How is the input tax credit claimed

Routes to finance

Question: What business expenses can a Canadian company claim against income tax?


The Canada Revenue Agency permits all reasonable business expenses; That said, the article must be appropriate for your business and used to make money.

The CRA says business expenses "are certain costs that are reasonable for a particular type of business and that are incurred for the purpose of generating income.

Business expenses are tax deductible; personal, living or other expenses unrelated to the business are not tax deductible. "

Hence, as a business owner, you need to be sure that you are distinguishing between your business expenses and your personal expenses. during the whole year.

If you have a separate commercial bank account and use good accounting practice, then this is what you can do.

3 Things to Know About Receiving Business Expenses

However, there are a few caveats to keep in mind when thinking about consuming business expenses.

1) Make a note of the word "reasonable" in the definition. What is a reasonable business expense for one business operation cannot be for another. It might make perfect sense for a writer or coffee shop owner to claim ISP fees as a business expense, but it seems odd for a bakery.

2) It's only that portion of a business expense that is directly related to your business and can be deducted. If you are buying and / or using vehicles or equipment for both personal and business purposes, you need to distinguish between the two and claim only the business share.

3) All business expenses must be supported by documentation. You must have receipts to secure your expense reports. For more information, see Can I claim business expenses that I no longer have receipts for?

The Business Expenses Index lists many general business expenses and explains the rules for income tax deductions in relation to each expense.

See also:

Expenses for motor vehicles

Meals and entertainment expenses

If you still have concerns or doubts about the eligibility of certain business expenses, speak to your accountant and / or give the Canada Revenue Agency a call.

Do you include taxes on taking business expenses?

When you claim business expenses on your T2125 form (business form or income form) it depends on whether or not you include the GST / HST you paid for the expenses you claimed. GST registrant and has / will claim the GST / HST on these costs as a pre-tax credit. When you claim it as a pre-tax credit, subtract it from your claimed expenses on your income tax form.

In the words of the Canada Revenue Agency,

"When you claim the GST / HST that you paid as pre-tax credits on your business expenses, you reduce the business expense amounts that you report on Form T2125. Business or professional activities by the amount of the pre-tax credits when the GST / HST for which you are applying for the pre-tax credits, has been paid or has become payable. "

If you are claiming business expenses, be aware that if you received another discount, grant, or assistance, you would deduct the amount of that discount, grant, or assistance from the business expense to which it was related.

Return to Canada Income Tax FAQ