Business Tax Deductions You Can Claim When Starting a Business

Marin Perez
Moving into a new office

Starting a business can be tough and expensive. That's why the CRA has business tax deductions for starting up a business. Here's what you need to know.

What business tax deductions can you claim for starting a business?

When did the business launch its regular operations? You can only claim expenses after the date your business launched. You can't claim startup costs if you don't start the business within a reasonable amount of time. For example, you can't claim the costs of market research if you never create that business you were researching.  You can only deduct expenses that are "essential preliminaries." This applies to businesses meant to be ongoing and those set up for short-term activity.

When is a business considered launched?

Here are some instances the CRA describes of businesses starting regular operations:

  • If you're in merchandising, you're ready to sell items to customers (not just samples)
  • If it's a hotel, it's starting when certain activities are underway. This includes construction, gathering supplies or training staff.

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Can you write-off business expenses before the business starts?

You can't write-off business expenses before the business actually begins. You can't use these as a business loss or carry these over for subsequent fiscal periods.  On the other hand, once the business is registered for a GST/HST account, a few options open up. A business start-up can write off certain expenses, provided it can be proven that the GST/HST registrant was a small supplier directly before starting the business.  If you weren't a small supplier immediately before starting your business, you can't write off expenses incurred before the business started.

What about the GST/HST input tax credit (ITC)

Once it is registered for a GST/HST account, a business can claim the GST/HST input tax credit (ITC). Already-owned property is eligible if the registrant was a small supplier beforehand. If taxes were paid on a rented property or service before registration, ITC claims would be based on how they are supplied after registration.  The Excise Tax Act (Subsections 171[1] and 171[2]) states that when a small supplier becomes a registrant, the person is deemed:

  • To have received a supply by way of sale of previously held property that served commercial purposes;
  • To have paid taxes equal to the property's basic tax content at the time of registration.

With regard to services and rental property, ITC claims for the first reporting period:

  • Can include taxes that became payable before registration for services, or calculated on rent, royalty or similar payment, for supplies or property used, supplied or consumed in the course of commercial activities; and
  • should not include taxes that became payable after registration for services supplied to the business before registration, or calculated on rent, royalty or similar payment that was due before registration