Start a business, Do your taxes, Save money

Can I write off my volunteer time?

I had someone email me recently with a good question. Thought I’d share my answer.

“I am an interior designer and have my own business as a sole proprietor in BC. I am volunteering my time and some materials on a renovation project for a woman with disabilities. I am just wondering if there is any write off, and how to go about doing it?”

When you volunteer your time there is no write-off for that, because there is no actual “out-of-pocket expense”. What do I mean by “out-of-pocket expense”? I mean you didn’t actually pay out money for anything. If cash didn’t leave your hand (or bank account) there is no actual expense. When it comes to CRA’s view on allowable business expenses, your “time” is worthless.

However, the cost of any materials used, on the other hand, is eligible because they cost you money to purchase. They pass the “Out-of-Pocket Test.” (I don’t really know if there is any such test, but there should be!)

There are 2 possible ways to write off the materials. Basically, depending on how much they are worth. If it is a relatively small purchase (say anything under a couple hundred dollars), just put it under “Supplies Expense” on your T2125 and be done with it. If you have COGS (Cost of Goods Sold), and you make purchases over the year and are left with an ending inventory at the end of the year, you can lump it into your “Purchases” account if you like.

Did I say only 2 ways? Yeah, I always say that when I actually mean 3. Putting the cost of materials under “Advertising Expenses” is another option if that’s how you view the activity.

There’s a lot of leeway here. Just don’t try saying it took you 5 hours, and since your hourly rate is $1000, you’re going to write off $5000.

That kind of creative accounting could get you volunteering your time to make license plates.

July 22, 2012 - Posted by | Running Your Business

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