Small Business Insurance and Taxes

Oct 07 2022 4 min read

Most new small business owners in Ontario learn very early on just how many different hats they’ll need to wear to be successful.

While a contractor may know everything about home renovations and a restaurant owner may have a firm grasp on running a commercial kitchen, something like small business tax management may not come as naturally.

Let’s answer the most common questions people have when it comes to Ontario small business insurance and taxes.

ARE SMALL BUSINESS INSURANCE CLAIM PROCEEDS CONSIDERED TAXABLE INCOME?

Let’s say you experience an accident that is covered by your small business liability insurance.

You file a claim and you’re made whole by your insurance provider. Good news!

Now a question arises when it comes to tax time, are the funds received from the insurance claim considered taxable income by the Canada Revenue Agency?

More good news: NO!

Falling under a similar umbrella as most types of lottery winnings, in Ontario and Canada insurance claim proceeds are not considered taxable income.

However, according to EPR Chartered Professional Accountants insurance proceeds are not always tax-free.

“If a company asset is lost, stolen or destroyed, the insurance proceeds received are typically based on the replacement cost which may result in taxes.” (1)

Having a trusted accountant to help you manage your small business taxes is perhaps just as important for the health of your small business as having quality insurance in place. We recommend you reach out to your accountant for a second opinion on this and any other topic covered within this article.

ARE SMALL BUSINESS INSURANCE PREMIUM PAYMENTS TAX-DEDUCTIBLE?

For the most part, YES!

Any payment you’ve made is considered tax deductible when it was spent on something that aids in the operation of your business.

Since insurance payments certainly fall into this category, you can deduct payments from your taxable income related to:

Interested in learning more about what small business expenses are considered tax deductible? Check out this simple guide from the BDC.

CAN I WRITE OFF AUTO INSURANCE PAYMENTS AS A SMALL BUSINESS EXPENSE?

It depends on how you use it.

On line 9281 (Motor Vehicle Expenses) of the T2125 Form (Statement of Business or Professional Activities) you may be able to claim:

Licensing and registration fees
Gas and oil costs
Auto Insurance
Interest on a car purchase loan
Repairs and maintenance
Leasing fees

However, this only applies to vehicles that are used entirely or partially for business purposes and not personal use only vehicles.

If your vehicle serves both personal and business uses, then only a portion of your auto insurance payments can be deducted.

According to Nicole Henderson CPA, who routinely serves the tax needs of small businesses in St. Catharines and Welland:

“Business purposes would include meeting with clients/suppliers, running errands for the company, etc. The percentage of insurance allowable as a business expense would be calculated based on the total km used for business purposes and the total km for the year.

If you operate your business out of anywhere other than your home, the mileage related to the trip from your home to the place of business is considered personal.”

For example, if you use your vehicle for business purposes 50% of the time (with the other 1/2 used for personal use) then 50% of your auto insurance payments can be deducted. (2)

CAN I WRITE OFF HOME INSURANCE PAYMENTS AS A SMALL BUSINESS EXPENSE?

Generally no, home insurance payments are not tax deductible in Canada.

However, things change quite a bit if you run a home-based business or even just use a home office to operate your business half of the time.

Nicole Henderson says:

“If your home is your principal place of business or you use the space on a regular and ongoing basis to meet your clients, customers, or patients (at least 50%) then you can deduct a percentage of the following expenses:

Utilities (hydro, gas, water, internet)
Property Insurance
Property Taxes
Rent or Mortgage Interest
Maintenance costs and minor repairs that relate to the workspace”

This works similarly to auto insurance when it comes to figuring out how much of your home insurance payments are tax deductible.

In this case, you would figure out what the % of space used at home is for business purposes and deduct that same % of your insurance payments on your tax return.

For example, if you use 15% of the square footage of your home for business purposes (i.e. a home office) then you can deduct 15% of your home insurance payments when it’s tax time.

CAN I WRITE OFF LIFE INSURANCE PAYMENTS AS SMALL BUSINESS EXPENSES?

No, at least not in most cases.

If your life insurance policy is used as collateral for a loan related to your business, you may be able to deduct a portion of what you paid. (3

Nicole Henderson CPA adds this:

“Also, if your company has a Group Term Life Insurance policy for employees, then those premiums are tax deductible as long as they can be considered a reasonable business expense. The company will need to remember that any life insurance premiums paid are a taxable benefit to the employee and will need to be included as income on their T4.”

Again, we encourage all readers to get a second opinion from their own trusted accountant when it comes to these types of tax questions but we hope this information has served you well!

Erie Mutual Insurance proudly serves the commercial insurance, farm insurance, home insurance and auto insurance needs of members throughout Southern Ontario including Haldimand, Niagara and Hamilton.

Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.

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SOURCES

1 – eprcpa.ca
2 – turbotax.intuit.ca
3 – canada.ca
4 – nicolehendersoncpa.ca

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