Cases of individuals starting businesses seem to arise frequently in a weak economic environment, such as recent years. This results in more people having unfamiliar situations at tax time.
No tax deduction is allowed for start-up costs until the year that a business finally begins operating. They become tax deductions when the business opens. All startup costs are combined in the first year for a business, regardless of when the funds were spent. Then, they receive a special treatment for tax purposes.
Start-up costs include such pre-opening expenditures as training and advertising. So, equipment and building finish-out costs are not start-up costs. Only intangible expenses for investigating a business comprise start-up costs.
Whether or not you can claim these particular business expenses will depend on whether or not they are deemed “significant” or “necessary” to the actual operation of your business.
If in doubt as to whether or not you can claim business expenses, I recommend that you ask the CRA about your particular circumstances and/or ask your tax accountant.
Most new small businesses have start-up costs and organization costs that are low enough to deduct fully in the first year. If a business never begins making revenue, any start-up money spent on investigating the idea is a personal loss that’s never deductible.
Nicole Dronca, Accountant and Tax Preparer