As a business owner, you may always be hunting for ways to minimize your expenses but maximize your profits. One of the best ways to do that is to take advantage of every tax deduction you can.
When we think of tax deductibles, we may consider rent, utilities, office supplies, and even vehicles as options. What else can we write off? Can business insurance be written off?
Understanding all the insurance jargon and lingo can be overwhelming, we get it. So let’s tackle this question together. To do that, let’s first take a quick look at what exactly business insurance is.
Understanding Business Insurance
Small business or large, everyone should have business insurance. It not only protects us in the case of disaster but secures us against the everyday risks that come with running a business.
Business insurance can cover several things too, including but not limited to:
- Professional mistakes
- Accidents and injury
- Legal fees
- Property insurance
- Commercial vehicle cover
There’ll be several types of business insurance we can take out, and each one comes with its own downsides and benefits. Total business insurance isn’t strictly necessary in Canada, but many clients, landlords, and other stakeholders won’t work with a company that doesn’t have it.
Sometimes also referred to as commercial insurance, business insurance cost is an essential part of managing the risks associated with being a small business owner. Yes, it’s not something you must have, but it certainly is something you should have. But is it possible to make business insurance tax deductible?
Can Business Insurance Be Written off as an Expense?
Generally, tax deductions cover the expenses your business incurs, which are necessary for the actual running of the business. Because insurance is often mandatory and is a necessary expense for conducting business, certain policy premiums can be deducted.
That being said, there are a couple of grey areas, particularly if the business in question runs out of a home, or employs remote workers.
Being a business owner can be complicated, but it comes with the benefit of being able to write off more than you normally could on tax. At the end of the day, it’s about being reasonable, keeping things proportional, and using common sense.
The only real limitation in terms of tax is timing. Any expenses made during a company’s fiscal year must be claimed against the profits made from that same year. Just remember to keep track of your expenses, and most importantly, your policies, and you’ll be golden.
What Policies Get a Tax Deduction?
Commercial insurance premiums are deductible if they cover exposures that impact your business’ income, such as fire insurance, property insurance, and even cyber insurance.
Owners can deduct all small business insurance premiums spent on structures, machinery, and equipment used in the business, according to the Canada Revenue Agency. Insurance costs for a vehicle differ and must be claimed as motor vehicle expenses.
Insurance costs related to a home-based business must be claimed as “business-use-of-home” expenses.
Here’s a more comprehensive look at what premiums are tax deductible:
- General business liability insurance
- Business interruption
- Cyber risk insurance
- Product liability
- Professional liability
- Commercial car insurance
- Contractor coverage
What Isn’t Tax Deductible?
Life insurance premiums only qualify if they’re being used as collateral for a company loan, in which case there is the possibility of a portion becoming deductible.
Additionally, premiums on health or disability insurance are also not typically tax deductible, though there is some flexibility in that. Self-employed taxpayers can potentially deduct overhead insurance, which covers the overhead expenses of a business in the case of long periods of recovery for injury or illness.
Basically, if the premiums are for personal reasons, rather than commercial ones, then they’re not deductible. Here’s where we’re back to the grey areas, though.
If you’re a sole trader running a home-based business or a small business owner employing remote workers, some of those home-related expenses become tied to the business. It feels complicated; we know. Let’s explore that a bit more.
Self-Employed? What Now?
If you or your employees work from home, don’t assume your homeowner’s insurance covers business damages – and don’t expect to deduct the cost as a business expense.
Home insurance is unlikely to cover all the needs for a secure business operation, so it’s important to consider a separate policy (or additional cover on what you already have). For example, if a client comes to your home for work, home insurance alone won’t cover an accident, but commercial general liability insurance might.
The key point here is that any business tax deductions must be directly related to the functioning of the company. You may not be able to write off your home cover, but if you ensure equipment in your home, you may have a winner.
With all that in mind, when in doubt, work with someone who knows the ropes. It is always in the best interest of the insurer and the business owner to work out a deal that’s best for everyone.
Maximizing Tax Benefits With the Right Insurance
Sometimes those grey areas stump the best of us. That’s why it’s more important than ever, especially in the changing climate of the professional world, to make sure you’re covered on all fronts.
Costs are rising, but your tax doesn’t have to be one of them. So, to answer the question of can business insurance be written off? Absolutely! Join the ranks of other secure small businesses, and let’s have a chat about what we can do to secure your business (and hopefully save you a bit of money).
Call us at 647-966-7093 or tell us more about your business. We want to hear your story.
James Inwood is a member of Canadian Insurance Brokers Inc. CIBI operates across Canada with more than 40 licensed brokers and is completely independent so our advice is always objective. Representing 14 insurance carriers on the personal side and over 20 insurance providers on the commercial side helps give my clients clear choice and competitive pricing.