Generally any expenses incurred in order to generate business income can be deducted for tax purposes unless it is specifically prohibited in the income tax act. However there are some exceptions. For example major expenditures on and repair of property for the purpose of prolonging its useful life or increasing its value above its initial state are not deductible and should be added to the cost of the property in which case they will be deductible as CCA. In general, purchases whose useful life is over a year and cost more than $ 500 are considered assets and should be amortized according to their CCA class and rate.
So what happens if a business’ expenses exceed its revenues?
Business losses can be deducted against any other type of income and may be carried back 3 years or forward 10 years (if the loss was incurred after Dec 31, 2005). It is recommended that you use all of your non-refundable credits first before claiming your business losses in any given tax year. Also you can carry back only a portion of your current losses. By doing so you can carry back a business loss against multiple years of income that was taxed at a higher marginal rate since higher rates apply to higher incomes.