Business Expenses

Business expenses are the costs you pay to run your business. Some examples are Central Provident Fund contributions, salaries, renovations, advertising, etc.

Business expenses may or may not be deductible. When deducted, they reduce your taxable income and the amount of tax you have to pay.

Deductible Operating Expenses

1. Generally speaking, deductible operating expenses are those that are “wholly and exclusively used to produce income”. In other words, they must meet all these conditions:
2. The expenses are used only to produce income.
3. Costs are not contingent liabilities, i.e. they are not dependent on future events that may or may not occur. In other words, costs must be incurred. An expense is “incurred” when the legal obligation to pay it arises, regardless of the date on which the payment is actually made.
4. An expense is essentially income, not capital.

The Income Tax Act does not prohibit the deduction of expenses.

Non-deductible Business Expenses

Non-deductible business expenses are activities that you or your employees pay for that do not qualify as above. This includes personal expenses, such as travel or entertainment unrelated to the operation of the business, and capital expenditures, such as expenses to form a company and to purchase fixed assets.