An expense is a cost incurred to earn business income, deducted against revenue to arrive at profit, and generally deductible for tax if reasonable.
Expenses are the costs of running the business, rent, salaries, supplies, professional fees, and they reduce both accounting profit and, when deductible, taxable income. The general Canadian rule is that an expense is deductible if it was incurred to earn business income and is reasonable in the circumstances.
Two limits do most of the work: the reasonableness test, and the personal-use split for mixed expenses like vehicles and home office, where only the business portion is deductible. Some expenses are capped (meals at 50%) or capitalised rather than expensed (durable assets go through CCA).
You spend $200 on office supplies and $200 on a client lunch. The supplies are fully deductible. The lunch is limited to 50%, so only $100 reduces your taxable income.
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