Why read this?

  • › Your client operates a business
  • › Your client is a contractor or freelancer
  • › Your client is self-employed

Rules

  • Your client can deduct GST or HST incurred on business expenses, less the amount of any GST or HST tax already claimed under the input tax credit. The input tax credit allows businesses to recover the sales tax they paid for any goods or services for the business.
  • Any unused rebates need to be entered on line 8230 (Other Income) of form T2125.
  • If your client has both business and professional income, you must complete a separate T2125 for each.

What to do?

    “As a rule, you can deduct any reasonable current expense you paid or will have to pay to earn business income,” says CRA.

How to deduct mileage

1.

Your client must keep an annual log recording all business driving, including dates, destinations, the reason for each trip and the kilometres traveled.

2.

After she’s reported an entire year, she can then use a sample of three months each year to establish vehicle usage, as long as that usage is within 10% of the original usage logged in the first year.

  1. If it varies by more than 10%, she must re-establish usage with a new logbook.
  2. The logbook must be kept for six years after the last time it was used.
  3. If your client uses more than one vehicle for business, keep a log for each.
    1. Under CRA’s simplified system, multiply the number of meals (to maximum of three a day) by $17, which is the CRA’s meal rate, and divide by two.
    2. Under the detailed system, the client must log each expense, whether it was breakfast, lunch or dinner, and keep all receipts.
        Claim these items using
        CRA form T2125

        › Advertising (Line 8521)

        › Allowance on eligible capital property (Line 9935)

        › Bad debts (Line 8590)

        › Business start-up costs

        › Business taxes, fees, licences, dues, memberships and subscriptions
        (Line 8760)

        › Business-use-of-home expenses
        (Line 9945)

        › Capital cost allowance (Line 9936)

        › Current or capital expenses

        › Delivery, freight and express
        (Line 9275)

        › Fuel costs (Line 9224)

        › Insurance (Line 8690)

        › Interest (Line 8710)

        › Legal, accounting and other professional fees (Line 8860)

        › Maintenance and repairs (Line 8960)

        › Management and administration fees (Line 8871)

        › Meals and entertainment (Line 8523)

        › Motor vehicle expenses

        › Office expenses (Line 8810)

        › Other expenses (Line 9270)

        › Prepaid expenses

        › Property taxes (Line 9180)

        › Rent (Line 8910)

        › Salaries, wages and benefits
        (Line 9060)

        › Supplies (Line 8811)

        › Telephone and utilities (Line 9220)

        › Travel (Line 9200)

    3. 3.

      Report that amount on Form TL2, Claim for Meals and Lodging Expenses.

      It’s a “routine part of CRA’s audit procedures to make sure that meals and entertainment expenses are tracked, identified and the limitation is applied,”
      says McCullough.

      Sources: Maureen McCullough, KPMG senior manager taxation, C.A. and Canada Revenue Agency

See all commentsRecent Comments

A_CANADIAN_EH

Curious…does anyone ever read these comments?

Monday, February 3 @ 2:45 pm //////

A_CANADIAN_EH

Re RULES
I am quite confused by the first point…in what case would a self-employed business person have GST/HST which could be deducted as an expense because it had not been claimed as an input tax credit?

Monday, January 27 @ 6:14 pm //////

A_CANADIAN_EH

Re HOW TO DEDUCT MEALS ON A BUSINESS TRIP…
Unless I am totally out to lunch (pun intended!), both Form TL2 and the simplified/detailed system details outlined (including specific dollar amounts) are for *transportation* *employees*.

I am not aware that they have anything at all to do with any other line of business or with self-employed taxpayers.

If I am wrong on this point can Ms. Bruno or Ms. McCullough please direct me to the appropriate source for this information.

Monday, January 27 @ 5:22 pm //////

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