What business expenses can I deduct in Canada

Short answer

You can deduct any reasonable expense incurred to earn business income. The recurring high-value claims are vehicle costs, home office, professional fees, capital cost allowance on equipment, and 50% of business meals and entertainment.

The general rule and its two limits

The Income Tax Act permits deduction of outlays made to earn income from a business. Two constraints do most of the work in practice.

First, reasonableness. An expense must be reasonable in the circumstances. Paying a family member $80,000 for occasional administrative help fails this test regardless of documentation.

Second, the personal-use split. Where an expense has both business and personal components — a vehicle, a phone, a home — only the business portion is deductible, and you must be able to demonstrate the proportion.

Vehicle expenses and the logbook that defends them

You may deduct the business-use share of fuel, insurance, maintenance, licensing, lease payments or capital cost allowance, and financing interest. The share is business kilometres divided by total kilometres for the year.

A logbook is what makes the claim defensible. The CRA accepts a full-year log, or a representative three-month sample supported by a full base-year log. Without one, the CRA can and does reduce claims to whatever it considers reasonable, which is usually far less than the truth.

Note that travel between home and a regular place of business is personal commuting, not business travel — a distinction that surprises many first-time claimants.

Home office: the two tests

A home workspace is deductible if it is either your principal place of business, or used exclusively for business and regularly for meeting clients.

Deduct the business proportion — usually square footage of the workspace over total finished area — of rent or mortgage interest, property tax, utilities, insurance and maintenance. Homeowners should generally avoid claiming CCA on the home itself, as it can jeopardise the principal residence exemption on eventual sale.

The home office deduction cannot create or increase a business loss, but unused amounts carry forward to future years.

Capital cost allowance instead of immediate deduction

Assets with lasting value — equipment, vehicles, computers, furniture, buildings — are not deducted in full when purchased. They are capitalised and depreciated over time through capital cost allowance, at rates set by asset class.

Common classes include Class 8 (furniture and general equipment, 20%), Class 10 (vehicles, 30%), Class 50 (computer hardware, 55%) and Class 12 (tools and software under threshold, 100%). The half-year rule generally limits the first year to half the normal rate.

CCA is optional, which is an underused planning lever. In a low-income year you may claim less, preserving the undepreciated balance for a year when it shelters income taxed at a higher rate.

The 50% rule on meals and entertainment

Business meals and entertainment are generally limited to 50% of the amount paid. This applies to client meals, tickets and hospitality alike.

Limited exceptions permit 100%: meals provided at an event for all employees (up to six such events a year), meals billed through to a client and disclosed as such, and certain remote worksite arrangements.

Document the business purpose and who attended. A receipt alone establishes that money was spent, not that it was spent to earn income.

Commonly missed legitimate deductions

Professional fees — accounting, legal and consulting related to the business
Business insurance, including liability and errors-and-omissions coverage
Bank charges and interest on business borrowing
Professional dues and licences, plus subscriptions to trade publications
Training that maintains or updates existing skills
Advertising, with a Canadian-media requirement for certain broadcast and periodical advertising
Salaries to family members, where the work is real and the pay reasonable

What is not deductible, whatever you have been told

Personal living expenses, clothing suitable for ordinary wear (including most business attire), club membership dues where the main purpose is dining or recreation, fines and penalties, and the personal portion of any mixed-use expense.

Political contributions and most charitable donations are also excluded as business deductions, though they may generate personal credits. Life insurance premiums are generally non-deductible unless the policy is assigned as collateral for business borrowing.

Primary sources

Income Tax Act, s. 18(1)(a) General limitation
Income Tax Act, s. 67.1(1) Expenses for food, etc.

Reviewed for the 2025 tax year by Udit Gupta, Certified Tax Accountant. General information, not advice for your specific situation — book a free 15-minute call to discuss your circumstances.

What business expenses can I deduct in Canada? Frequently Asked Questions

Common questions regarding our compliance workflows and service guarantees.

Six years from the end of the tax year they relate to. Digital copies are acceptable to the CRA provided they are legible and complete.

Costs incurred to establish the business may be deductible or capitalised depending on their nature. The business must genuinely have commenced, not merely been contemplated.

The business-use portion is. A dedicated business line is fully deductible; a personal phone used for business requires a reasonable, supportable split.

Prorate by both space and time. A room used for business three days a week is claimed at the space proportion multiplied by the time proportion.

Yes, if the work is genuinely performed and the pay is reasonable for that work. Document the duties and hours; this is a routine CRA review target.

That is a large part of the value. We review the prior year alongside the current one, and where a material claim was missed we can amend back through a T1 adjustment or T2 amendment.

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Sign in to CRA My Account, or use the CRA's mobile app, where the return shows as received, in process or assessed, and the refund amount and payment date appear once it has been assessed. The CRA also runs an automated telephone service giving the same information. A representative you have authorised through Represent a Client can check it for you. If the status has not moved past the published processing time, the return is probably under review.

A tax deduction is an amount subtracted from your income before tax is worked out, so it reduces the income being taxed rather than the tax bill directly. Its worth depends on your marginal rate: the higher the rate, the more the deduction saves. Common examples are RRSP contributions, child care costs, union dues, moving expenses and business expenses. Credits work the other way, reducing the tax calculated on that income.

Multiply the pre-tax price by the combined rate for the province where the supply is made, then add that amount to the price. If the price already includes tax, divide the total by one plus the rate to get the pre-tax amount, and the difference is the tax. The rate depends on the province of supply rather than where your business sits, so verify the current rate for that province and confirm the item is not zero-rated or exempt.

Online filing for the 2025 tax year opened on 23 February 2026 and stays open until 29 January 2027. You can gather documents and prepare the return earlier, but the CRA will not accept an electronic return before it opens, and employer and investment slips are often not all issued until late February or March. The deadline was 30 April 2026, or 15 June 2026 if you or your spouse were self-employed, with payment still due 30 April.

Your municipal assessment notice, or your province's assessment authority, shows the assessed value and usually separates land from buildings. That split matters for tax: land is not depreciable, so a rental or business property's cost has to be allocated between land and building before you claim capital cost allowance, and the allocation must be reasonable and documented. A purchase agreement, an appraisal or comparable land sales support it better than the assessment alone.

Rental income is taxed on a net basis, so the costs of earning it come off first: mortgage interest (not principal), property tax, insurance, utilities you pay, repairs, condo fees, advertising, and property management. Capital cost allowance on the building is optional and can reduce income further, though it is recaptured on sale. A genuine rental loss can offset other income. When you sell, only one-half of a capital gain is taxable for 2025 and 2026.

The parent who paid the child care and had the child living with them claims it for that period. If you separated during the year, each parent claims what they paid while the child was in their care. Where parents live apart for the whole year and share the child, each claims their own payments, and the usual rule that the lower-income spouse must claim does not apply. Keep receipts showing the caregiver's name and social insurance number.

Mostly by claiming what the law already allows: deducting genuine business expenses, taking capital cost allowance on equipment and buildings, carrying losses to other years, and paying the small business rate on active income. A Canadian-controlled private corporation pays the federal small business rate of 9% on its first $500,000 of active business income for 2026, against a federal general net rate of 15%. Multinationals also choose where profit is reported, which transfer-pricing rules police.

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Reviewed and fact-checked by Udit Gupta

Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA

Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.

The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023

Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.

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