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.
Primary source
- Income Tax Act, s. 18(1)(a) General limitation
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HST combines the 5% federal GST with a provincial component in five participating provinces. For 2026 the combined rates are 13% in Ontario, 15% in New Brunswick, Newfoundland and Labrador, and Prince Edward Island, and 14% in Nova Scotia since 1 April 2025. Elsewhere you charge the 5% GST alone, or GST plus a separate provincial tax. The rate follows the province of supply, not where your business sits.
The basic personal amount is a non-refundable credit that shelters a base level of income from federal tax, so income below it carries no federal tax. The amount is indexed every year, and the enhanced portion is phased out across the second-highest federal bracket, so taxpayers in the top bracket receive only the base amount. Each province and territory sets its own version. On Form TD1 you claim it so your employer withholds less; claim it with one employer only, or too little tax is withheld.
Federal personal income tax arrived in 1917, when the Income War Tax Act was passed as a temporary measure to help finance the First World War. It reached only a small number of high earners at first, and although it was passed as a temporary wartime measure the tax was never withdrawn: the Income War Tax Act was replaced by a new Income Tax Act after the Second World War, and today's Act descends from that line. A federal tax on business profits had been introduced the year before, and the personal system broadened steadily over the following decades as rates, credits and withholding were added.
No. Where you give your spouse funds and they contribute to their own TFSA, the income and growth inside that plan are tax free and nothing is attributed back to you. There is no spousal TFSA, so the contribution uses your spouse's own room and the account belongs to them. Attribution can still apply later: once the money is withdrawn and invested in a non-registered account, income earned on it may be attributed to you.
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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
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