This document provides guidelines on deductible expenses related to automobile, home office, and travel for businesses. Key considerations include how to track these expenses and the implications of personal versus business use of company assets. It emphasizes the importance of maintaining accurate records to avoid complications during audits.

1. MODULE 5Deductible Expenses & Record Keeping

2. FREQUENTLY ASKED QUESTIONSWhat am I allowed to deduct?How should I keep track of expenses

3. FREQUENTLY ASKED QUESTIONSAutomobile ExpensesShould I buy or lease a vehicle in the company name or personally?Should I buy or lease the vehicle? What’s better for tax purposes?How should I pay my vehicle expenses?Do I have to keep a kilometer log?

4. FREQUENTLY ASKED QUESTIONSHome Office ExpensesAm I allowed to write off any home office expenses?If so, what expenses are deductible and how much?How do I keep track of the expenses?

5. FREQUENTLY ASKED QUESTIONSTravel ExpensesCan I write off any of my trips?What about meals and entertaining clients? Can I do anything with those?

6. AUTO EXPENSESDeductibility and how to deduct will depend on a number of factorsProprietorship, partnership or corporationWho owns the vehicle – company or personalLease or purchased

7. Who owns the vehicle?Lease or purchasedType of business organization

8. AUTO – PROPRIETORSHIPGas and oilRepairs and maintenance InsuranceLease costs or depreciationLicense fees Business use: You can only write off the proportion of expenses used for business purposes

9. CORPORATE AUTO Question Should I buy personally or under the corporation name?What kind of vehicle is it?What is the business-use vs. personal use?

10. CORP AUTO - OPTIONS Rules of Thumb Substantial personal element? Personal and Charge corporation Purely business use? Company name and write off all expenses

11. CORP AUTO – CAUTION! Potential Pitfall Company asset, but substantial personal use?You will be charged a taxable benefit for using a corporation asset for personal useComposed of the standby charge and operating cost benefit

12. CORPORATE OWNEDDifferent rules and be aware of adverse tax consequencesOnly beneficial for primary business use vehiclesCapitalized – company assets (put on books) and depreciateTaxable benefit– used for personal use Standby chargeOperating cost benefit

13. STANDBY CHARGEOWND BY THE CORPORATION2% x cost of automobile x # of months available to the employee in the yearLEASED BY THE CORPORATION2/3 x monthly lease costs (excluding insurance) x # of months available to the employee in the year.

14. STANDBY CHARGE REDUCTIONCan reduce the benefit if:the business use of the automobile is more than 50%the total personal use kilometers is less than 20,004 kms per year (1,667 km per month)Less: and reimbursements by the employee to the employer (i.e. or the owner-manager back to the company)

15. KILOMETRE LOGTo avoid problems on audit, an accurate kilometre log should be maintainedKnow what is business and what is personalWhat if I don’t keep a log?There will be more scrutiny by the CRA auditor and it will be challenged

16. KEEPING RECORDSMaintain a kilometre logKeep all gas receipts, repair bills, insurance policiesHave some proof of payment (credit card statement)Company policy – use one credit card for all your business expenses, including vehicleReasonability and make sense

17. BUY VS. LEASEShould I buy or lease my car – What is better for me tax-wise?Tax implications – there is not a significant difference (either write off lease payments or take CCA on the vehicle)If charging company based on prescribed rates then it won’t matter

18. HOME OFFICE EXPENSESCan only deduct (as a proprietorship) if:Predominant place where you meet clientsPrimary place where you operate your businessDetermine expenses, then multiply by % of total square feet used for businessFor proprietor, cannot use home office expenses to create or increase a loss – carryforward unused

19. HOME OFFICE - CORPORATIONStep 1: Determine the monthly amount that will cover the business proportionStep 2: As part of your expense reports, reimburse yourself for these expensesStep 3: At the end of the year, declare the rental income with the proportionate expense on your tax return

20. OTHER EXPENSESTravel Expense – be aware of the personal element and do some due diligence in writing-offMeals & Entertainment – Keep receipts, write down who you entertained, again due diligence on any personal componentClothing & Grooming – non-deductible in all cases unless specific to the job and not personal in nature

21. PERSONAL EXPENSESPROPRIETORSHIPAuditor will disallow the expenseInterest will be charged on any tax assessed on the non-deductible expenses

22. PERSONAL EXPENSESCORPORATIONSRules are more harshCorporation will not be allowed deduction with the related interest chargedShareholder benefit will be assessed under 15(2) for using corporate assets for personal use – taxable personal benefit

23. Canadian Small Business Coursewww.sbclearnbusiness.com Visit us online and take the Canadian Small Business Course for the in-depth video tutorials related to this presentation

24. Canadian Small Business Coursewww.sbclearnbusiness.com Or take individual modules such as this presentation:Module 1: Forms of business organizationModule 2: Starting a business step-by-stepModule 3: Compensation strategiesModule 4: Tax planning and strategiesModule 5: Expenses and deductions