Small business tax deductions in Canada: the checklist by category

The one rule under every deduction

The Income Tax Act does not contain a list of allowed expenses. It allows the cost of earning income, and then takes a few things away. The CRA’s business expenses page is the practical version of that: a list of categories, each with a sentence on what qualifies. The categories below follow that page. Each one gives the CRA rule in a line and points to the deeper guide on this site where one exists.

Three things disqualify a cost regardless of category: it was personal, it was unreasonable for the business, or there is no record of it. A card statement shows that money left; it does not show what for. Keep the receipt, and for anything that mixes business and personal (a car, a phone, a home), keep the evidence for the split.

The checklist: every category with the CRA rule

Home office

The CRA treats the home as a separate category: fuel, insurance, interest, maintenance, property tax, rent and utilities for the home are not claimed on their own lines but together, as business-use-of-home expenses, in the share of the home used for business. For a sole proprietor that share goes on Form T2125 and cannot create a loss; the excess carries forward. For an incorporated owner the route is different, because the owner is an employee of the corporation, and the choice is between a documented reimbursement and an employment-expense claim. Our guide to business-use-of-home expenses for corporations sets out both.

Vehicle

The deductible amount is the business-use share of what the vehicle cost to run: fuel, insurance, licence, repairs, lease payments or CCA, and interest on a loan to buy it. The share comes from a logbook of business kilometres against total kilometres, and the CRA asks for it. Passenger vehicles carry cost ceilings for CCA, lease and interest. The vehicle and mileage guide covers the logbook, the ceilings and the per-kilometre allowance a corporation can pay its owner instead.

Meals and entertainment: the 50% limit

The CRA’s rule is exact: the maximum you can claim for food, beverages and entertainment is 50% of the lesser of the amount incurred and an amount that is reasonable in the circumstances. The same 50% cuts the GST/HST input tax credit. The exceptions are narrow: a business that sells food or entertainment, a cost billed to a client and shown on the invoice, and a limited number of staff events. The 50% rule guide walks through each.

Travel

Travel to earn business and professional income is deductible: fares, hotels, taxis, parking and baggage. Meals while travelling stay at 50%. Conventions are limited to two a year, and a trip that mixes business with a holiday is split, with only the business days claimed. See what the CRA accepts on business travel.

Phone and internet

Telephone, cellphone and utility costs used in the business are deductible, less any personal-use share. A phone the corporation gives an employee, including the owner, can be a taxable benefit if personal use is more than incidental, and an allowance paid in cash is taxable in full. The cellphone and internet guide covers the benefit rules and what a reimbursement needs to look like.

Salaries, including family members

Gross salaries and benefits paid to employees are deductible, as are the employer’s own CPP and EI contributions on them. Paying a spouse or an adult child is deductible on the same terms as anyone else: the work has to be real, the pay has to be what you would pay an unrelated person for it, and it has to go through payroll with a T4 at year-end. A salary that exists only to move income to a lower bracket is the claim the CRA reverses. Our guide on paying your spouse a salary gives the test and the paperwork.

Professional fees

Fees for external professional advice or services, including consulting, legal and accounting, are deductible in the year. Two exceptions: fees to buy or sell a capital asset (a building, a business) are added to the asset’s cost or deducted from the proceeds rather than expensed, and fees to incorporate are treated as a capital outlay. For what the accounting side of that fee covers, see what an accountant costs.

Insurance

The CRA allows all ordinary commercial insurance premiums on buildings, machinery and equipment used in the business, and liability coverage sits in the same place. Insurance on the home goes through the business-use-of-home calculation. Insurance on a vehicle goes through the vehicle calculation. Life insurance premiums are generally not deductible; the exception is a policy a lender requires as collateral, where a portion can be.

Advertising and promotion

Advertising is deductible, including advertising in Canadian newspapers and on Canadian television and radio. The restriction is on advertising in foreign media aimed at a Canadian market, where the deduction is reduced or denied. Websites, online ads, sponsorships, promotional items and the cost of a trade show booth all belong here. The advertising and promotion guide covers the online and sponsorship cases that cause the questions.

Bank charges and interest

Interest on money borrowed for business purposes, or to acquire property for business purposes, is deductible. What matters is the use of the money, not what secures the loan: a line of credit secured on the house is deductible when it funds the business, and a business loan used to pay personal costs is not. Bank charges incurred to operate the business, including card processing fees, are deductible as management and administration fees. Our guide to the interest use test covers the tracing rules.

Capital cost allowance (CCA)

Property that lasts beyond the year (equipment, vehicles, computers, furniture, buildings) is not deducted when bought. It goes into a CCA class and is written off at that class’s rate, with the half-year rule cutting the first year’s claim for most classes. CCA is optional each year, which makes it a timing tool: claim less in a loss year, more in a profitable one. The CCA classes guide lists the common classes and rates, and the half-year rule explains the first-year cut.

Bad debts

A receivable can be deducted when it is established to be bad in the year and was previously included in income. That second condition matters: a business that reports on a cash basis never recorded the sale, so it has no bad debt to claim. Recoveries are brought back into income when collected, and GST/HST already remitted on the bad sale can be recovered. See writing off bad debts.

Start-up costs

The CRA’s rule is that to deduct a business expense, you need to have carried on the business in the fiscal period in which the expense was incurred. So the question is when the business started, which is a question of fact: the point at which you were doing the things the business does, not the point at which the first sale landed. Costs before that date are not lost, but they need a start date to attach to, and some (incorporation, equipment) are capital rather than current. Keep the receipts from the first day you commit to the venture.

Memberships, dues and subscriptions

Business taxes, licences, annual dues and memberships, and trade and professional subscriptions are deductible. The one explicit exclusion is club dues: you cannot deduct membership dues, including initiation fees, where the main purpose of the club is dining, recreation or sporting activities, however much business happens there. The professional dues guide covers the line between a professional body and a club.

Training

A course that maintains or improves skills for the business you already run is a current expense. A course that qualifies you for a new business or profession is capital, because it creates a lasting asset. A bookkeeper taking a payroll update is the first; a bookkeeper taking a law degree is the second. Travel to the course follows the travel rules above, including the 50% on meals.

What the sole proprietor does differently

Everything above applies to a sole proprietor on Form T2125, with two differences. Business-use-of-home expenses cannot create or increase a loss, so the unused part carries forward. And the owner’s own draws are not a salary and not deductible; the owner is taxed on the net profit whether drawn or not. An incorporated owner is paid a salary or a dividend, and the salary is deductible to the corporation. Whether that difference is worth incorporating for is a separate question, covered in incorporating versus staying a sole proprietor.

Records: the deduction is only as good as the receipt

For each claim keep the invoice or receipt, proof of payment, and, for anything split between business and personal, the basis for the split: the logbook, the floor plan, the phone bill with business calls marked. Keep them for the full retention period. A CRA review of expenses is a request for exactly these documents, and a claim with no document is a claim the reviewer disallows.

The bottom line

The categories are few and the rules are short. The work is in the split between business and personal, the 50% on meals, the class rate on equipment, and the record behind each line. A set of books that codes expenses correctly through the year produces a return that captures all of them and a file that survives a review.

Which categories apply depends on your structure and your records; ask about your own situation and a CPA replies free, usually the same business day. What a corporation can and cannot deduct is set out in the corporate tax hub.

General information for Canadian business owners, current as of November 2026; not tax, legal or accounting advice, and no client relationship. Rules change, so speak with a CPA before acting.