Product Sample Expenses in eCommerce Business

Tax Topics
1

I run an eCommerce business and have a question regarding the tax treatment of expenses related to product samples.

Last year, I invested approximately $850 in ordering various clothing samples from different providers to assess their quality before committing to larger orders for online sales. and these samples were ultimately destroyed before the end of the fiscal year.

For tax purposes, I’m seeking clarification on the following:

  1. Can I deduct the cost of these samples directly as expenses? If so, what specific GIFI code should I use for this deduction?
  2. Alternatively, should I record the amounts spent on samples as part of the inventory in the current assets and then execute an inventory write-off? We typically employ the FIFO method to evaluate our inventory.
  3. Or is it necessary to initially classify this cost as Research and Development (R&D) before recognizing it as an expense?

I’d appreciate any insights or experiences anyone might have on this matter. Thanks in advance for your help!

2

See:

I can’t see that it would make any difference. As long as the amounts are reasonable, it’s a legitimate deduction. CRA doesn’t spend much effort investigating one expense classification over another. They are more concerned with WHETHER something is deductible or not. If you’re asking what’s more likely to flag an investigation, I would say whatever looks “out of the ordinary” (compared to prior and future years, etc).

Not unless you’re planning to do a SR&ED claim - and those are ALWAYS audited by CRA.

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3

Thank you! So can I keep it simple and put all the amount as an expense instead of recording it as inventory and writing it off?

4

Marketing may work.

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