You might have the same person in your business handling both advertising and promotion, and this might lead to the impression that they’re the same thing. Advertising and promotion are different, though, even if the end result for both is creating brand awareness, and getting leads and sales. The good news is that you can deduct some of your advertising and promotion expenses on your taxes.

What Is Advertising?

Advertising takes place over the long term. Carefully crafted advertising messages create enduring images of brands that can generate sales for years to come. A lot of research goes into pinpointing target markets for advertising messages to be successful.

Businesses tend to think of advertising as an investment and set budgets for advertising activities on a quarterly, semi-annual, or annual basis. For example, you might put aside a budget for search engine advertising or for placing ads on billboards in your community. Companies like Molson Coors, Tim Hortons, and Canada Goose remain on the minds of millions of Canadians because of their significant investments in advertising.

What Is Promotion?

Promotions work great for new small businesses on a budget because they can increase cash flow during those lean first months of operation. You can put a lot of thought into promotions, but you don’t have to. Suppose your business focuses on health and beauty products, and a supplier sends you 50 sample sizes of a new lotion you’re selling. You can set up a table at the front of your store where you invite customers to try the product and give away the samples. Some customers and random walk-in shoppers might love the scent or the product’s ingredients and buy it on the spot. When you do promotions, the goal is to get immediate sales.

You typically don’t put any effort into identifying a target market or measuring long-term success. Promotions usually don’t cost a lot of money like advertising does, and you might even do promotions daily, depending on the type of business you run. The goal is to get immediate sales as well as word-of-mouth mentions that may result in sales down the road. Promoting a product can build brand awareness over time, but since the goal is immediate sales, your brand might not be tattooed in consumers’ brains right away.

Tax Treatment

The Canada Revenue Agency lets you deduct advertising and promotion expenses, though it imposes some limitations. For example, you can only deduct advertisements handled by Canadian media, such as newspapers, TV, and radio. At least 80% of any Canadian media organization’s content must be original for you to deduct the full amount you spend. You can only deduct a portion of what you spend if the content is less than 80% original. You also can’t deduct the cost of advertising in foreign media, even if it’s to a Canadian audience.

When it comes to promotions, you usually can deduct your expenses, including the cost of printing brochures, fliers, and the cost of giveaway products. Consider using a promotion strategy to improve your cash flow, but plan an advertising strategy to ensure enduring brand awareness.