Transcript

Host: Welcome to the segment called Business expenses that are not eligible, part of the Reporting Business Income and Expenses video.

With me is Linda Bishop. Welcome Linda.

Can you tell us how to determine that a business expense is not eligible?

Subject matter expert: The general rule is that you cannot deduct any expense that is not directly related to earning business income.

Host: Can you give us an idea of what expenses may not be eligible?

Subject matter expert: Yes, generally, you cannot deduct personal and living expenses. The exception would be if you are travelling for business. In this case you can claim any travel expenses you incur in the course of carrying on a business while away from home.

Things that are not eligible business expenses include:

• mileage to commute between work and home;
• drawings or salary paid to you;
• interest and penalties paid in relation to your income tax;
• life insurance premiums; and
• donations to charities and political parties.

There are also a number of costs that you may have had before the start of your business that are not eligible, such as, feasibility studies before start-up and any operating costs you had before the start of your business, such as utilities.

Also keep in mind that the cost of goods and services consumed personally or by family members needs to be accounted for as a personal expense, not as a business expense.

Host: Can you give us an example of what you mean by personally consumed?

Subject matter expert: Certainly. Let's say you own a furniture store and you give away a sofa to a family member. You must deduct the cost of this item from your inventory as a personal expense.

It's also important to distinguish any private expenditure you've made through the business too, since you can't claim a deduction for this. For example, things like personal clothes or personal goods are not included. And, if you buy something that's mainly for your business but you also use it personally, you won't be able to claim all of it as a business expense.

Host: But there are business deductions, right?

Subject matter expert: Oh absolutely! Just keep in mind that for a business expense to be deductible, it must be directly related to earning business income.

Host: Thank you Linda.

This concludes the segment called Business expenses that are not eligible, part of the CRA's Reporting Business Income and Expenses video.

Thank you for watching.