Tax Time: Insurance Tax Write Offs for Canadian Small Businesses

by Craig Anthony

2 min read

As a small business owner, you need to protect yourself and your assets, and the right insurance policies are an essential part of that process. In most cases, if you buy insurance for your business, the Canada Revenue Agency allows you to deduct the cost as a business expense. However, there are a few exceptions and grey areas you should understand.

General Business Liability Insurance

If someone is injured at your place of business or if someone brings a lawsuit against your business for another reason, general liability insurance can help. These policies are directly related to your business and do not cover any personal issues. As a result, the entire premium is deductible as a business expense on line 8690 of Form T2125 (Statement of Business and Professional Activities).

Business Interruption Insurance

Business interruption insurance policies kick in when floods, windstorms or other disasters interrupt your business. You can opt for all-risk policies that cover a range of disasters or named policies covering only specified situations. Additionally, your business interruption policy may only cover expenses until you can open your doors again, or it may cover anticipated profits until you can get back to normal levels of productivity. You may also include the full amount of these premiums on line 8690 of Form T2125.

Commercial Insurance

Also referred to as business property insurance, commercial insurance policies cover buildings, machinery and equipment used in your business. You may write off the entire cost of the deductible on Form T2125. If you have a fleet of delivery vans or other vehicles that you use for your business, you may be able to write off the insurance for those vehicles along with your commercial insurance. However, if you use your vehicle for both work and personal reasons, you can only write off a portion of your deductible.

Vehicle Insurance

You may include the business portion of your vehicle insurance on line 9281 of Form T2125 with the rest of your vehicle expenses. Alternatively, instead of writing off a portion of your insurance and other expenses, you may simply claim a certain number of cents per kilometre driven.

Home Insurance

In most cases, your home insurance does not cover business liability issues. As a result, if you work from home, you may need to purchase a general business liability policy. However, if you have a home office, your home insurance covers damage to that space, so you may include a portion of your home insurance costs as a business expense. Use the calculation of business-use-of-home expenses chart on Form T2125 to determine which portion of your premiums are deductible.

Life Insurance

In most cases, life insurance is a personal expense and not deductible as a business expense. However, if you have taken out a loan for your business against your life insurance policy, you may include a portion of your premiums as a business expense. Tax preparation software can help you calculate your deduction.

References & Resources

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