Chances are you use a mobile phone to conduct business. Whether you’re calling the bank, answering emails, or conducting internet research on the go, your cell phone most likely plays an important role in your entrepreneurial adventure. So, if you use your cell phone to conduct business, it’s reasonable to ask, “how much of my phone bill can I claim as a business expense?”, right?
Unfortunately, it’s not that simple. The Canada Revenue Agency has defined how much of a cell phone bill can be written off when you’re running a business (or an employee conducting business), and the rules can be a bit unclear.
Is my cell phone bill a small business expense?
The short answer to this question is yes—it can be. But that depends on a variety of factors, from the circumstances of your employment to the amount and type of phone plan that you have to what percentage of it you use for business purposes.
According to the CRA, to claim your cell phone usage related to your small business, the CRA outlines that it must be:
- On a plan that is reasonably priced
- That plan needs to be basic with fixed costs
- Your usage cannot result in charges that are more than the plan cost
- So, your monthly cell phone expenses might be deductible if you are subscribed to a fixed, reasonably-priced plan and don’t incur a lot of additional charges.
Sharing a business and personal phone
Most entrepreneurs don’t purchase a whole new phone to conduct business; they simply use their personal one. If you’re using a cell phone for business and personal use, you can only claim the portion that relates to your business use. When you claim these, you need to file them as a “business use of home expense.”
Cell phone as a capital cost?
Your cell phone might also be considered in your business’s capital cost allowance. According to the CRA, a cell phone falls under Class 8 CCA and has a depreciation rate of 20 per cent, unless it costs more than $1,000. If the phone costs more than $1,000, you can choose to group it in a separate class. Should you do this, the CCA rate won’t be affected, but there is a separate CCA deduction that can be calculated for a period of five years.
That means that when you purchase a cell phone specifically for your business, you might be able to recover at least some of the cost of the phone.
Employers, employees, and cell phones
Self-employment is one thing, but what if you have employees that require cell phones for their job? The Canadian workforce is becoming increasingly mobile, and there might be instances where your employees require or use cell phones to get their day-to-day work done. How do you deal with that expense?
While giving your employee a cell phone is not considered a taxable benefit, it can be considered a fringe benefit if you reimburse them for the costs.
Fringe benefits are additional benefits employees receive as part of their compensation that isn’t directly their salary—like paid time off or health insurance. Phone usage could fall into that category.
In the case of fringe benefits, you’ll need to reimburse employees for using their personal cell phones as it relates to your business.
If you are or have employees that earn a commission, reasonable expenses related to those earnings can be claimed as a deduction. Let’s say you sell cars and your cell phone is your means of conducting client business—that means you should be able to claim a reasonable amount of your bill as a tax deduction.
However, you cannot claim capital cost allowance if you buy a new cell phone. That includes not being able to claim the interest you paid on money you borrowed to buy it. You are also not able to deduct amounts for connecting or licensing a cell phone.
CRA terms to consider
There are three really important things to consider when evaluating your cell phone expenses related to your tax return filings:
Reasonable is a term used a lot by the CRA in the rulebook, and what it means varies. What’s reasonable for a small retail shop will vary from a freelance writer. Not only that, but the definition of reasonable for your business will need to meet the CRA’s idea of reasonableness as well.
Everything that’s deducted or given as a benefit has to be related to the cost of doing business. That means personal use, like watching the latest show on Netflix, does not meet that criteria—so, think critically.
Finally, all business expenses (not just the ones related to your cell phone) need to be supported by documentation. That means keeping all of your receipts and invoices for six years. You also need to claim expenses incurred in the fiscal year you’re filing taxes.
Getting the most out of your cell phone expenses
Being an entrepreneur can be pricey, and it’s important that you claim all of the benefits and credits you’re entitled to. That’s being fiscally responsible when it comes to running a business.
So, when it comes to your cell phone usage (or your employees) for business purposes, you want to get the most out of it.
It’s important to remember that your accountant will be the best source of information for what you can and can’t claim related to your business when you do your tax returns, including your cell phone. Make sure to consult them to find out what’s best for you.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.