Deduct Your Business Promotion Expenses

Business Promotion Expenses Are Legitimate Tax Deductions

Business Promotion
Image (c) Dave Mcleod

Question: Is business promotion a legitimate business tax deduction?

Answer:

Yes, in Canada business promotion activities are legitimate income tax deductions. If you are a sole proprietor or a partner in a Canadian business, you will claim these expenses on the T2125 form (Statement of Business or Professional Activities) that you file with your T1 income tax return. (Never done it before or want a review?

See How to Complete the T1 Canadian Income Tax Form as a Business.)

If you are running a corporation in Canada, the corporation will claim these business expenses on its T2 corporate income tax form. See How to File Corporate Income Taxes in Canada.

What Kind of Business Promotion Activities Qualify?

Pretty well any kind you can think of. For example, the costs for:

  • Taking a client out for lunch or dinner
  • Freebie items for clients such as designer mugs, ball caps, t-shirts
  • Giving a seminar or presentation
  • Creating flyersbrochures, and business cards
  • Sponsoring a non-profit or charitable event such as a tennis tournament (as long as your business receives advertising/promotion at the event)
  • Getting a special paint job on your truck that promotes your business
  • Tickets for the hockey or baseball game you took your client to
  • Having someone dress up as a bear and be a part of a local parade (as long as the costumed bear was actively promoting your business at the time)
  • Bringing a box of doughnuts to the office 

But There Are Two Catches...

When you're calculating your promotion tax deductions, though, there are two caveats to bear in mind.

1) Advertise Carefully

First, when it comes to advertising as a promotion activity, not all advertising will qualify as a business tax deduction.

Only the cost of advertising in Canadian newspapers and on Canadian television, radio stations and websites can be deducted.

This can be complicated nowadays when advertising venues that appear to be Canadian actually aren't. If you want to claim the cost of advertising as a business expense, it's best to get into the habit of checking on who actually owns that magazine or website first. Just having the word "Canadian" or "Canada" in the title doesn't mean it is!

More information on advertising as a tax deduction.

2) You Can't Always Claim 100% - Promotion versus Entertainment

Second, not all business promotion activities are created equal when it comes to tax deductions. Generally, if the activity is considered entertainment rather than promotion you can only claim half of the expense. For example,

  • Most meals - you can only claim 50% of the cost of entertaining prospective clients at business lunches or dinners
  • The 50% rule also applies when treating clients to a game or show 
  • Attending a conference - you can only claim half of your food and beverage expenses

There are five cases where you can claim 100% of a meal or entertainment expense though. And special meals and entertainment rules apply to some types of businesses;

  • Long-haul truckers can claim 80% of the food and beverages they consume during eligible travel periods;
  • Self-employed foot and bicycle couriers and rickshaw drivers can claim 100% of the extra food and beverages they need to consume in a normal eight hour work day; and
  • Businesses that regularly provide food, beverages or entertainment for compensation, such as restaurants or hotels, are exempt from the 50 percent rule and can claim 100% deductions for such expenses.

Deducting Expenses at the Golf Course

In season, many businesses discuss deals with customers over a round of golf. Unfortunately the Canada Revenue Agency (CRA) is very strict about not allowing the deduction of expenses incurred for the use of a golf course - golf is considered to be pleasure rather than legitimate business entertainment.

This means that golf membership charges or green fees cannot be deducted at all. The only available deduction is for food and beverages consumed at a golf facility, in which case the 50% rule applies.

(For more on entertainment expenses as business tax deductions, see The Rules for Meals and Entertainment Expenses on Canada Income Tax.)

See also:

8 Tax Strategies To Maximize Your Business Income Tax Deductions

5 Common Business Tax Myths

19 Advertising Ideas for Small Businesses

 

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