Advertising is an essential part of starting and maintaining a profitable small business. It can also present a significant annual business expense. As with all business-related expenses, you want to be able to offset that cost with tax deductions. Before you decide how and where to advertise your business, make sure you understand what you can and can’t write off as an advertising expense.
When deciding how to market your business, it’s important to remember that The Canada Revenue Agency (CRA) is more inclined to offer tax incentives to businesses that generate commerce within Canada. This means that there’s a good chance that your advertising expenses are fully deductible if you choose to target a Canadian audience with your promotions. Advertisements aimed at international audiences are significantly more restricted when it comes to tax deductions and may not be deductible at all.
Online Advertising Guidelines
Online advertising in Canada is one of the more recent additions to the CRA’s rule book, and it’s also one of the simplest types of advertising to claim. Online advertising includes banner ads on websites, paid search results, and even your website registration and hosting fees.
Section 19 of the Canadian Income Tax Act stipulates that expenses paid to advertise in non-Canadian print or broadcast publications aren’t deductible. In 1996, the government decided that online publications don’t fall under the definition of a print or broadcast publication and are therefore not subject to the restrictions.
Partly because of this loophole, all online advertising remains fully deductible. Websites typically aren’t regionally specific and can be accessed by anyone at any time, and because of that, you can advertise on an internationally owned website and still deduct the expense.
Any of your advertising on TV or on the radio is defined as broadcast advertising. Since most broadcast mediums are location-specific, this type of advertising is only fully deductible if your ad is on a Canadian network or a Canadian-based radio station. If you choose to advertise with an international broadcast company, those expenses aren’t deductible. This restriction applies even if your advertisement still targets a Canadian audience. For example, if you run the same ad for your Canadian retail chain on a Canadian TV network and an American TV network, you can only deduct the amount you pay to the Canadian network.
Advertising in periodicals may be deductible, but it depends on the overall content type of the publication. The CRA defines a periodical as any printed publication that’s issued on a recurring basis, such as newspapers, magazines, and journals.
According to CRA guidelines, advertising expenses in periodicals are fully deductible, as long as the publication you’re advertising in is composed of at least 80% original editorial content. Editorial content simply refers to any content that is not sponsored or based on advertising. For example, a newspaper falls into this category, but a magazine that primarily consists of adverts does not meet this criteria.
If the publication contains less than 80% original editorial content, you can claim 50% of the cost of your advertisements. Fashion magazines with a high percentage of branded content are types of publications that may fall into this category.
These deductions only apply to advertisements that are aimed at a Canadian audience and distributed by a Canadian media company. As is the case with broadcast marketing, your ads aren’t eligible for deductions if they appear in an international publication, even if it’s targeted at Canadian consumers.
Be sure to keep track of the publications you advertise in. If possible, retain a copy of all printed advertisements as they appear in publication. If you are audited, you should be able to provide evidence of the nature of the publication and of your advertisements.
Entertainment and Meals
In some cases, promoting your company means sitting down and having a one-on-one chat with a prospective new client, partner or investor. If you incur entertainment or meal expenses related to promoting your business, you can write off half of those expenses. Specific items have certain limits. For example, while you can deduct the cost of a meal at a country club, you cannot deduct green fees for a game of golf. If you treat your employees to lunch, you can claim six of these types of meals per year. Entertainment expenses include tickets for sporting events and concerts.
You can deduct some of these expenses fully, but you can only claim 50% of costs from entertaining clients at restaurants or ballgames. Just be sure these events have a business purpose and are not strictly for pleasure.
Conventions and Trade Shows
Attending conventions allows you to learn more about your industry, promote your company, and network with like-minded entrepreneurs. The CRA allows you to write off the cost of two industry conventions per year, but you may only write off the cost of half the food you buy at the convention. A company or organization must host the convention in the geographic area where it normally conducts its business. If the business has all of its customers in Nova Scotia, you can’t claim the deduction for convention expenses if it hosts an event in Vancouver.
Other Items That Count as Advertising Expenses
TV spots and banner ads are some of the most widely recognizable forms of advertisement, but advertising and promotion come in many different forms. Any expense that you pay to promote your business and increase public recognition for your brand can count as advertising. Ads on billboards and in public spaces obviously count as advertising, but so do printed business cards, post cards, and promotional pamphlets.
If you organize an event for the public, such as a customer appreciation event, that also counts as advertising. Sponsorship of local sports teams and even branded charitable donations can be claimed as advertising, but the materials and events must be directly tied to your brand and logo in ways that can conceivably bring more awareness of your brand to the public.
When you purchase advertising, it’s not just the cost of the space that you might claim. You can also claim any expenses that you pay to an independent marketing professional. The same goes for the cost of securing trademarks and copyrights.
If you’re a Canadian small business owner aiming products or services at a Canadian market, consider keeping your advertising costs local whenever you can. Keep detailed records of all advertising and promotional costs with an efficient accounting software program, and calculate potential deductions before you lock in to a particular marketing plan.
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