Claiming Business Start-Up Costs

Congrats! You’ve decided to start a business, now what?

Starting a business can be a stressful but rewarding experience. One of the hardest things about starting a business can be handling all the complexities and logistics such as registration, licensing, and taxes.

Did you know: new businesses in Alberta are eligible to claim business start-up costs even if they have not registered yet?

For taxpayer purposes, the CRA will allow past expenses so long as these expenses were made with the motivation of starting a business in mind.

By definition, for it to be a business the purpose must be to make money from whatever service or product you are providing. This includes, but is not limited to, logos, business cards, supplies, etc.

Although it is difficult to measure an exact point at which a business commences, when registering a business it is best to use the day you are registering as the commencement date.

Knowing your expenses from the start

Knowing what kinds of business expenses you can claim early on in your journey is an essential tool for managing the operations of your business and is key to remaining in a good tax standing. Each business will vary in what kinds of expenses apply, the best way to find out which specific expenses apply is to talk to a qualified accountant.

Below is a list of expenses that can be claimed as start-up expenses:

Advertising

Canadian tax laws allow you to claim a portion of your advertising expenses for your business. This can also be said for business start-up costs. Typically, this includes channels such as Canadian newspapers, tv, and radio ads. In 2021, online advertising is extremely popular and luckily for business owners, online advertising is fully deductible. This includes ads placed on networks such as Facebook, LinkedIn, Google, etc.

Business tax, fees, licensing, and dues

These types of expenses refer to costs of annual licensing. As a business start-up, the main expense you will have in this category will be the cost of registering your business.

Delivery expenses

You are eligible to deduct the cost of delivery expenses as it relates to your business.

Fuel costs

You can deduct the cost of fuel (including gasoline, diesel, and propane), motor oil, and lubricants used in your business.

To do this, you must keep accurate records of your mileage. For an in-depth, breakdown click here.

Insurance

You can deduct all ordinary commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business.

Any insurance costs related to the business use of a workspace in your home must be claimed under business-use-of-home expenses.

Life/personal insurance policies are not included.

Professional fees

You can deduct the fees you incurred for external professional advice or services, including consulting fees.

You can deduct the accounting and legal fees you incur to get advice and help with keeping your records.

Maintenance and repair fees

You can deduct the cost of labor and materials for any minor repairs or maintenance done to property you use to earn business income.

However, you cannot deduct any of the following:

the value of your own labor
the costs you incur for repairs that are capital in nature (capital expense)
the costs you incur for repairs that have been reimbursed by your insurance company

You have to claim the maintenance and repairs related to business use of workspace in your home as business-use-of-home expenses.

Management and administration fees

You can deduct management and administration fees, including bank charges, incurred to operate your business. Bank charges include those for processing payments. This still applies if you use your personal banking account for business purposes.

Office expenses

You can deduct the cost of office expenses. These include small items such as:

pens
pencils
paper clips
stationery
stamps

Office expenses do not include items such as:

filing cabinets
chairs
desks

These are capital items. CCA items must meet certain criteria and only applies to certain items. It is best to connect with your accounting to understand the specifics of this section or visit the CRA website here.

Business Use of Home

You can deduct expenses for the business use of a workspace in your home, as long as you meet one of the following conditions:

it is your principal place of business
you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients

You can deduct part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and capital cost allowance (CCA). To calculate the part you can deduct, use a reasonable basis, such as the area of the workspace divided by the total area of your home.

3 tips to ensure you’re on the right path

Business start-up costs can encompass a variety of expenses but some may not make the cut. To claim as many expenses as possible we recommend following these 3 tips:

Keep accurate records of your spending.

There are tons of online bookkeeping templates available, find one that works for you and hold on to all receipts and bank statements.
If using your personal accounts for business purposes, it is recommended that you print off your bank statements each month and highlight the business expenses. Make sure to write notes on what each expense was for.

Get a good accountant!

There are tons of accounting options available but when choosing an accountant be sure to go with a professional that is as passionate about saving money as you are. A key indicator would be someone who asks for various records of your expenses and demonstrates genuine interest in the maintenance of your business.
Find someone who specializes in business accounting by conducting a google search and pay special attention to the reviews. Find out what current clients are saying.

Ask questions!

If you are ever unsure whether your expenses qualify or what you may be taxed on there is only one way to find out. Ask a trusted accountant and don’t underestimate the power of a good google search.

Learn more:

Full list of business expenses – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html#businessstartupcosts

Business use-of-home expenses explained – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/business-use-home-expenses.html

Advertising expenses – https://www.thebalancesmb.com/deduct-your-business-promotion-expenses-2948643

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