List of Most Common Business Purchases. Expenses vs. Assets.


Spend money to make money. You’ve likely heard this quote before. Wondering what are some of the most impactful ways to spend your hard earned money? Not sure about the difference between assets and expenses? This guide is for you.



 

Table of Contents


Operating Expenses

  • Business Start-Up Costs

  • Business Tax, Fees, Licenses and Dues

  • Charitable Contributions

  • Education

  • Fines and Penalties

  • Insurance

  • Interest and Bank Charges

  • Marketing & Advertising

  • Management and Administration fees

  • Meals and Entertainment

  • Medical Expenses

  • Office Expenses

  • Parking Fees

  • Prepaid Expenses

  • Professional Fees

  • Property Taxes

  • Rent

  • Salaries, Wages, and Benefits

  • Supplies

  • Telephone & Utilities

  • Travel

  • Vehicle Lease


Capitalized Expenses (Assets)

  • Building

  • Building Improvement - Betterment

  • Computers

  • Furniture & Fixture

  • Manufacturing Machinery

  • Patents, Franchises, Concessions or Licenses

  • Phones

  • Small Tools (Less than $500)

  • Vehicles less than $30,000

  • Vehicles more than $30,000

  • Vehicles - Zero Emission


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Operating Expenses

Operating expenses are incurred during the day-to-day operations of the business and are generally expensed in the period they occur. The deductible expenses include any GST/HST/PST/QST you incur on these expenses minus the amount of any Input Tax Credit and Input Tax Refund.


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Business Start-Up Costs

The first $3,000 of startup costs such as legal fees, accounting fees and incorporation costs can be expensed. These are the only costs that can be paid under your personal name and expensed under the company because the business is not yet registered when these expenses occur.


Business Tax, Fees, Licenses and Dues

Any annual license fees and business taxes incurred to run the business are deductible. Annual dues or fees to maintain a trade or commercial association, or subscriptions to publications are also deductible. Club membership dues are not deductible if the main purpose of the club is for dining, recreation, or sporting activities.


Charitable Contributions

Charitable donations are deductible up to 75% of the corporation’s net income for the year. Only donations made to qualified donees are eligible for the deduction.


Education

Education expenses incurred to bring value to the business are fully deductible if the course or workshop improves your skills to help to maintain your professional expertise.


Fines and Penalties

Fines and penalties incurred from federal, provincial, municipal or foreign law are not deductible. Interests on fines and penalties are not deductible if regarding late tax payments.


Insurance

Ordinary commercial insurance premiums incurred on any buildings, machinery, and equipment used in the business are deductible. Insurance costs related to your motor vehicle must be claimed as motor vehicle expenses. Insurance costs related to business use of workspace in your home have to be claimed as business-use-of-home expenses in your personal taxes. Generally, life insurance premiums are not deductible. A part of the premium may be deductible if the life insurance policy was used as a collateral for a business loan.


Interest and Bank Charges

Interest expenses and bank charges incurred on money borrowed for business purposes are deductible.


Marketing & Advertising

Marketing and Advertising expenses are tax deductible with certain restrictions.


Management and Administration fees

Management and administration fees, including bank charges, incurred to operate your business are deductible. Bank charges include those for processing payments.


Meals and Entertainment

The maximum deduction for food, beverages, and entertainment expenses is 50% of the lesser of the amount actually incurred and an amount that is reasonable in the circumstances.


Medical Expenses

Private health services plan premiums are tax deductible for payments that are made for you or for your employees and their dependents.


Office Expenses

Cost of office expenses for small items such as pens, pencils, paper clips, stationary, stamps and most items under $500 are fully deductible.


Parking Fees

Parking fees are deductible as long as they relate to performing the service or providing the product. Personal parking fees are not deductible.


Prepaid Expenses

Under the accrual method of accounting, expenses are only deductible in the period in which the related benefit is received.

Under the cash method of accounting, prepaid expenses can be deducted for benefits received within two years. Amounts paid in a previous year for benefits received in the current year can be deducted as long as they were not previously deducted.


Professional Fees

Legal, accounting, and other fees incurred for external professional advice or services (including consulting fees) are deductible.


