As a sole proprietor or self-employed consultant, tracking your expenses and recording them in bookkeeping and accounting software, such as Quickbooks is essential for the health of your business and to ensure that you reduce your taxable income and prepare yourself to produce all records in case of a CRA audit.
How to track expenses effectively for your consulting business
The Quick Method of paying HST/GST is advantageous for most small businesses (see our comparison of HST/GST calculation methods here, which means expenses should be entered into your Quickbooks or other bookkeeping/accounting software including HST/GST. If you are using the Long Method for remitting HST/GST, expenses should be listed excluding HST/GST with the amount of HST/GST noted.
The following are common categories of expenses that small businesses can claim:
- Accounting Fees Expense
- Advertising Fees Expense
- Automobile Expense
- Bank Charges
- Books & Periodicals Expense
- Business Promotion Expense
- Computer Lease Expense
- Computer Supplies Expense
- Consulting Fees Expense
- Amoritization Expense
Accounting Fees Expense
- Fees for accounting services
- Other accounting or bookkeeping fees (QBO, Xero, and other cloud bookkeeping software/tools)
- Media advertising (webpage, social media posting, broadcast media and directory listing)
- Business Cards
- Gifts you have purchased for your existing or potential clients
- Sponsorships or business donations where a tax receipt is not provided
- Repairs and parts
- License and registration fees
- General maintenance (oil changes)
- Leasing costs
- Interest on auto loans
- All bank charges from your bank statements
- Costs of printing cheques
- Brokerage fees from your investment statements
Books & Periodicals Expense
- Books & eBooks including for business courses
- Newspapers and mobile newspapers subscription
- Videos that assist you in any way with your business
Business Promotion Expense
It is important to record 100% of all meals and entertainment expenses for actual or potential clients. Canada Revenue Agency allows only 50% of meals and entertainment expenses to be deducted as they feel you are receiving some personal benefit. Therefore, all amounts included will be reduced by 50% on your corporate tax return. Do not reduce them by 50% when reporting the expenses as it may cause confusion if you have a third-party prepare your taxes.
Meals expenses incurred while traveling (overnight accommodation required) should be expensed in Travel Expense where they will be 50% deductible. It is a best practice to record meal expenses during travel under a separate sub-category.
Computer Lease Expense
- Record all expenses for leases of computer equipment.
Computer Supplies Expense
Record all computer-related expenses under $500 each (excluding taxes):
- Hardware and software items under $500
- Printer ribbons
- Printer paper
- Computer repairs
- Storage devices i.e. USB drives
*Items over $500 each are classified as assets and are covered under Fixed Assets in this guide.
Consulting Fees Expense
Payments made to subcontractors or to yourself, if you take your remuneration as consulting fees. If you take consulting fees yourself, you should use the Long Method of calculating HST/GST for your corporation and the Quick Method personally.
Amortization is a method of writing off the cost of an asset over its useful life. Items you may wish to amortize include the following if they are over $500 in value: computer hardware; software, furniture and office equipment, which cost over $500 each excluding taxes. The amount deducted each year is based on the unamortized cost from the prior year.
The more common rates of amortization are:
|ASSET||FIRST YEAR||SUBSEQUENT YEARS|
|Computer hardware (Acquired after March 18, 2007)||27.5%||55%|
Frequently asked questions about vehicle expense deductions for the self-employed in Canada
How do Canadian small businesses determine automobile usage for business purposes?
Canada Revenue Agency requires that an accurate mileage log be kept when a car is driven for business and personal purposes. You should keep a weekly or monthly log for each vehicle indicating the total kilometers driven and the kilometers driven to earn income.
Using these two figures you can calculate the percentage that your vehicle is used for business purposes,this allows you to accurately calculate the percentage that is allowable as an expense.
What is the maximum monthly Allowable lease expense for a vehicle in Canada?
In the years 2008-2021 the maximum monthly allowable lease expense was $800 plus applicable taxes. In 2022, this amount has increased to $900. If you have leased a new vehicle, the down payment will be set up as a prepaid expense and expensed over the lease period.
Likewise, in 2008-2022 the maximum allowable interest expense for a vehicle loan was $300 per month for vehicles acquired after 2005 and $250 in years prior to 2001. The maximum capital cost ceiling for an automobile was $30,000 plus taxes in 2008-2021.In 2022 it is now $34,000.
How do I claim amortization of an automobile on a Canadian personal tax return?
You may also claim amortization on your personal auto. To calculate this, you will need to have the value of the car in question at the beginning of the fiscal year. If you have purchased a new car during the year, a copy of the bill of sale will help in calculating the allowable amortization for you. As an alternative to claiming a percentage of your expenses, your corporation can pay you a car allowance as follows:
- $0.61 for the first 5000 kilometers of business mileage in 2022 ($0.59 in 2021 and 2020)
- $0.55 per km for the balance of business mileage in 2022 ($0.53 in 2021 and 2020)
Both methods need to be calculated, and the one resulting in a higher expense is the one to claim. There is a spreadsheet to do this calculation contained in the Expenses section of the Capturing Revenue and Expense Data Manual.
If the company owns the vehicle, expenses are recorded as noted above but the personal use percentage of the total expenses, including amortization, will be charged back to you personally.
Efficient expense management begins with accurate and reliable bookkeeping to capture all eligible expenses.
Our team of professional accountants for sole proprietors, consultants, and small businesses recommend using Quickbooks to capture all of your expenses. Discover our Quickbooks wholesale pricing here.
The CPA4IT team can help you set up expense categories in your chart accountants to align with these and other expense categories. We can also advise you on the eligibility of expenses to ensure you maximize deductions while remaining in full compliance with Canada Revenue Agency guidelines. Contact us today.