As an independent contractor, it’s important to know which costs you can claim as business expenses on your Canada Revenue Agency (CRA) return. Eligible expenses can help you save money on your tax bill, but when you claim ineligible expenses, you may end up owing back taxes and penalties. With this in mind, knowing what you can and can’t claim can help you make better financial decisions for your small business while keeping it in good standing with the CRA.
1. Clothing Purchases
You want to look your best while running your business, especially when you have to meet with clients or customers. That means investing in clothing, makeup, and grooming, though you can’t claim these costs as independent contractor business expenses. This also means you can’t claim a deduction for coveralls, special shoes, gloves, or work wear.
2. Workday Snacks
If you buy snacks to eat while you you work, you can’t deduct them. The CRA does make an exception for self-employed bicycle couriers and rickshaw drivers, though. If you work in one of these professions, the CRA views some of your daily snacks as fuel to keep your transportation going. As a result, you get to claim a deduction just like truck drivers claim a deduction for gasoline. You can claim a flat $17.50 for snack money for every eight-hour shift you work.
3. Dining Out
When you work from home as an independent contractor, you might want to get out for a change of scenery sometimes. Keep in mind that if you work from a coffee shop for the day, you can’t claim the coffee and pastries you consume as business expenses. But if you meet a customer at an eatery or take clients to a show, you can write off 50% of the meal and entertainment expenses as long as you discuss business. In addition, if you travel for your business, you may also write off half your food costs while on the road.
4. Personal Expenses
You can’t write off personal costs as independent contractor business expenses on your tax return. If you buy paper and pencils for your children to use, you can’t write off those costs as office expenses. Similarly, if you buy a computer or office equipment for personal use, you can’t claim it as a business expense.
Lucky for you, the CRA has a process in place for purchases you use for both business and personal matters. This lets you figure out which portion you use for business and write off that percentage of your expense. For example, let’s say you buy a computer you use 80% of the time for work. This means that 80% of its cost counts as a business expense.
5. Pet Expenses
Even if you have a dog that keeps you company while you work or a resident cat in your shop that all your customers love, the CRA doesn’t let you deduct your pet expenses as business expenses. While you can’t claim pet expense deductions, the CRA makes exceptions for working pets. If you have a dog that herds your cattle or protects your blueberries, the pet care and food qualify as business expenses. Also, if you’re blind, deaf, or severely disabled and have a service dog, you can deduct those expenses as part of your personal medical deductions, but not as business expenses.
6. Maintenance and Repairs
When it comes to deducting business expenses for repair and maintenance, you can’t deduct:
- The value of your own labour
- Costs you incur for capital expense repairs
- Costs you incur for repairs your insurance company reimburses
Keep in mind that you can deduct labour and materials costs for minor repairs or maintenance of property you use in earning business income. For instance, if you pay someone to repair the cracked screen on your business smartphone and you don’t have insurance coverage, you can deduct that expense.
7. Capital Property Expenses
If you buy capital property, such as an office building or a truck for your small business, you can’t claim expenses you incur to buy it. You can, however, deduct any reasonable current expense you incur to earn income. This means you can claim goods and services tax (GST) or harmonized sales tax (HST) you incur on these expenses minus your input tax credit, a credit that offsets the amount of GST/HST you pay.
The CRA maintains an extensive list of business expenses you can write off on your annual tax return. Understanding what you can and can’t deduct helps you reduce your tax liability and avoid claims for ineligible items. QuickBooks Online can help you maximize your deductions. Keep more of what you earn today.