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. The laws for claiming advertising expenses in Canada are somewhat complex. Before you decide how and where to advertise your business, make sure you understand the tax implications of your decision.
A good rule of thumb to think about when you’re deciding how to market your business is that the Canada Revenue Agency (CRA) is more inclined to offer tax incentives to businesses who are generating commerce within Canada. If you choose to target a Canadian audience with your promotions, there’s a good chance that your advertising expenses are fully deductible. Advertisements that are aimed at international audiences are significantly more restricted when it comes to tax deductions and may not be deductible at all.
Online advertising is a relatively recent addition 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 are not deductible. In 1996, the government decided that online publications do not 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 as of 2017. Websites are usually not 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 advertising that you do 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 are not 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 that you paid to the Canadian network.
Advertising in periodicals may be deductible, depending on the overall content type of the publication. The CRA defines a periodical as any printed publication that is 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 that you are advertising in is composed of at least 80 percent 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 percent original editorial content, you can claim 50 percent 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, even if your ads are targeted at Canadian consumers, if they appear in an international publication, they are not eligible for deductions.
Be sure to keep track of the publications that 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.
Other Advertising Expenses
TV spots and banner ads are some of the most widely recognizable forms of advertisement, but advertising and promotion comes 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, like 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 need to be directly tied to your brand and logo in ways that could 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 are 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 off all advertising and promotional costs, and calculate potential deductions before you lock in to a particular marketing plan.