If you think that running your own business means you can write off all your expenses well sorry to disillusion you but that is a common myth about Canadian Income Tax. In reality you can only write off business expenses if you meet all the requirements as defined by the CRA. If you do not comply with all the requirements, then you could find yourself with a hefty bill. Here are some other tax myths you might want to consider:
Your volume of sales does not determine if you have a business or not – NOT TRUE
You may think that making and selling a few things or do some things as a hobby does not mean that you have a business. The CRA does not see it this way, they define a business as “any activity that you do for profit” so you need to file your taxes to include any additional income you make from your hobby.
If you run a business from your home, you can write off all your home expenses – NOT TRUE
You can write off some expenses specific to your home-based business, but there is a limit. If you claim excessive expenses, it might cause the CRA to take a closer look and disallow some of them. You can basically claim for home-business expenses under the same rules as for any other business.
You can write off all your entertainment expenses – NOT TRUE
There are very strict rules for business tax deductions for entertainment. You can usually only claim up to 50% of the cost of meals or entertainment, and club membership fees are not deductible when the main purpose is for dining, recreation or sporting activities such as golfing.
You can write off all the equipment that you buy – NOT TRUEThe CRA sees the equipment that you buy as being depreciable. When you purchase these items, you cannot deduct the total cost of the item, you will deduct the cost of the item over the several years of its life through a Capital Cost Allowance claim. How much you can claim each year depends how the item is classed for more information see Capital Cost Allowance for Depreciation (CCA).
Rather than believing the myths, make sure you are up to date on all the income tax rules pertaining to your home-based or small business. Your accounting professional will be able to help you with this or you can consult the Revenue Canada Website at: