As a small business owner, you need to protect yourself and your assets. The right small business insurance policies are an essential part of that protection. In most cases, the Canada Revenue Agency allows you to deduct the cost of your small business insurance as a business expense. However, there are a few exceptions and grey areas you should understand.
General Business Liability Insurance
If someone is injured at your place of business or if someone brings a lawsuit against your business for another reason, general liability insurance can help. This type of small business insurance policy relates directly to your business and doesn’t cover any personal issues. As a result, the CRA allows the entire premium as a tax deduction for a business expense on line 8690 of Form T2125 (Statement of Business and Professional Activities).
Business Interruption Insurance
Business interruption insurance policies kick in when floods, windstorms, or other disasters interrupt your business. Opt for all-risk policies that cover a range of disasters or named policies covering only specified situations. Additionally, your business interruption policy may only cover expenses until you can open your doors again. Your policy may cover anticipated profits until you can get back to normal levels of productivity. You may also include the full amount of these premiums on line 8690 of Form T2125.
Also referred to as business property insurance, commercial insurance policies cover buildings, machinery, and equipment used in your business. You may write off the entire cost of the deductible for this type of policy on Form T2125. If you have a fleet of delivery vans or other vehicles you use for your business, you may be able to write off the insurance for those vehicles along with your commercial insurance. However, if you use your vehicle for both work and personal reasons, you can only write off a portion of your deductible.
For example, you have a commercial insurance policy that covers your computer equipment in the office. You pay a premium of $2,000 per year. Additionally, you have business interruption insurance that you pay $1,500 per year for. Both of these policies, at $3,500, provide a tax deduction that lowers your tax bill for the tax year during which you bought these policies.
You may include the business portion of your vehicle insurance on line 9281 of Form T2125 with the rest of your vehicle expenses. Alternatively, instead of writing off a portion of your insurance and other expenses, you may simply claim a certain number of cents per kilometre driven.
In most cases, your home insurance does not cover business liability issues. As a result, if you work from home, you may need to purchase a general business liability policy. However, if you have a home office, your home insurance covers damage to that space. In this case, you may include a portion of your home insurance costs as a business expense. Use the calculation of business-use-of-home expenses chart on Form T2125 to determine which portion of your premiums offers a tax deduction.
In most cases, life insurance is a personal expense and not deductible as a business expense. However, if you take out a loan for your business against your life insurance policy, you may include a portion of your premiums as a business expense deduction.
Tax preparation software can help you calculate your deduction when it comes to tax time. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.