There are generally two main tests that all expenditures must meet in order for you to be able to deduct them for business purposes:

  • Was the expenditure made for the purpose of earning taxable income?
  • Was the expenditure reasonable in the circumstances?

If the expenditure was not made to earn taxable income, you will not be able to deduct the expense.

TAX TIP        Fixed assets such as land, buildings, vehicles, machinery and equipment, computers, etc. are not fully deductible in the year you purchase them.  These items will be recorded on your Balance Sheet as assets.  For accounting and tax purposes, you can write off a portion of their cost (except for land) each year.  This is called depreciation or amortization for accounting purposes. For professional advice on your business deductions please contact us now to save money and avoid costly mistakes.

The second test is a question of both purpose and amount.

If the expenditure made was not reasonable in the circumstances, then no deduction will be permitted to you.

If the expenditure was reasonable but the amount excessive, it is possible that a reduced amount may still be allowed to you.

If the expenditure meets the above two tests, that does not necessarily mean it is deductible.  For example, there are other rules to consider.  However, if these two tests are not met, then the other rules will not matter.

TAX TIP        Did you know that you can deduct accruals or accrued expenses even though you have not yet paid them? Accruals should be done at the end of your fiscal year to record costs which have been incurred but not paid.  This ensures that your costs are recorded for tax purposes, and that you claim your GST/HST Input Tax Credits at the earliest possible date. If you need assistance determining how to claim GST/HST Input Tax Credits or how to deduct your business expenses, please contact us now.

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HALPERN Chartered Professional Accounting Firm is a full-service Tax, Accounting, Business Advisory and Financial Planning CPA firm. Accurate and timely information is only one piece of any effective solution. We are dedicated to bringing you all of the pieces together – knowledgeable and innovative advice, leading-edge technology, and a strong relationship with our clients. This type of creative thinking enables us to help you and your business organization to solve complex problems and significantly enhance your ability to improve performance, manage risk and build value.

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