As a business owner, it’s important to balance the need for advertising with the constraints of your budget. Here are some guidelines that will help you with deducting advertising expenses.

Canadian vs non-Canadian

Section 19 of the Canadian Income Tax Act prohibits a taxpayer from claiming a deduction for advertising expense if the advertisement was placed in a foreign newspaper, periodical, etc. Even if the targeted audience of the publication is Canadian, and even if this expense could otherwise have been deductible, it is not allowed in this circumstance.

As an example, if that Canadian clothing store owner placed an ad on a radio station located right across the border in New York – and it was only targeting consumers in Canada – it would still not be allowed as a deductible expense under the Income Tax Act.

“Online” means without borders

Interestingly, the prohibition against claiming deductions on printed or broadcast advertisements does not apply to advertisements on the Internet. Even if a non-Canadian company owns the website in question, a Canadian business owner who pays for advertising space on the site is allowed to claim any expenses incurred as a tax deduction. For many businesses, this certainly offers a small yet significant incentive to shift the marketing focus away from local customers to the international community.

Periodicals and the 80% rule

Should you decide to advertise in printed periodicals, it is good to keep in mind that the Income Tax Act makes a distinction between publications that primarily focus on original editorial content, and publications that contain a large number of advertisements. 80% is the threshold for this distinction. In other words, if less than 80% of the periodical’s content is non-advertising in nature, then you would only be able to deduct half of your advertising expense. 

When it comes to the complexities of tax deductions for the small business owner, a knowledgeable and experienced accountant can be an invaluable resource. Contact us today to explore strategies that will empower you to make the best possible financial decisions for your business.

E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.