Business expenses that are tax deductible in Canada

What makes business expenses tax deductible in Canada?

A cost is a deductible business expense in Canada when it passes three checks: you spent it to earn income from your business, the amount is reasonable in the circumstances, and it is a current expense rather than a capital purchase or a personal cost. If all three are met, you deduct it on Form T2125 and it reduces both your income tax and your self-employed CPP.

The CRA does not publish a closed list of allowed items. It publishes categories, and the question is always whether the specific cost served the business. A tax write-off is simply a deduction that lowers taxable profit; a $100 expense saves $100 multiplied by your combined tax and CPP rate, not $100 in tax.

Expenses you cannot deduct

• Money you pay yourself (drawings) as a sole proprietor.
• Most fines and penalties imposed under Canadian, provincial or foreign law.
• The personal share of anything used both at work and at home.
• Goods from your own inventory that you or your family consumed.
• Everyday clothing, even if worn only for work, unless it is a uniform or protective gear.

Business expenses list for Canada: common deductions

Most self-employed tax deductions in Canada fall into a short set of categories. The checklist shows the ones sole proprietors claim most often, and the table below gives the T2125 line where each one goes; the T2125 guide walks through the rest of the form.

Less obvious deductions include bank charges on a business account, interest on money borrowed for the business, bad debts you previously included in income, subcontractor payments, wages paid to a spouse or child for real work at a reasonable rate, and delivery and freight costs.

Can I deduct my phone and internet?

Yes, for the business share. A cell phone used 60% for clients and 40% personally gives a 60% deduction of the plan cost; keep a sample month of call and data use to support the percentage. The CRA does not allow the basic monthly rate of a home landline, but business long-distance calls on it are deductible.

Home internet follows the same logic. If you work from home 40 hours a week and the household uses the connection heavily for streaming, a 50% claim is easier to defend than 100%.

Home office and vehicle deductions

A home office qualifies only when the space is your principal place of business, or you use it exclusively for business and regularly meet clients there. You then deduct a share of heat, electricity, insurance, maintenance, rent or mortgage interest and property taxes, based on floor area. The claim cannot push the business into a loss, and unused amounts carry forward to the next year.

Employees working from home use a different set of rules and Form T2200 from their employer; those are covered in work from home expenses. Do not mix the two on one return for the same space.

Vehicle expenses

For a vehicle used partly for business, total the year's fuel, insurance, repairs, licence, and lease payments or loan interest, then deduct the business-kilometre share. Driving between home and a regular work location is personal. A logbook recording date, destination, purpose and kilometres for each trip is the evidence the CRA asks for; after a full base year, a three-month sample log can be used if results stay within 10%.

There is no flat mileage rate for the self-employed. Form T2125 asks for your actual vehicle costs, entered on line 9281, with vehicle CCA claimed separately. The 2026 rates of 73 cents per kilometre for the first 5,000 km and 67 cents after that (77 and 71 cents in the territories) are Finance Canada's limits on tax-exempt allowances that employers pay employees, not a rate you multiply by your business kilometres. For a passenger vehicle bought, financed or leased in 2026, the CCA cost ceiling is $39,000 before tax, deductible loan interest is capped at $350 a month and lease payments at $1,100 a month before tax.

Can I deduct meals as a business expense?

Yes, but only 50% of the cost of food, drinks and entertainment, and only when there is a business reason, such as a meeting with a client or meals while travelling away from your home area for work. A $120 client dinner gives a $60 deduction. Your own lunch on an ordinary workday is personal and not deductible.

• Long-haul truck drivers: 80% of meal costs during eligible trips of at least 24 continuous hours.
• Staff events: up to six events a year open to all employees can be fully deductible.
• Tips and taxes on the bill: included in the cost before the 50% limit is applied.

Current expenses vs capital purchases

A purchase that gives a lasting benefit, such as a computer, camera, tools, furniture or a vehicle, is a capital cost. You claim part of it each year through capital cost allowance (CCA) at the rate for its class. How much you can claim in the first year depends on the half-year rule and the Accelerated Investment Incentive rules for the year the asset became available for use, which tax software applies for you.

Example: a $2,000 laptop used only for business goes into Class 50 at 55%. Only part of the $2,000 is deducted in the year of purchase, and the undepreciated balance carries into later years until it is fully claimed or the laptop is sold. A $300 drill, by contrast, goes into Class 12 and is written off at 100%.

What records do I need for business expenses?

Keep a receipt or invoice that shows who you paid, the date, the amount and what you bought, plus proof of payment. A bank or card statement alone often does not show what was purchased. Records must be kept for six years from the end of the tax year they relate to, and digital copies are acceptable if they are legible and complete.

1. Use one bank account and card for business only.
2. Photograph paper receipts the day you get them and note the business purpose.
3. Keep a running vehicle log and a note of your home workspace measurements.
4. Reconcile monthly so the year-end T2125 is a matter of adding up categories.

Drivers and couriers have a few extra record rules for fuel and platform fees, covered in Uber driver taxes in Canada. For how expenses fit into the full picture, start at self-employed taxes in Canada.