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Business deductions are the costs you paid to earn business income, and they come off your profit before tax is worked out. The CRA’s rule for the self-employed is that you can deduct any reasonable current expense you incur to earn income. On $80,000 of net income in Ontario, $10,000 of expenses cuts the tax and CPP bill by $3,828.15.
Which business deductions can you write off?
Form T2125 lists the usual lines, and the CRA’s page shows about twenty. If you spent the money to run the business and can show it, there’s probably a line for it. The CRA’s page on completing Form T2125 points to guide T4002 for the detail.
| Expense line | Note from the CRA |
|---|---|
| Advertising, insurance, office expenses | Ordinary running costs |
| Interest and bank charges, professional fees | Deductible when tied to the business |
| Rent, utilities, repairs and maintenance | Business share only if the space is mixed use |
| Motor vehicle expenses | Reasonable, backed by receipts and a kilometre log |
| Meals and entertainment | Generally 50% of the lesser of actual and reasonable, with exceptions |
| Business use of home | Claimed in its own part of the form, business percentage only |
| Capital cost allowance | How you deduct capital purchases over time |
What does a $10,000 deduction really save you?
Try it with our self-employed tax calculator. At $80,000 of net business income in Ontario, income tax is $13,233.57 and CPP on both halves is $8,892.90, for $22,126.47 together. At $70,000 they come to $10,384.82 and $7,913.50, or $18,298.32. The gap is $3,828.15.
So a $10,000 expense costs you about $6,172 once the tax saving is counted.
A deduction isn’t a discount. You still spend the money first, and you only get part of it back.
One caution. We used the net business income field, which lowers CPP as well as income tax. The tool also leaves out EI, GST/HST and instalments, so treat the figure as a guide.
What can’t you deduct?
The CRA’s list is short and blunt. You can’t deduct salary or drawings paid to yourself or a partner, personal costs such as your own groceries, charitable donations, interest and penalties on income tax, or most life insurance premiums. Most fines are out as well.
Capital items are the part that trips people up. Chairs, desks and filing cabinets aren’t current expenses. You claim them through capital cost allowance instead, which spreads the cost over years. If a purchase lasts and improves the business, ask whether it’s capital before you put it on the expense line.
Do meals and home offices count?
Meals do, but at half. The CRA sets the limit at 50% of the lesser of what you spent and what’s reasonable. There are exceptions, such as some restaurant businesses, billable client meals and office parties (the CRA sets a cap of six a year), so read the T4002 guide before you claim more than half.
A home workspace has its own part of the form. You deduct only the business share of utilities, property taxes, interest, insurance and maintenance. Don’t claim the full electricity bill for a kitchen-table setup. That claim invites questions.
How do you split a vehicle between business and personal?
By kilometres. Say your truck is driven 20,000 km in the year and 12,000 of those are for the business. That’s 60%. If gas, insurance, repairs and the rest came to $9,000, the business share is $5,400. The $3,600 left over is personal, and claiming it would be the sort of overreach that gets noticed at tax time.
Should you spend money just to get the deduction?
No. Every dollar you spend costs a dollar, and the tax saving gives back only a slice of it, as the $10,000 example shows. A new laptop you need is a smart purchase. A new laptop you don’t need, bought in December because it’s deductible, is a loss of about $6 for every $10 you hand over. Spend because the business needs it, then claim what’s allowed.
What records do you keep?
Keep receipts and records for at least six years from the end of the tax year they relate to. The CRA’s keeping records page covers the rules. For a vehicle you also need the total kilometres and the business kilometres, with odometer readings at the start and end of the fiscal year and the date, place and reason for each trip.
It’s dull work, and it’s the difference between a claim you can defend and one you can’t.
Add the deductions to your income tax calculator result to see the effect on your personal return, or look at our tax instalments calculator if the profit is large enough that you’ll owe quarterly payments. If you’ve incorporated, the rules for the company’s return differ, and our page on choosing a tax firm covers those dates.
How we checked the figures
The expense rules come from CRA guide T4002 and the T2125 instructions, read on September 30, 2026. Dollar figures come from our calculator on 2026 rates. The vehicle split is our own arithmetic. No government body has reviewed or endorsed what you read here.
Frequently asked questions
What can I deduct as a self-employed person?
The CRA says you can deduct any reasonable current expense you incur to earn income. Personal costs and capital purchases are not deducted this way.
How much of my meals can I deduct?
Generally 50% of the lesser of the actual and a reasonable amount, with some exceptions listed in guide T4002.
Can I deduct my own salary?
No. The CRA does not allow salary or drawings paid to yourself or a partner.
Can I claim my home office?
Yes, the business share of costs such as utilities, insurance and property taxes, claimed in the business-use-of-home part of the form.
How long do I keep records?
At least six years from the end of the tax year they relate to.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST