Can I deduct start-up costs before my business opens in Ontario?
Start-up costs incurred before a business is operational are generally not deductible in the same straightforward way as ongoing business expenses. The CRA requires that an expense be incurred to earn income — which typically means the business must have commenced operations to some extent.
However, certain expenses incurred in preparation for a business — such as market research, legal fees for incorporation or advice, accounting fees, and initial advertising — may still be deductible or carried forward, depending on the nature and timing. The key question the CRA looks at is whether the business had actually "commenced" at the time the expense was incurred.
Capital costs incurred before opening (like equipment purchased) can generally enter your Capital Cost Allowance (CCA) schedule once the business starts, and CCA deductions begin from the year of acquisition. Keeping receipts and a clear record of when expenses were incurred relative to business launch is important. A tax professional can help you structure early expenses and ensure they are captured appropriately.
Key takeaways
- Pre-business expenses are not always deductible in the same way as ongoing expenses.
- The CRA looks at whether the business had commenced when the expense was incurred.
- Capital items purchased before opening can typically enter the CCA schedule once operations begin.
- Good records of timing and purpose of early expenses are critical.