--- title: "Small Business Tax Deductions in Canada: The Full Checklist" url: https://www.everstonecpa.com/blog/small-business-tax-deductions-canada description: "Small business tax deductions by category: home office, vehicle, meals at 50%, salaries, CCA and start-up costs, each with the CRA rule. See the list." type: guide updated: 2026-11-11 summary: "A business can deduct the reasonable costs it incurs to earn income. The CRA keeps a short list of categories, and a few carry a limit: meals and entertainment are capped at 50%, club dues for dining or recreation are out, personal use is always excluded, and equipment is written off over time through capital cost allowance rather than in one year." faq_count: 7 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Small business tax deductions in Canada: the checklist by category Tax # Small business tax deductions in Canada: *the checklist by category* By EverStone CPA · Updated November 2026 · 9 min read **Quick answer:** A business can deduct the reasonable costs it incurs to earn income. The CRA keeps a short list of categories, and a few carry a limit: meals and entertainment are capped at 50%, club dues for dining or recreation are out, personal use is always excluded, and equipment is written off over time through capital cost allowance rather than in one year. Everything on this page applies to a corporation (on the T2) and a sole proprietor (on Form T2125) alike, with the differences noted. **Want every deduction captured, not just the obvious ones?** We code each expense to the right line as we keep the books, apply the 50% and personal-use limits, and carry the result into the year-end return. Bookkeeping from $325 a month. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) ## Key takeaways - The test for every deduction is the same: a reasonable cost incurred to earn business income, backed by a receipt. - Meals and entertainment are limited to 50% of the lesser of the amount spent and a reasonable amount. - Vehicle and home-office costs are deductible only in the business-use share, and the share has to be supported. - Equipment, vehicles and buildings are not expensed; they are depreciated through CCA at the class rate. - Salaries to a spouse or child are deductible when the work is real and the pay is what you would pay a stranger. - Start-up costs count only from the date the business actually started; costs before that need separate treatment. ## 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](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html) 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. **Not sure which line a cost belongs on?** Coding expenses correctly is the quiet half of bookkeeping. We do it monthly, from $325 a month, so the year-end return is a summary rather than a hunt. See [monthly bookkeeping](https://www.everstonecpa.com/monthly-bookkeeping-services) or [get a quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) ## The checklist: every category with the CRA rule Deduction categories, the CRA rule in one line, and the guide that goes deeper. | Category | The rule | Limit or catch | | Home office | Deductible in the share of the home used for business, as business-use-of-home expenses | Incorporated owners claim differently from sole proprietors | | Vehicle | Business-use share of fuel, insurance, repairs, lease or CCA, supported by a logbook | Personal kilometres are out; passenger vehicles have cost ceilings | | Meals and entertainment | 50% of the lesser of the amount spent and a reasonable amount | The 50% applies to the GST/HST input tax credit too | | Travel | Travel to earn business income: fares, hotels, taxis | Meals on the road still at 50%; personal days excluded | | Phone and internet | Telephone, cellphone and utilities used in the business | Personal-use share excluded; a phone given to staff can be a taxable benefit | | Salaries and benefits | Gross salaries and benefits paid to employees, plus the employer CPP and EI | Family members: real work at a reasonable wage, through payroll | | Professional fees | External professional advice or services, including consulting | Fees to buy or sell capital property are part of the property’s cost | | Insurance | Ordinary commercial premiums on buildings, machinery and equipment used in the business | Life insurance generally not, unless required by a lender | | Advertising | Advertising, including in Canadian newspapers and on Canadian television and radio | Foreign-media ads aimed at a Canadian market are restricted | | Bank charges and interest | Interest on money borrowed for business purposes; bank charges incurred to operate the business | The use of the borrowed money decides, not the security | | Capital cost allowance | Depreciable property is written off at the class rate rather than expensed | Half-year rule in the year of purchase for most classes | | Bad debts | A receivable established to be bad in the year, previously included in income | Cash-basis businesses have no bad debt to claim | | Start-up costs | Deductible once the business is being carried on | Costs before the start date need a start date to attach to | | Memberships and dues | Business taxes, licences, dues, memberships and subscriptions | No club dues where the main purpose is dining, recreation or sport | | Training | Courses that maintain or upgrade skills for the existing business | Training for a new line of work is capital, not an expense | ## 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](https://www.everstonecpa.com/blog/home-office-deduction-corporation-canada) 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](https://www.everstonecpa.com/blog/vehicle-mileage-deductions-canada-business) 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](https://www.everstonecpa.com/blog/meals-entertainment-deduction-50-percent-rule-canada) 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](https://www.everstonecpa.com/blog/travel-expenses-business-canada-cra). ## 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](https://www.everstonecpa.com/blog/business-use-of-cellphone-internet-canada) 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](https://www.everstonecpa.com/blog/paying-your-spouse-a-salary-canada) 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](https://www.everstonecpa.com/blog/how-much-does-an-accountant-cost-bc). ## 