Marketing Expenses - Deductions: What You Should Know

Marketing is crucial for a small business, especially one that is starting fresh, to inform potential customers about the business. Companies stay in sight of their customers through social media, websites, blogs, videos, media, emails, billboards, ads on buses, sponsoring games they watch, featuring company logos on coffee cups, or becoming a topic of engagement through events and conferences. The visibility of your brand can influence customers’ buying decisions. You can deduct the expenses incurred on marketing and advertising from your taxable income. However, the impact of marketing and advertising spending should be visible in revenue numbers to avoid undue attention from the Canada Revenue Agency (CRA). Targeted marketing can help you get a better outcome from minimal spending.

However, we are not here to discuss marketing strategies, but tax deductions on marketing and advertising expenses.

Accounting for Marketing Expenses

Before we go into the specifics of each expense, you need to understand how they are accounted. Marketing and advertising expenses are included in operating expenses and deducted from business revenue. However, the initial cost of website development can be high. The CRA allows you to capitalize this cost, which means you record that amount as an asset in the balance sheet and depreciate it over a period.

Receipts, invoices, and detailed records of the expenses incurred must support every business expense deduction. We will discuss this in detail with each expense.

Traditional Advertising Expense

Companies display ads in print media (newspapers, magazine spreads), on radio and television, outdoors (billboards, bus ads, signs on park benches), and digitally (Google, Amazon, Facebook) platforms. The amount spent on these ads can be accounted for under the category of “advertising expense.”

Tax Tip: For ads appearing in print media, you can deduct 100% of the expense if 80% of the original editorial content is non-advertising. If the original content is less than 80%, you can still deduct 50% of the expense.

For Broadcast ads, you can deduct expenses only when you advertise with a Canadian broadcaster. Ads with foreign broadcasters are not tax-deductible.

Website Development Costs

Every business today needs an online presence. Depending on your business type, the cost of developing a website can be high. Most online-only companies, such as e-commerce businesses, spend a significant amount on website development and content. You can deduct all costs incurred for website hosting and development, purchasing domain names, search engine optimization tools, e-commerce platform subscriptions, email marketing services, and other related expenses.

You can also deduct the amount paid to

Professionals for building and maintaining the website
Content creators for creating blogs, articles, videos, and podcasts
Photographers and designers are needed to create visual content such as infographics.

Promotional Material and Sponsorships

While advertising is a direct sales approach, companies also engage in promotional activities at crowd-pulling events to create a buzz. You might sponsor a local baseball game, host a workshop for potential customers, and give promotional materials such as brochures, flyers, business cards, catalogues, or sample products. You can also distribute mugs, bags, T-shirts, and bottles with your company logo. This could keep your brand in sight whenever the person uses it.

Other Marketing Expenses

You can also deduct other expenses incurred to establish a brand presence and enhance the company’s image.

Amount paid to a graphic designer to create the brand logo.
Market Research, such as surveys, focus groups, and data analysis.
Fees paid to public relations professionals for media outreach and press releases.
Amount paid to brand managers to promote your brand.
Commissions and salaries of sales representatives and marketing executives.

All the above expenses are straightforward, as they can be easily explained as being used for business promotion. However, there are some expenses where deductions can get tricky.

Conferences and Trade Shows

Small business owners and professionals may participate in conferences and conventions organized by businesses and organizations in related fields. We will go step by step as things get complicated.

Territorial scope: A tax-deductible expense is for participation in conferences held within the “territorial scope” of the sponsoring organizations. For instance, the Ontario business summit must be held within the territorial scope of Ontario. The rule has an exception. Expenses related to participating in a national conference held in the United States are tax-deductible.
Two events a year limit: The CRA allows a corporation to deduct the expenses of two conferences in a year. However, if a company has multiple divisions, the limit of two applies to each division. This limit does not include intra-company conventions.
Direct marketing expenses: An event can have direct marketing expenses such as participation fees, booth rentals, and marketing materials costs, which are tax-deductible.
Travel expenses: Such events also include indirect expenses, such as airfare and hotel stays. If you are clubbing the conference with a vacation, a clear demarcation of the conference and personal expenses is necessary. Only travel and conference-related expenses are tax-deductible.
Meal expenses: Conferences also provide meals, which are included in the total cost. When claiming deductions, the CRA requires you to separately report $50 per day of the conference in meals and entertainment expenses. However, if the conference does not provide lunch but only offers snacks, such as juice, coffee, and muffins, you do not need to report meal expenses separately.
Paid by employee: Only a company can deduct expenses incurred in attending a conference by its employee. If an employee attends the conference with his/her own money, they cannot deduct that expense. Hence, the company should reimburse employees for the amount spent on the conference and claim the deduction.

Gifts, Meals, and Entertainment to Clients

Many companies also send Christmas gifts, meal vouchers, or game tickets to clients. Sales officials even conduct meetings at a baseball game or over dinner. A company can deduct 50% of the meals and entertainment expenses incurred to promote business.

Similarly, money spent on a gift to the client should be reasonable. For instance, gift expense for a goodie basket is deductible, but gifting a car is unreasonable and not tax-deductible.

Contact Ford Keast LLP in Southwestern Ontario to Help You with Business Expense Deduction and Tax Planning

A professional accountant knows the fine line between deductible and non-deductible expenses and what qualifies as reasonable expenses. At Ford Keast LLP, our accountants can help you claim marketing expense deductions accurately while maintaining proper records. To learn more about how Ford Keast LLP can provide you with the best accounting expertise, contact us online or call us at 519-679-9330.