Introduction
As a small business owner in Canada, understanding what you can legally deduct at tax time can make a major difference in your bottom line. Every eligible write-off lowers your taxable income, which means keeping more of your hard-earned money. But not everything you spend on your business qualifies.
This guide breaks down what small business expenses you can deduct in Canada, what you can’t, and how to stay compliant with the Canada Revenue Agency (CRA). Whether you’re a freelancer, sole proprietor, or incorporated business owner, this blog will help you make smarter financial decisions—and avoid expensive tax mistakes.
What Is a Tax Deduction?
A tax deduction is an expense you can subtract from your total income to reduce the amount of income that is subject to tax. It’s different from a tax credit, which directly reduces the tax you owe.
The CRA’s rule of thumb is simple: your expense must be reasonable and directly related to earning business income. If it doesn’t help generate income, it’s not deductible. Learn more about deductible business expenses on the CRA website.
Common Tax Deductions for Small Businesses in Canada
Here are some of the most common deductions the CRA allows for small business owners:
1. Office Supplies & Equipment
- Paper, pens, printer ink, and other everyday supplies.
- Computers, printers, and furniture may be considered capital assets and depreciated over time.
2. Home Office Expenses
If you work from home, you can deduct a portion of your:
- Rent or mortgage interest
- Utilities (heat, electricity, water)
- Internet and phone bills
- Home insurance and property taxes
The CRA allows you to claim home office expenses if your workspace is either your main place of business or used exclusively for earning income. Here’s how to calculate the deductible portion.
3. Business Use of a Vehicle
You can claim:
- Fuel, maintenance, and insurance
- Lease payments or capital cost allowance (if you own the vehicle)
- Parking fees for business-related travel
Keep a detailed logbook of business versus personal use. Only the business-use portion is deductible. CRA logbook guidelines here.
4. Meals and Entertainment
You can generally deduct 50% of meals and entertainment costs if they are incurred to earn business income. Examples include:
- Taking a client out for lunch
- Meals during a business trip
Be sure to document the date, amount, and business purpose of each meal.
5. Travel Expenses
Deductible travel expenses include:
- Airfare, hotels, and taxis
- Meals (50% rule applies)
- Conference fees or seminars
Trips must have a clear business purpose, and personal travel costs are not deductible.
6. Advertising and Marketing
You can write off expenses for:
- Google Ads, Meta (Facebook/Instagram) Ads
- Website design and maintenance
- Business cards, flyers, and brochures
Marketing costs that promote your business to clients in Canada are generally deductible.
7. Professional Services
You can deduct amounts paid to:
- Accountants, bookkeepers, and tax advisors
- Legal professionals
- Consultants or coaches
If you’re unsure how to organize your books, it might be time to consider our bookkeeping services to stay tax-ready all year.
8. Salaries and Wages
If you have employees, you can deduct:
- Gross wages paid
- Employer contributions to CPP, EI, and Workers’ Compensation
- Employee benefits like health plans
9. Insurance Premiums
Deduct premiums paid for:
- Commercial liability insurance
- Property or contents insurance
- Errors and omissions (E&O) coverage
Note: Personal insurance (like life or critical illness) is not deductible.
10. Bank Fees and Interest
Eligible deductions include:
- Monthly bank account fees for a business account
- Loan interest or lines of credit used for business purposes
- Credit card interest if the card is used exclusively for business
What You Can’t Write Off as a Small Business
Some expenses might seem business-related but don’t qualify as deductions. The CRA explicitly prohibits the following:
- Personal clothing, unless it’s a uniform or safety gear
- Parking tickets or traffic fines
- Groceries, unless used for client-facing business events
- Home renovations not directly related to your business
- Gym memberships or club dues, unless directly related to your field and clearly justified
Documentation and CRA Requirements
To claim any deduction, the CRA expects proper documentation:
- Keep receipts and invoices for every deductible expense
- Maintain a mileage logbook for vehicle use
- Track business vs. personal use percentages
- Store records for at least six years in case of an audit
Use accounting software like QuickBooks, Wave, or Xero to simplify your bookkeeping and create digital backups of receipts. Staying organized means less stress at tax time and fewer surprises.
Special Notes for Sole Proprietors vs. Corporations
Sole Proprietors:
- Report income and expenses on your personal tax return (Form T2125).
- Your business income is taxed at personal tax rates.
Corporations:
- File a separate corporate tax return (T2).
- May have access to the small business tax rate (~9% federally).
Some deductions (like salaries paid to the owner) work differently depending on your business structure. If you’re unsure, consult a professional.
Frequently Asked Questions
Can I deduct my cell phone bill? Yes—if it’s used for business. Only the business-use portion is deductible.
Can I claim a laptop I bought last year? If it was used to earn income, yes. You may need to claim it as a capital asset and depreciate it.
What if I work from a coffee shop instead of a home office? You can claim the coffee and Wi-Fi as a business expense only if it’s part of a business meeting or work-related activity, not personal use.
Final Thoughts
Knowing what you can and can’t deduct as a small business owner in Canada is key to staying compliant and maximizing your earnings. From advertising and supplies to travel and professional services, your deductible expenses can significantly reduce your tax burden when tracked properly.
If you need help keeping it all straight, bookkeeping support can make tax time a lot less stressful. Let Our Invisible Empire help you stay organized, compliant, and focused on growing your business.
