Small Business Tax Write-Offs in Canada: What Counts

Search "tax write-offs for small business Canada" and you get lists. What matters is the rule behind them: a write-off is a business expense the CRA lets you subtract from income before tax, so it saves you the tax on the spend, not the spend itself. Here is what qualifies in 2026.

The single most expensive misunderstanding in Canadian small business tax is the belief that a write-off gets your money back. It does not. A deduction comes off your income, and what you save is the tax that would have applied to that slice of income. For an Ontario corporation paying the combined small business rate of 12.2% in the first half of 2026, a legitimate $1,000 expense saves $122 of tax. The other $878 is money you spent. Buying something you do not need "for the write-off" is always a loss.

That is worth saying plainly because it reframes the whole exercise. The goal is not to manufacture expenses; it is to make sure every dollar you genuinely spent running the business actually lands on the return. In our experience the money left on the table is almost never exotic — it is the phone bill, the portion of the car, the software subscriptions, the accounting fees, the bank charges, the courses. Those add up faster than any aggressive scheme, and they survive scrutiny.

Every expense has to clear two tests. The first is purpose: it must be incurred to earn business income. Not "related to the business", not "the kind of thing a business buys" — incurred to earn income. The second is reasonableness: the amount has to be reasonable in the circumstances. A laptop for a consulting business passes both. A family holiday reclassified as a site visit fails the first. A $400 lunch for two fails the second even though meals as a category are deductible.

Where an expense is partly personal, you do not choose between claiming all of it and none of it — you apportion. The phone used 60% for business is a 60% claim, and that is the honest, defensible position. Owners who claim 100% of a plainly mixed expense are the ones who end up defending everything else on the return too.

Two businesses can spend the same $6,000 and claim wildly different amounts this year, because the CRA separates spending into current expenses and capital costs. A current expense is consumed in the period — rent, wages, supplies, insurance, the accountant's fee — and comes off this year's income in full. A capital cost buys something with a lasting benefit — a vehicle, equipment, a building, some software — and is deducted gradually through capital cost allowance (CCA), at a rate set by the class the asset falls into.

The boundary that trips people up is repairs. Fixing something so it keeps doing what it always did is usually a current expense. Improving it so it does more, lasts materially longer, or is worth more is usually capital. Replacing a broken part of a delivery van is a repair; rebuilding the engine to extend the van's life by years starts to look like a betterment. The test is the effect on the asset, not the size of the invoice.

CCA has its own timing rules. In the year you buy an asset, the deduction is normally restricted — the long-standing "half-year rule" — so a purchase made in December does not hand you a full year of depreciation. Against that, the Accelerated Investment Incentive is back: it was reinstated for eligible property acquired on or after 1 January 2025, giving an enhanced first-year deduction on qualifying assets rather than the restricted amount. And Budget 2025 introduced immediate 100% expensing for eligible manufacturing or processing buildings acquired on or after 4 November 2025 that become available for use before 2030, with the enhanced rate phasing down after that — 75% for property first used in 2030 or 2031, 55% in 2032 or 2033, and nothing enhanced after 2033.

The practical point for most owners is simpler than the rules: an asset only starts generating a deduction once it is available for use, not when the invoice is dated. Equipment sitting in a crate at year end is not yet earning you anything on the return, which is why timing conversations belong before the purchase, not at filing time.

The list below is unglamorous, and that is exactly why it gets missed. Every item is an ordinary deductible business expense when it is genuinely incurred to earn income, and most owners we onboard through our small business accounting work are claiming only half of it.

• Professional fees. Accounting, bookkeeping, tax preparation for the business, legal fees for business matters, and the cost of dealing with the CRA. The fee for preparing your corporate return is a business expense of the corporation.
• Software and subscriptions. Accounting software, design tools, cloud storage, project management, the professional tier of anything you use to deliver work. Monthly seats add up to real money over a year.
• Bank charges and interest. Business account fees, merchant processing fees, and interest on money borrowed for business purposes. Card processing fees on customer payments are frequently netted out and never claimed.
• Insurance. Commercial general liability, professional liability, business contents, and the business portion of a policy that covers a mixed-use asset.
• Advertising and promotion. Online ads, print, signage, sponsorships, your website. Note that deductibility of advertising aimed at the Canadian market can depend on where the medium is based, which is worth checking before a large spend.
• Training that maintains your skills. Courses, conferences and materials that keep existing skills current are generally deductible; training that qualifies you for a new profession tends to be treated as capital.
• Bad debts. An invoice you recognised as income and genuinely cannot collect can be written off once it is established as uncollectible — but only if you reported it as income in the first place.
• Salaries, including to family. Wages paid to a spouse or adult child are deductible if the work is real and the pay is reasonable for that work. Run it through payroll properly, with source deductions and a T4, or it is not a salary.

None of this requires clever structuring. It requires a bookkeeping system that captures the spending as it happens, which is the argument for keeping the books current rather than reconstructing a year in April — the theme of our note on habits that keep books audit-ready.

