you should advise your client to remove it from their return. QuickBooks Online Accountant offers powerful tools for accounting professionals. Sign up for free.