Can I claim costs of goods sold as self employed business owner?

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Inventory and cost of goods sold

As per CRA: You need to do an annual inventory. This is usually a list of goods held for sale. If you are a manufacturer, this includes raw materials as well as packaging material and supplies, work-in-progress (goods and services that you have not yet completed at the end of your fiscal period), and finished goods that you have on hand. Inventory is used to calculate the cost of goods sold and net income on Form T2125, Statement of Business or Professional Activities.

If you have a professional practice and you are an accountant, dentist, lawyer, medical doctor, notary, veterinarian, or chiropractor, you can elect to exclude your work-in-progress (WIP) when you determine inventory.

However, if you have a tax year that begins after March 21, 2017, you can no longer elect to exclude amounts for WIP. If you elected to use billed-basis accounting for the last tax year that started before March 22, 2017, the transitional rules allow you to include your WIP into income progressively.

Generally, for the first tax year that starts after March 21, 2017, you must include 20% of the lesser cost and the fair market value of WIP. The inclusion rate increases to 40% in the second tax year that starts after March 21, 2017, 60% in the third year, 80% in the fourth year, and 100% in the fifth and all subsequent tax years.

For more information, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.

For more information please check: What Kind of Expenses Can You Claim for Your Small Business?

If you need any further clarifications, we would be glad to assist you by having you contact us by phone or via Facebook or  Twitter. 

Thank you for choosing TurboTax. The cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. For further clarification please check out our blog and as per CRA definition and process.