Samantha Kohn, Freelance Blogger
Business insurance offers protection from financial losses caused by unexpected events. These events could include damage to property, an inability to operate, or claims made against the business for an injury, mistake, or omission. While this protection could potentially save your company someday, it is still a significant expense.
Many business operators wonder if they can claim their business insurance as a tax deduction. It can be difficult to determine which expenses are tax-deductible and which are not, so to help, we’ve put together this handy guide containing everything Canadians need to know about business insurance-related tax deductions.
Key takeaways of business insurance tax deductions
- A business tax deduction means you're claiming a business-related expense that reduces your taxable income. Doing this lowers the amount of tax the business is required to pay.
- In many cases, business insurance premiums are tax-deductible, but there are a few restrictions to be aware of – so be sure to consult a tax professional when preparing your return.
- In some instances, you may also be able to deduct other types of insurance on your business tax return, including your motor vehicle insurance and your home insurance.
What is a tax deduction for businesses?
When people talk about a tax deduction for business, they are referring to claiming a business expense that reduces their taxable income. Doing this reduces the amount of tax the business is required to pay to the Canada Revenue Agency (CRA).
According to Canada’s Income Tax Act, a business expense is tax deductible if it is incurred for the express interest of generating income for the business.
While the size and proportion of these deductions can vary, the Canada Revenue Agency provides a thorough list of tax-deductible business expenses.
There is a wide range of items and services that are tax deductible for businesses. These include marketing expenses, property repairs and maintenance, asset depreciation, legal and accounting fees, and insurance.
Is business insurance tax deductible in Canada?
In short, yes.
According to the CRA, the insurance premiums paid by a business to cover any property, equipment, or machinery used to operate the business are tax deductible – meaning they can be deducted from the business’ taxable income.
What types of business insurance are tax deductible?
Every business is different, so the types of commercial insurance premiums you'll be able to deduct will also differ. Below are a few examples of business insurance policies that could potentially be written off, but be sure to consult a tax professional when preparing your return.
Commerical property insurance – This protects a business from expenses incurred by theft, loss of inventory, or physical damage to the business premises.
Error and omissions insurance – This protects a business from expenses that may be incurred because of a mistake made by the business or its employees.
Key person life insurance – This will be discussed in more detail below, but in general, it is an insurance policy often required by a lender to protect their financial interests in the event of a key person’s death.
General liability insurance – This protects a business from claims made against it by members of the public for various events, such as an injury on business premises.
Business interruption insurance – This protects your stream of income, in the event you need to temporarily shut down (from a flood or fire, for instance).
Is business life insurance tax deductible?
Life insurance premiums can be tax deductible for a business in two main scenarios.
If a business provides employees with life insurance as part of its total benefits package and includes this insurance as a taxable benefit, the premiums paid by the business are tax deductible.
It’s also very common for a lender to require a business to provide life insurance policies on key business associates like the CEO, CFO or company founder. These policies are used as collateral for a loan, ensuring that the lender is compensated for potential losses that could be incurred if a key business contact dies. In this case, a limited part of the premiums paid may be deducted.
Are you paying the lowest rate for your business insurance?
Are other types of insurance tax deductible for businesses?
In short, yes. There are other types of insurance that are tax deductible for businesses – these include:
Motor vehicle insurance – Motor vehicle insurance covers expenses related to theft, vandalism, or motor vehicle collisions. These expenses could include damage to your vehicle, damage to the property of any third parties, your medical expenses, and third-party claims made against you if others are injured in a motor vehicle crash.
If the motor vehicle is being used to generate income for the business, expenses incurred to operate and maintain that vehicle are tax deductible, including the insurance premiums. This deduction should be claimed along with the other expenses related to your motor vehicle.
Travel insurance – While all travel insurance policies differ, most provide protection from financial losses incurred by trip cancellation, trip interruption, lost or stolen baggage, and medical care to treat any injury or illnesses that occur during the trip.
If you are travelling for the purpose of generating income for your business, the premiums for your travel insurance could potentially be tax deductible, but again, be sure to check with a tax professional.
Home insurance – Home insurance offers protection from expenses incurred as a result of damage or loss of your home and its contents due to unexpected events including theft, vandalism, fire, and flooding.
If a business is operated outside of the home, business owners cannot deduct their home insurance premiums from their taxable income.
However, operators of home-based businesses can deduct a portion of their home insurance premiums from the taxable income. The portion of the premiums that are tax deductible will depend on the percentage of the home that is being used for business purposes. This is something to discuss with your accountant when it comes time to file your taxes.
The bottom line
Taxes are a major consideration for anyone who owns or operates a business. The amount of taxes paid by a business makes a significant difference in the net profit left at the end of the year.
While every type of insurance is different, the bottom line is that, in many cases, business insurance is tax deductible in Canada.
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