We get asked this all the time, so here are the deductions you should double-check with your receipts and bookkeeping. If you're unsure where to start with your bookkeeping, check out our free Bookkeeping template!

But first...

What Are Tax Deductions?

Tax deductions are business expenses or personal expenses used in your business that are used to decrease your business income. This means that the cost to operate your business reduces your income to get to a net income number. This amount is your taxable business income for the year.

You must claim all your income and are eligible to claim business expenses using the Canada Revenue Agency T2125 form here.

What Are The Types Of Deductions?

When you operate a business, you are able to claim business expenses as a deduction against business income.

All individuals are also eligible to claim tax credits to reduce their income tax payable. This includes RRSP contributions, child care expenses, medical expenses, moving expenses and more! You can learn more about personal income tax deductions here.

Common Tax Deductions

Cost of Goods Sold

If you are reselling any items that you purchase, you can expense the cost of those goods as you sell. This means that if you make a big order in December, you cannot expense the costs until you sell the items.

If you have inventory, you need to track your purchases throughout the year and the value you have in inventory at the end of the year.

Your write-off will be = beginning balance value + purchases - ending balance value

Meals & Entertainment

This category is for any meals & entertainment that you are purchasing for yourself and a client. The tip is also included, so make sure to keep both the itemized receipt and the debit/credit receipt.

Keep in mind that only 50% of meals & entertainment are deductible, but track the full amount since all tax software will automatically take 50%.

If you input the 50% value, you will lose out on some of your deduction!

Interest and bank charges

Your monthly business bank account fee, transaction fees, and interest charged on debt used for your business can be deducted

Special note, if you accept credit card payments, the transaction fee is a bank charge, NOT a decrease in income. If you sell a service for $100 and have a 3% fee, you will have $97 deposited to your account, and the correct bookkeeping is a $100 sale and $3 bank fee.

If you are using Jane, you’ll want to pull the Jane Payments Transaction report

Great news for clinics - if you incur fees to get a loan to buy or improve your business property, the fees are deducted over a period of 5 years. This includes appraisal, processing, insurance, loan brokerage and finder’s fees.

Management and administration fees

Some clinics have a % split where they are charging a management fee. In this case, you include 100% of sales in your income and then deduct the management fee in this section.

This also includes if you are paying an admin fee to a clinic you are renting a room from.

Travel expenses (excluding vehicle)

You can expense up to 2 trips per year relating to attending conferences or continuing education. To claim these expenses, your training must be within a reasonable geographic distance from your home. If training is offered in Toronto (where you live), you can’t expense a trip to Vancouver for the same training.

You can however include the weekend before if it starts on a Monday or after if it ends on a Friday!

This includes public transportation fares, hotel accommodations, air fare, meals, etc.

Remember that the 50% limit also applies to the cost of meals & entertainment when travelling.

Cell Phone and Home Internet

You can expense a reasonable amount, as a percentage, related to your phone and internet. Think critically about how much you use your phone and internet for work and deduct that amount!

This is not the same as your home office deduction, so make sure to take the fill % claim you are eligible for!

Also make sure to take the reasonable amount of your bill that relates to your phone if you have a family plan.

Subcontractors

This one might sound obvious, but any self-employed individuals who work as a contractor in your business are deductible. This can include practitioners are your clinic, locum coverage, virtual assistant or any other work done for you!

Home Office Expenses

Home office expenses are often missed by practitioners who work in-clinic, but this deduction is available as a tax write off if you

Work from home more than 50% of the time; or
Have a dedicated work space in your home

This includes: Heat, Electricity, Insurance, Maintenance, Mortgage, Interest, Property Taxes, Condo Fees, Rent, and other home expenses. Your deduction it taken as a percentage that your work space takes up of your entire home quarefootage.

There are added complications if your office space is not dedicated. If you use your dining room or living room you must reduce the above expenses by the number of hours per day you work (ex. 8/24)

TAX DEDUCTIONS FAQ

Q: What happens if I miss these deductions?

Unfortunately, if you miss tracking your expenses then you lose out on your deduction and have to pay more in income tax. This is why bookkeeping is such an important part of your health business!

Q: Can I go back and claim deductions that I missed in previous years?

Yes, you can logon to CRA My Account to adjust your tax return that has already been filed. Once you login, click on the tax return you want to edit and select “change my return”.

Additional Tax Resources:

If this list feels overwhelming, we get it! Business Foundations: Bookkeeping Online Course is specifically designed for health professionals who want to make the most of their bookkeeping and tax situation. Click here to register now!

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