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](https://www.everstonecpa.com/blog/advertising-promotion-deductions-canada) 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](https://www.everstonecpa.com/blog/interest-deductibility-canada-business) 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](https://www.everstonecpa.com/blog/capital-cost-allowance-cca-classes-canada) lists the common classes and rates, and [the half-year rule](https://www.everstonecpa.com/blog/half-year-rule-cca-canada) 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](https://www.everstonecpa.com/blog/writing-off-bad-debts-canada). ## 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](https://www.everstonecpa.com/blog/professional-dues-subscriptions-deductible) 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](https://www.everstonecpa.com/forms/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](https://www.everstonecpa.com/blog/incorporate-vs-sole-proprietor-canada). ## 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](https://www.everstonecpa.com/blog/cra-record-retention-how-long-to-keep-records). 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](https://www.everstonecpa.com/quick-question) 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](https://www.everstonecpa.com/corporate-tax-hub). Sources - [Canada Revenue Agency — Business expenses (the category list and rules quoted on this page)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html) - [Canada Revenue Agency — Line 8523, Meals and entertainment (the 50% limit)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/line-8523-meals-entertainment-allowable-part-only.html) - [Canada Revenue Agency — Line 9200, Travel expenses](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/line-9200-travel.html) 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](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) before acting. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) Every category on this page is coded as it happens in [monthly bookkeeping](https://www.everstonecpa.com/monthly-bookkeeping-services), so the deductions are in the books before the year-end starts. ### Keep reading [The 50% meals and entertainment rule →](https://www.everstonecpa.com/blog/meals-entertainment-deduction-50-percent-rule-canada) [Vehicle and mileage deductions →](https://www.everstonecpa.com/blog/vehicle-mileage-deductions-canada-business) [Home-office expenses for corporations →](https://www.everstonecpa.com/blog/home-office-deduction-corporation-canada) [CCA classes and rates →](https://www.everstonecpa.com/blog/capital-cost-allowance-cca-classes-canada) FAQ ## Frequently asked questions **What can a small business write off in Canada?** The reasonable costs of earning business income: rent, salaries, supplies, advertising, insurance, interest, professional fees, the business share of vehicle and home costs, travel, phone and internet, and depreciation on equipment through CCA. Meals and entertainment are limited to 50%, and personal costs are excluded. **Is there a list of tax deductions for a corporation versus a sole proprietor?** The categories are the same. A sole proprietor claims them on Form T2125; a corporation claims them on the T2 through its financial statements. The differences are the owner’s pay (a deductible salary in a corporation, non-deductible draws for a sole proprietor) and home-office costs, which cannot create a loss for a sole proprietor. **Are meals 100% deductible if I am travelling for work?** No. Meals while travelling are limited to 50% of the lesser of the amount spent and a reasonable amount, the same as any other business meal. The fares and hotel are fully deductible. **Can I deduct my gym or golf club membership?** No. The CRA excludes membership dues, including initiation fees, where the main purpose of the club is dining, recreation or sporting activities, even if clients are entertained there. Professional and trade association dues are deductible. **Can I deduct equipment I bought this year in full?** Generally no. Equipment goes into a CCA class and is written off at the class rate, with the half-year rule reducing the first year’s claim for most classes. Small items such as stationery are expensed as office supplies. **Can I deduct expenses from before my business started?** Only once you were carrying on the business. The start date is when you began doing what the business does, not the first sale. Costs before that need to attach to a start date, and some are capital rather than current. **What records does the CRA want for a deduction?** The receipt or invoice, proof of payment, and the basis for any business-personal split: a vehicle logbook, a home floor plan with the office area, a phone bill with business use marked. A card statement alone is not enough. ## Want every deduction on this list captured? Tell us roughly how many transactions a month and whether you are incorporated. A CPA replies by email within one business day with how we would code the books and a fixed fee for the bookkeeping and the return. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies by email within one business day. For a proper look, a 45-minute **Advice Call** with a CPA is $225 plus applicable tax, booked by email, credited against your first invoice if you become a client within 60 days. Want an accountant to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…have been completing my bookkeeping, taxes and financials for the last 2 years and they have been amazing. Thank you!” R. H. · Google review **Run your own numbers with the free calculators:** [Incorporation savings calculator](https://www.everstonecpa.com/incorporation-calculator) · [check a paycheque’s deductions](https://www.everstonecpa.com/payroll-deduction-calculator) · [check your GST/HST math](https://www.everstonecpa.com/gst-hst-calculator) [← Business travel expenses: what the CRA accepts](https://www.everstonecpa.com/blog/travel-expenses-business-canada-cra) [Meals and entertainment: the 50% limit explained →](https://www.everstonecpa.com/blog/meals-entertainment-deduction-50-percent-rule-canada) --- Source: https://www.everstonecpa.com/blog/small-business-tax-deductions-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online