Vehicle costs are among the largest write-offs available to a small business and the most commonly denied, and both facts have the same cause: the claim is only as good as the record of business use. Personal driving is never deductible, and the drive between home and your regular place of business is personal commuting, not business travel.

There are two ways the deduction reaches the return. If you own the vehicle personally and use it for the business, the cleanest route in a corporation is usually a per-kilometre allowance paid to you by the company, using the CRA's prescribed rates: for 2026, 73 cents per kilometre for the first 5,000 business kilometres and 67 cents after that, with an additional 4 cents per kilometre in the territories. For 2025 the rates were 72 cents and 66 cents. Paid at or below those rates against a real log, the allowance is deductible to the company and not taxable to you.

The alternative is claiming actual costs — fuel, insurance, maintenance, licence and registration, interest or lease costs, and CCA on the vehicle — prorated by the business share of total kilometres. This often produces a larger deduction for a heavily used vehicle, and it demands more record-keeping: you need the receipts as well as the log.

Either way, the log is the deduction. Record the date, destination, purpose and kilometres for business trips, and the odometer at the start and end of the year. A full year's log is the gold standard; the CRA also accepts a representative sample period maintained against an established base year, which is a realistic option for a settled routine but not for a business whose driving pattern has changed. Trades and contractors carrying tools and materials between sites — the pattern behind most of our construction industry engagements — usually find the actual-cost method wins, because the vehicle is close to fully commercial.

Working from your kitchen table does not automatically create a home office deduction. To claim business-use-of-home expenses you must meet one of two conditions: the space is your principal place of business — where you do more than half your work — or you use it exclusively to earn business income and use it on a regular and continuous basis to meet clients, customers or patients.

If you qualify, you claim a proportion of the running costs of the home: heat, electricity, water, home insurance, maintenance, and — for the self-employed — mortgage interest and property taxes. The proportion is normally the business floor area divided by the total floor area of the home. A dedicated 12-square-metre office in a 120-square-metre home is a 10% claim. Where the room does double duty, the honest calculation reduces that percentage further by the share of time it is used personally.

Two limits catch people out. First, the deduction cannot create or increase a business loss: it can reduce your business income to zero, and the unused portion carries forward to a future year with income to absorb it. Second, the temporary flat-rate method some people remember from the pandemic years applied to employees and no longer exists — self-employed claimants have always used, and still use, actual expenses on the business statement filed with the personal return.

For an incorporated owner working from home, the mechanics differ again: the home belongs to you, not the company, so the usual approach is a documented reimbursement or rental arrangement between you and the corporation with a defensible calculation behind it. Getting that arrangement right is a five-minute conversation at setup and an expensive mess if it is invented years later.

Business meals and entertainment are deductible at 50% of what you spent. The cap applies to the whole bill — food, drinks, sales tax, tip, delivery charges and cover charges — so a $200 client dinner is a $100 deduction, not $200 less the tax. Tickets to a game or a concert taken as client entertainment fall under the same limit.

A handful of situations escape the 50% cap and are fully deductible. The main ones: your business is selling food or beverages, so the meal is your cost of sales; you bill the meal on to a client as a reimbursable expense and report the reimbursement as income; meals provided at a remote work location or a construction camp; a staff event open to all employees, with a limit of six such events a year; and meals bought as part of a registered charity fundraising event. Long-haul truck drivers get a higher 80% rate for meals during an eligible trip — broadly, one that takes them at least 160 kilometres from their home terminal for 24 hours or more.

The paperwork matters more here than almost anywhere else, because a meal receipt on its own proves only that somebody ate. Note who was there and what the business purpose was, on the receipt or in the accounting entry, at the time. That single habit converts a category reviewers routinely challenge into one they move past. Hospitality operators reading this have the opposite problem — for restaurants, food is inventory and cost of sales, and the 50% rule bites only on the owner's own client entertaining.

Some spending is simply outside the system, and no amount of creative categorisation brings it in. Knowing the list is useful for two reasons: it stops you paying for advice that promises otherwise, and it keeps the rest of your return credible.

Life insurance premiums deserve a line of their own: as a rule they are not deductible, with a narrow exception where a policy is required as collateral by a lender for a business loan. And the personal-expense line is not a technicality — the fastest route to a full review is a business account used as a second chequing account, because a reviewer who finds groceries in the general ledger stops taking the rest of the ledger at face value.

The deductible expenses barely change when you incorporate. What changes is the rate the deduction is measured against, and that is where the arithmetic gets interesting.

An unincorporated business reports on the business statement attached to your personal return, and every dollar of profit is taxed at your personal marginal rate. A deduction is therefore worth your marginal rate — for a higher-income sole proprietor, that can exceed 40 cents on the dollar, which makes deductions worth proportionately more than they are inside a small corporation.

A Canadian-controlled private corporation pays the small business rate on its first $500,000 of active business income: 9% federally in 2026, plus the provincial rate. Ontario is in the middle of a change here, and it is worth knowing if you are planning a year end.

