Canwest Accounting is seeing a heightened level of scrutiny by the Canada Revenue Agency (CRA) around tax credits and filings. This reinforces owner Sharlane Bailey’s advice to clients that keeping impeccable records is extremely important. Bailey receives a lot of questions from corporations around what can and cannot be expensed. A lot of these fall into the key categories of home office/workspace, automobile usage, and other large expenses.
Whether your corporation is using your home’s basement to store inventory, the garage as a shop, or a spare room for a home office, only the space that is used for business can be expensed. So, if only 220 square feet of the basement is used for inventory storage or the home office is 110 square feet, it’s whatever percentage of the entire square footage of the home that can be claimed. If that space represents 10 percent of the entire home, then 10 percent of the rent or mortgage interest, insurance, and utilities (heat, water, electricity, gas, etc.) can be expensed. Additionally, any renovations to that specific space, such as new flooring, can be expensed, plus office supplies and furniture used for the business.
“At one time the CRA would show up to inspect the space if they were questioning it, but now they request a detailed floor plan of the home, outlining the space that is being used for business,” Sharlane said.
Whether your corporation leases or has purchased a vehicle that is also used for personal use, it is vital to keep a detailed log of what the vehicle is being used for, the purpose of each trip, and the start and end odometer readings for each trip to keep track of mileage. If the corporation owns the vehicle, then the personal use expenses will be taxed. That benefit includes a portion of the lease payment, gas, insurance, maintenance, and repair expenses.
An interesting case came to light recently regarding the use of a leisure boat to promote a marina on Vancouver Island. According to an article in the Financial Post, the CRA didn’t allow all the marketing expenses involving the use of the company’s leisure craft, stating personal use of the boat represented a taxable shareholder benefit. However, a judge ruled that the CRA was overreaching by telling the business owners how to market the marina. Keeping a detailed logbook of trips made in the boat and paying the corporation for any personal use were key in the case, resulting in a win for the business.
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.