In Canada, operating expenses (also known as selling, general, and administrative expenses, or SG&A) are the day-to-day costs a business incurs to keep its operations running. These are typically current, reasonable expenses that are fully deductible in the year they occur to earn business income.
Common categories of operating expenses in Canada include:
- Salaries, Wages, and Benefits: Payments to employees, including Canada Pension Plan (CPP) and Employment Insurance (EI) premiums, health insurance, and retirement contributions, for non-production staff (production staff wages are generally part of the Cost of Goods Sold).
- Rent and Utilities: The cost of leasing office space, facilities, and equipment, as well as essential services like heat, electricity, water, internet, and telephone.
- Professional Fees: Payments for services from professionals such as accountants, lawyers, bookkeepers, and consultants.
- Office Supplies and Expenses: Consumable items like printer paper, pens, postage, and cleaning materials.
- Maintenance and Repairs: Costs incurred to keep existing equipment and property in good working order, provided they do not significantly extend the asset's useful life or add new value (which would be a capital expense).
- Advertising and Marketing: Expenses for promoting the business, including online ads, website maintenance, and print materials.
- Insurance: Premiums for various types of business insurance, such as property and liability insurance.
- Travel and Meals: Costs incurred for business-related travel, including public transportation, hotel accommodation, and a deductible portion (usually 50%) of meals and entertainment expenses.
- Motor Vehicle Expenses: Operating costs for vehicles used in the business, such as fuel, insurance, maintenance, and registration fees.
- Business Taxes, Dues, and Fees: Annual license fees, property taxes, bank charges, and membership dues for trade or commercial associations.
- Bad Debts: Amounts owed to the business that are uncollectible and have already been reported as income.
Key Distinction: Operating vs. Capital Expenses
It is crucial to differentiate operating expenses from capital expenditures (CapEx).
- Operating Expenses are short-term, recurring costs consumed within the current accounting period (e.g., buying printer paper).
- Capital Expenses are large, one-time investments in long-term assets that provide value for more than one year (e.g., buying the printer itself, a vehicle, or furniture). Capital expenses are generally written off over time through Capital Cost Allowance (CCA), or depreciation, rather than deducted fully in a single year.
For specific guidance and to ensure compliance with tax requirements, businesses can refer to information provided by the Canada Revenue Agency (CRA) or consult with an accountant.