What Startup Costs Can a Small Business Write Off?

The CRA has a number of tax incentives in place to encourage Canadians to launch small business ventures. Keep reading to find out what small business startup costs you can deduct as a small business owner in Canada.

What are small business startup costs?

Small business startup costs are money you must spend to kick off your business. This can include inventory, machinery or office equipment. In order for a startup cost to be eligible for a tax deduction, the cost must arise during the tax year (or fiscal period) your business started.  For instance, if you began a freelance writing career in 2018, you cannot deduct the computer you purchased in 2016 as a business expense. In fact, to be an eligible deduction, your business startup costs must be incurred after your business start date.

How to figure out your business start date?

Figuring out your business start date can be tricky. This is because some people spend a decent amount of time thinking about their business options before they begin. Others may start businesses rather spontaneously, based on skills they have and services people in their community might need.  For this reason, a business may be considered to have started as soon as the owner takes concrete steps to start their venture. This can include activities such as purchasing inventory or conducting market research.  In other words, the business start date isn't necessarily associated with the date a business owner makes their first sale. Rather, it is associated with the business owner's intent to start a business.  Other activities that may show a business owner's intent to start a business include the following:

 
• When construction of the place of business began
 
• The time when arrangements were first made for the acquisition or transportation of materials and/or supplies
 
• When inventory was first purchased
 
• Date the business was first advertised
 
• When employee training began
 
• When initial contracts were negotiated

What about expenses incurred before the business start date?

Amounts you spend before your business start date cannot be deducted against that year's business income. For example, if you start a t-shirt company with t-shirts you already had when you first thought of your business, the money you paid for old inventory cannot be considered a business expense.  That being said, amounts you spend for the purposes of earning income after the business start date can be deducted for that fiscal period.  The fiscal period for existing businesses is generally 12 months, starting January 1st and ending December 31st. A fiscal period can never last longer than 12 months, but it can be shorter if it is for the first or last year of business operations.

What expenses can you claim as startup costs?

You can claim any reasonable business expense incurred during the fiscal period to generate business income. This includes the GST/HST amounts you paid on these expenses, minus any input tax credits you have claimed.  You can only deduct legitimate business expenses. Personal expenses do not apply.  Other examples of business expenses include but are not limited to:

 
• Advertising
 
• Bad debts
 
• Business tax, fees, licences and dues
 
• Business-use-of-home expenses
 
• Delivery, freight, and express costs
 
• Insurance
 
• Interest charges
 
• Maintenance and repairs
 
• Management and administration fees
 
• Allowable meals and entertainment
 
• Motor vehicle expenses
 
• Legal, accounting, and professional fees
 
• Prepaid expenses
 
• Office expenses
 
• Property taxes
 
• Rent
 
• Salaries, wages, and benefits
 
• Supplies
 
• Telephone and utility bills
 
• Travel costs.

For a complete list of business expenses, you can claim, consult the CRA.