Ontario's cut to 2.2% takes effect on 1 July 2026, so a corporation with a 31 December 2026 year end is taxed at a blended provincial rate for the year — roughly 2.7%, giving a combined rate near 11.7% rather than either headline figure. Our corporate tax calculator will do that arithmetic for a given year end, and the related question of how to pay yourself is worth modelling separately with the salary versus dividend calculator before you commit to a remuneration mix. Businesses across the GTA, from downtown Toronto to the surrounding cities, are affected the same way.

This one is invisible until it bites, and it costs far more than any expense you might have missed. A CCPC that accumulates investments inside the company — a portfolio, rental properties, interest-bearing deposits — can lose access to the small business rate entirely.

The mechanism: if the corporation and its associated companies earn more than $50,000 of adjusted aggregate investment income in the previous year, the $500,000 business limit is reduced by $5 for every $1 of investment income above that threshold. The arithmetic is unforgiving — at $150,000 of passive income the business limit is gone, and every dollar of active business income is taxed at the general rate instead of the small business rate. In Ontario terms that is the difference between roughly 12.2% and 26.5% in 2026.

A second grind runs in parallel on size: the business limit is also reduced as the group's taxable capital employed in Canada climbs from $10 million to $50 million, disappearing at the top of that range. Most owner-managed companies never approach it, but growing groups with real estate on the balance sheet can get there sooner than expected.

What makes this a planning problem rather than a compliance problem is the one-year lag: this year's investment income sets next year's business limit. By the time the higher tax bill appears on a return, the year that caused it is closed. That is why tax planning for a corporation with retained earnings is a conversation held before the year ends, not after.

Sales tax runs on a separate track and confuses more small business owners than any other part of the system. If you are registered, the GST/HST you pay on business purchases comes back to you as input tax credits — a refund of tax, claimed on your sales tax return. It is not an income tax deduction, and the two must not be claimed twice: expenses go on the income tax return net of any input tax credits you recovered.

Registration is not optional past a point. You are a small supplier while your worldwide taxable revenue stays at or under $30,000 over four consecutive calendar quarters. Exceed it and registration becomes mandatory — immediately if you pass $30,000 within a single calendar quarter, in which case the very sale that crossed the line is taxable, and with a short grace period of 29 days under the four-quarter test. Your effective registration date is the day of the sale that took you over.

The expensive failure here is trading past the threshold without noticing. The obligation to charge tax does not wait for you to register, so the CRA can assess the tax you should have collected on those sales — and you are unlikely to go back to customers months later asking for another 13%. That amount comes out of your margin.

Voluntary registration below the threshold is often worth it for a business with real startup spending, because input tax credits on equipment and setup costs are recoverable from day one. It is a trade-off against the compliance work of filing returns, which is why we usually model it rather than assume it when setting up HST return filings for a new business.

A deduction you cannot evidence is a deduction you do not have. Keep your business records for six years from the end of the last tax year they relate to — and if a return was filed late, six years from the date you actually filed it. Records supporting the cost of capital property or a loss carried forward may matter well beyond that window, so those are worth keeping permanently rather than to the minimum.

Card and bank statements are not receipts. A statement line proves that money moved; the invoice proves what it bought and whether the tax on it was recoverable. Keep the source documents, digitally is fine, and keep them organised as you go — a discipline we set out in more detail in our guide to organising tax records before filing season.

Timing is where a good year end earns its fee. Spending genuinely planned for early next year can sometimes be pulled forward into the current year; equipment can be brought into use before the year end rather than after; and a corporation declaring a bonus to an owner-manager must actually pay it within 179 days of the year end, or the deduction is pushed into the year it is finally paid. Prepaid amounts that reach into a future period generally have to be matched to that period rather than deducted in full today.

None of these moves creates a deduction from nothing. They put deductions you were going to have in the year where they do the most good, which is a question of arithmetic — your rate this year against your rate next year, and whether the small business limit is intact in both. That is the analysis we run at year end for corporate tax filing clients, and it is the part that most often changes the number at the bottom of the return.

If you take one thing from this: write-offs are a record-keeping problem long before they are a tax problem. The owners who claim the most are not the ones with the most aggressive positions — they are the ones whose books capture spending as it happens, whose mileage log is written in the car rather than in April, and whose meal receipts say who was there. Everything in this guide follows from that.

The second thing is that the expensive decisions are structural, not incidental. Whether you are incorporated, how you pay yourself, whether investment income is quietly eroding your small business limit, when an asset is brought into use — those move far more tax than any single expense category, and they all have to be decided before the year closes rather than explained after it.

If you would like a straight answer on what you are missing, we will review your last filed return and your current books and tell you. Fixed fees agreed before work starts, payment after the service, 100% remote across Canada, and our corporate tax filing fees are published so you know the number before you commit. Book a free 15-minute call or ring +1 (416) 619-0068.