Property Taxes

Property taxes incurred for property used in the business are deductible.


Rent

Rent incurred for property used in your business is deductible.


Salaries, Wages, and Benefits

Gross salaries and other benefits, such as Canada Pension Plan and Employment Insurance premiums, paid to employees are deductible.


Supplies

Cost of items the business used indirectly to provide goods or services are deductible.


Telephone & Utilities

Expenses for telephone and utilities, such as gas, oil, electricity, water and cable are deductible if the expenses were incurred to earn business income.


Travel

Travel expenses incurred to earn business and professional income are deductible.


Vehicle Lease

Vehicle leases are deductible up to a limit of $800 per month. If the lease is more than $800, the deduction for tax purposes still cannot exceed the limit.

If the company vehicle is also used for personal use, an operating cost benefit and standby charge benefit have to be included in the individual's personal tax return as additional income.



The CRA has a great in-depth guide for business expenses if you are looking for more information about operating expenses.





Capitalized Expenses (assets that can only be expensed overtime)


Capitalized expenses are these costs that are expected to provide an economic benefit to a company in the long term. A long term typically means a period of over one year.

Capitalized expenses are actually assets that can be depreciated (aka expensed) over a number of years.


For example, one of the most common capitalized expenses are computers. While the purchase is incurred on a certain day, the economic benefit of the computer may last a number of years.


The official tax term for depreciation is CCA (Capital Cost Allowance). CCA is a complicated topic that is beyond the scope of this article however the overall concept is simple to understand. CCA is a rate that determines how quickly an asset is depreciated. The higher the CCA rate, the quicker you can expense the asset.



Building

Most buildings are classified as Class 1 with a CCA rate of 4%.

It is important to note that land is not part of the building. What can be included in the building and also classified as Class 1 are the wiring, lighting fixtures, plumbing, sprinkler systems, heating equipment, AC equipment, elevators and other fixtures that are parts of the building.


Building Improvement - Betterment

Building improvements are also considered in Class 1 with a CCA rate 4%, as part of the building if they are determined to increase the useful life of the building.


Computers

Computers are general-purpose electronic data processing equipment, which is currently classified under CCA Class 50 with a CCA rate of 55%.

Furniture & Fixture

Furniture, fixtures, and equipment (abbreviated as FF&E or FFE) refers to movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building. These items are classified as Class 8 with a CCA rate 20%.


Manufacturing Machinery

These machinery and equipment that are primarily used to manufacture and process goods for sale or lease in Canada are classified as Class 43 with a CCA rate 30%.


Patents, Franchises, Concessions or Licenses

Class 14 property is prescribed to be property that is a patent, franchise, concession or license for a limited period of time. The depreciation for class 14 property is calculated in accordance with the remaining life of the property. This means there is no specific CCA rate for this category of assets.


Phones

Phones, including landline phones and cell phones are included in Class 8 with CCA rate 20%.


Small Tools (Less than $500)

Small tools, including medical or dental instruments and kitchen utensils, that cost less than $500 can be included in Class 12 with a CCA rate 100%.


Vehicles less than $30,000

Passenger vehicles costing less than $30,000 are classified as Class 10. The CCA rate is 30%.

If the company vehicle is also used for personal use, an operating cost benefit and standby charge benefit have to be included in the individual's personal tax return as additional income.


Vehicles more than $30,000

Passenger vehicles costing more than $30,000 are classified as Class 10.1 with maximum CCA rate at 30%. The maximum capital cost of each vehicle is limited to be $30,000 plus applicable sales tax even if the vehicle is more expensive.

If the company vehicle is also used for personal use, an operating cost benefit and standby charge benefit have to be included in the individual's personal tax return as additional income.


Vehicles - Zero Emission

Zero emission vehicles are classified as Class 54 with a CCA rate of 30%. The maximum capital cost that can be depreciated is higher than passenger vehicles at $55,000. A higher CCA deduction (up to a maximum of 100%) may apply before January 1, 2028 (phase out starting in 2024).

If the company vehicle is also used for personal use, an operating cost benefit and standby charge benefit have to be included in the individual's personal tax return as additional income.




The CRA has a great in-depth guide on depreciable property and CCA if you are looking for more information.



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