Did you know that you can claim any promotion expenses as legitimate tax deductions? Canadian business owners can save a lot of money on taxes by understanding the rules that pertain to each activity they spend their money on. For instance, as a partnership or sole proprietorship, you can claim any expenses on business promotion activities on the T2125 form when filing your personal income tax return. Corporations in Canada can also claim these expenses on their TX tax return form.
We will look at some of the common costs your business can incur in the process of promoting it to clients and other potential stakeholders. For instance:
- 1. Whenever you take a client for a lunch or dinner date, this cost can be considered as a promotion activity
- 2. The cost of items that are given to clients for free such as designer caps and t-shirts
- 3. The cost of preparing and giving a seminar or presentation
- 4. The cost of flyers, brochures, and business cards
- 5. When your business chooses to sponsor a charitable or non-profit function and receives advertising at the event. The costs involved can also be considered as a promotional expense.
- 6. The cost of taking a client to a sporting event
- 7. The cost of hiring someone to dress up in a bear at a local parade and promote your business in the process.
Will Advertising Qualify as a Tax Deduction?
This will depend on several factors but you have to ensure that the advertising is done properly. Only advertising that is done on Canadian TV, Radio, online or on Canadian newspapers will be considered as a tax deduction. Therefore, before you rush to advertise in a magazine that just approached your business, be sure to always check that it’s a Canadian who actually owns the magazine. This also applies to websites because many of them promote themselves as Canadian and they aren’t.
Is the Activity Entertainment or a Promotion?
How much you can claim will depend on if the activity is considered a promotional activity or entertainment. For entertainment, you can only claim 50% of the cost. For instance, if you take a client for lunch or dinner chances are that this will be considered entertainment so you will only claim 50% of the total cost. If you attend a conference, you cannot claim more than 50% of the food and drinks you took.
Note that, expenses that are incurred by the business at the golf course may not be considered for deduction. This is because golf is considered a leisure activity that is done for pleasure so it can’t be included as a legitimate business expense. Therefore, any membership charges or fees paid at the golf course are not subject to deduction. However, any food or beverage consumed at the facility can be claimed using the 50% rule. Speak to your tax accountant regarding the business promotion activities that are legitimate to help you lower your tax bill.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.