As the saying goes, “Out of sight, out of mind” – and that is a danger all small businesses face. For a small business to expand, it has to make its presence felt among clients and the public. Hence, every business, especially new ones, spend a good amount on advertising and marketing to grab the attention of customers and client. As a business owner, you might spend almost a small fortune on print or television ads, seminars, conferences, and social media ads, depending on your target audience. But did you know that you could claim deductions on many of these advertising and marketing expenses during your tax filing?
The CRA allows various deductions in such costs – albeit with certain conditions – which can lift a huge burden off your advertising woes and encourage you to promote your business.
Types of Advertising and Marketing Expenses Small Businesses Incur
To simplify, we will break down the usual advertising expenses small business owner incurs into four major groups:
- Advertising (including print, TV, radio, and social media advertising)
- Meals and entertainment with clients
- Promotional materials
Now let’s delve into each one at a time.
The Type of Tax Deductions Small Business Owners Can Claim
Print and Broadcast Advertising Expenses
The most common form of advertising is the ubiquitous ad in the newspaper or on the TV or radio. For such medium, the cost of advertising is only tax deductible if the newspapers, magazines, journals, television or radio networks to be used are Canadian. If it is, you can deduct the entire cost of your promotional expenses! But if you advertise through a foreign broadcaster, you cannot deduct any expense.
When it comes to printed advertisements in newspapers or magazines, “periodicals” as the Canada Revenue Agency (CRA) defines them, two main rules are applicable:
(a) It has to be a Canadian media company (You have to check the owner of the media company as media companies having the word “Canadian” or “Canada” does not make them Canadian)
(b) It must have less than 80% original editorial content (which is not sponsored or based on advertising).
After fulfilling these two criteria, you can claim 50% of your total promotional costs. But if the original editorial content is 80% or more, you can deduct the entire expense.
Website and Online Advertising
Setting up your own website or sending out promotional emails at regular intervals is also a popular way of advertising. Online advertising comprises several factors like charges for buying a domain address, designing and maintaining a website, search engine optimization services, email services, and more. The good news is all these online advertising costs are completely deductible! Since online publications do not fall under the purview of print or broadcast advertising, you can recover the costs for all the above expenses (and get a much wider exposure through the world wide web!).
Meals and Entertainment
These are an inevitable part of every small business owner’s life. Impressing clients and prospective business partners with fancy meals is part and parcel of business. Sometimes one has to go one step further and entertain them with a visit to the movies or a game of golf. Now the rule pertaining to such client entertainment is pretty straightforward. Firstly, the meeting must be associated with some business proposition, meeting or promotion. If your meeting fits the bill, you can claim a 50% deduction on meals and beverages (including any food you ordered at the golf game or movies). There are exceptions: long-haul truckers can claim an 80% deduction on the food costs during transit, self-employed foot and bicycle couriers can claim a 100% deduction, as can restaurants and hotels that regularly provide food, beverages and entertainment.
As mentioned earlier, advertising and marketing are about staying in sight and mind. What could serve this purpose better than giving out items such as mugs, pens, umbrellas, and t-shirts with your logo and company name? Such freebies are helpful and conveniently serve as a constant reminder of your brand and business. Getting your ads painted on trucks in your locality or having a person distribute flyers or samples of your product in public places can also make an impression on people’s minds. All these are counted as promotional activities and tax deductible.
Seminars, conferences and exhibitions are effective advertising modes for small businesses to tap a large audience in a single go. Setting up a stall at an exhibition or speaking at a conference is considered a promotional activity if it is related to the business. Participating in such events includes many things, such as your travel costs, hotel stays, meal expenses and any materials, such as banners or visiting cards, you might need to feel your presence. There are specific rules for claiming deductions on these costs.
A business owner can write off two industry conventions in a year that happens in his territorial scope. It means a Nova Scotia business cannot claim deductions for a convention in Quebec. However, there is an exception to a national conference happening in the United States. You can claim deductions for such conferences. This is just the tip of the iceberg. A professional tax advisor can guide you on what qualifies as a business expense and how much you can claim.
When planning your promotional spending, prepare a detailed budget. Instead of going full-blown into all forms of advertising, consider the cost and potential tax deductions. If you spend significantly on advertising and marketing, capitalize on the cost and gradually write it off over time. Your accountant can help you plan your ad budget and maximize marketing efforts tax-efficiently.
Contact Edelkoort Smethurst CPAs LLP in Burlington for Your Business Budgeting Needs
A professional accountant and business advisor can help you optimize you make the most of your marketing and advertising cost so that you can spend within budget and also avail all the benefits the CRA offers. At Edelkoort Smethurst CPAs LLP, our trained and experienced accountants can provide you with budgeting and tax planning services for all major expenses like advertising and marketing. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with business bookkeeping expertise, contact us online or by telephone at 905-517-2297.