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Tips for tax deductions
BY BRIAN QUINLAN
WHETHER YOU’RE heading across town or
across the country for your small business, it’s
important to know what expenses you can and
cannot write off.
The general rule to determine whether a
business expense is tax-deductible is that it must
be incurred in order to earn income for the business (i.e., not a personal expense) and be of a
reasonable dollar amount. Once the general rule
has been met, it is necessary to look at whether
any specific tax rule restricts the tax deductibility of the expense.
In the course of operating a business, travel
expenses might be incurred to visit current or
prospective customers (both local and nonlocal) or to attend a convention. These expenses
can vary, from the cost of public transit or use of
an auto to something more extensive, such as rail
or air travel and hotel accommodation. There
are restrictions on the amount that can be
deducted for automobile expenses, meals and
entertainment costs incurred while on business
travel, conference attendance and the cost of
travel related to a spouse who accompanies the
principal of the business.
In most of Canada, if an employer reimburses
an employee for using the employee’s own auto for
business travel, the maximum tax-deductible
amount for the employer is ;; cents per kilometre
for the first ;,;;; kilometres driven each year by
the employee for business travel and ;; cents per
kilometre thereafter. (In the Northwest
Territories, Yukon and Nunavut, the amounts
were ;; and ;; cents, respectively.)
Unincorporated business owners using
their own auto for business travel need to deal
with restrictions on the amounts that can be
deducted for leasing costs, interest and depreciation (as applicable).
The cost of meals incurred while travelling
for business is only ;; per cent tax-deductible in
most cases. One exception would be if the meal is
included in the cost of a travel fare, such as a rail
or airline ticket. Entertainment expenses (e.g.,
tickets to a theatre, concert or sporting event)
are also only ;; per cent tax-deductible. The
Canada Revenue Agency (CRA) states that taxpayers need to maintain records of the names
and business addresses of the customers or other
persons who were entertained, together with the
details of the event (date, place, time) and supporting documents (receipts, invoices).
The cost of attending a maximum of two conventions per year is tax-deductible. The cost of
attending any more conventions in the same year
is not tax-deductible. The CRA considers a “
convention” to be any formal meeting of members
for business or professional purposes, and
includes seminars, conferences or similar events.
For the costs to be tax-deductible, the convention
must be held by a business or professional organization, attended in connection with the taxpayer’s business and held in the geographical
area where the taxpayer conducts his business.
The costs of meals and entertainment while
attending a convention are restricted to the ;;
per cent limitation noted above. If meals are
included in the cost of the convention, the meal
portion—if not segregated out—is deemed to be
;;; per day and subject to the ;; per cent tax-deductible limit. This ;;; deeming rule does not
apply when only incidental beverages and
refreshments (coffee, tea, juice, muffins, doughnuts) are made available to attendees.
Where convention attendance and a vacation are combined, the taxpayer needs to make a
reasonable allocation of the costs incurred for
business (which are tax-deductible and subject
to the restrictions discussed in this article) and
the costs that are personal in nature (which are
When a spouse travels with the principal of
the business, the cost of the spouse’s travel is
tax-deductible only if there was a business purpose for the spouse’s travel.
As always, if you have questions, consult your
tax adviser. C
Brian Quinlan, CPA, CA, CFP, TEP, is with
Campbell Lawless LLP Chartered Professional
Accountants in Toronto.