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You can claim a business expense if it’s a reasonable current cost you paid to earn business income. That’s the CRA’s test for business expense deductions, and most of the arguments come from the word “reasonable” and from the personal share of a mixed cost. A $100,000 year with $20,000 of real expenses gets taxed as $80,000, and that gap is worth about $6,200 in Ontario.
What counts as a deductible business expense?
Advertising, insurance, supplies, professional fees, maintenance, utilities and rent are the usual ones, and the CRA page lists more. Each one has to relate to earning income in the period you’re claiming it for, and only the business part is allowed. If you use your phone half for work, the claim is half the bill.
Here’s the arithmetic on that. A phone plan at $90 a month costs $1,080 a year. If half of the use is for the business, you’d claim $540, and the other $540 stays personal. Keep a few months of usage notes or a clear basis for the split, because “about half” is easier to defend with a record behind it.
Some things never qualify. Your own salary or drawings from the business don’t, and neither does the value of your own labour. Club dues for dining, recreation or sports are out, and so are repairs your insurer already paid for.
Then comes the split between current and capital costs, which is where people trip. A laptop you’ll use for years is normally capital, so you claim it through depreciation (capital cost allowance) rather than all at once. Groceries for the office kitchen are a current cost. The line isn’t always obvious, so read the CRA’s page on business expenses before you buy something large.
Which expenses have a limit?
Meals are the famous one. The most you can claim for food, beverages and entertainment is 50% of the lesser of what you spent and a reasonable amount. Some cases escape the cap, such as a restaurant that bills meals to customers or an office party (up to six a year, all staff invited). Long-haul truck drivers can deduct 80% during an eligible trip. The CRA spells all of this out on its line 8523 meals and entertainment page.
| Expense | What the CRA allows |
|---|---|
| Meals and entertainment | 50% of the lesser of actual and reasonable cost |
| Long-haul trucker meals | 80% during an eligible travel period |
| Business-use-of-home | Business share only; cannot create or increase a loss |
| Personal or mixed costs | Only the business portion goes on the form |
| Owner’s own pay | Not deductible |
So a $1,200 year of client lunches gives you a $600 deduction, not $1,200. Grabbing a double-double and a muffin with a client at the coffee shop falls under the same 50% rule, so keep the receipt and jot down who you met.
Can you deduct your home office?
Sometimes. The CRA lets you claim a share of heat, electricity, home insurance and similar costs, plus property tax and mortgage interest if you qualify. You need a workspace used only for the business and used regularly to meet clients, customers or patients, or it has to be your main place of business.
The share can be the workspace area over the total area of the home, or hours of use over 24 for a shared room. There’s a cap: the claim can’t exceed your net business income before the claim. Unused amounts carry forward.
What is a deduction worth in dollars?
Take an Ontario freelancer with $100,000 of revenue. With no expenses, our self-employed tax calculator shows $28,338 of income tax plus CPP. With $20,000 of legitimate expenses, so $80,000 net, it drops to $22,126. The saving is $6,212. Of that, $5,811.40 is income tax and $400 is CPP, because CPP is charged on the net figure too.
A dollar of deduction doesn’t save a dollar. What it saves is your marginal rate applied to that dollar, and the marginal tax rate calculator shows you that rate for your own income. A $500 expense is a poor way to save money, since you still spend $500 to save some part of it.
The self-employed calculator leaves out GST/HST, EI and instalments. If you owe over $3,000 a year, use the tax instalments calculator to plan payments.
How should you keep your records?
Keep it boring and regular. A shoebox works if you empty it into a spreadsheet or accounting app every month. For each expense you want the date, the supplier, the amount, and a line on why the business needed it. Photograph paper receipts, because thermal paper fades.
Open a separate bank account and card for the business if you can. It makes the personal share of a mixed cost far easier to see, and it makes any later review far less painful.
Mistakes that cost you a claim
No record at all is the big one, and it’s also the one people don’t see coming until a review letter arrives asking them to back up a claim they made two years earlier. Keep receipts, invoices and, where the CRA asks for them, logbooks. The CRA advises holding supporting documents for at least six years.
Other slips are quieter. Claiming 100% of a mixed-use item. Putting a capital purchase in as a current cost. Deducting a family member’s pay without a cancelled cheque or signed receipt to show they were paid.
Aggressive claims tend to be the ones you can’t explain in a sentence. If you can’t say how an expense helped earn income, leave it off.
What this page is based on
Rules and percentages come from the Canada Revenue Agency‘s pages on business expenses, form T2125 line 8523 (meals and entertainment) and business-use-of-home expenses. The tax examples come from our calculators, which use 2026 federal and Ontario figures.
Frequently asked questions
What makes a business expense deductible?
It has to be a reasonable current expense you paid to earn business income, in a period when the business was running. Only the business part of a mixed cost counts.
How much of my meals can I deduct?
The maximum is 50% of the lesser of what you spent and a reasonable amount. A few cases, such as meals billed to customers, are outside that limit.
Can I deduct my home office?
You can claim the business share of home costs if the space is your main place of business or is used only for the business and to meet clients regularly. The claim can't create a loss.
Can I pay myself and deduct it?
No. A sole proprietor's own pay and drawings are not deductible.
How long should I keep receipts?
The CRA advises keeping supporting documents for at least six years.
- 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