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You can deduct a reasonable expense that you paid to earn business income, and only the business share of it. That’s the CRA’s test, and everything else here is a way of applying it. Take $10,000 of legitimate business expenses on $70,000 of revenue in Ontario: by our calculator’s numbers the deduction cuts income tax by about $2,965 and self-employed CPP by $1,190.
What counts as a business expense for taxes?
The CRA splits costs in two. A current expense, such as rent, supplies, software or advertising, comes off your income in the year you pay it. A capital expense, such as a computer or a truck, doesn’t. You claim that over several years through capital cost allowance.
Personal costs are out. Mixed costs, like a phone you use for work and for your kids’ games, get split, and you enter only the business part. The CRA also asks that you were actually running the business when the cost came up, so money spent on an idea you dropped before you started doesn’t follow the same rule.
Which expenses are limited?
Meals and entertainment are the famous one. You can claim 50% of either what you spent or a reasonable amount, whichever is lower. So a $400 client dinner gives you a $200 deduction. The CRA lists exceptions, such as when you bill the meal to your client and show it on the invoice, or when your business is a restaurant.
| Cost | What the CRA says |
|---|---|
| Meals and entertainment | 50% of the lesser of actual or reasonable |
| Long-haul truck driver meals | 80% during eligible travel |
| Mixed personal and business use | Only the business part |
| Costs you got a GST/HST credit on | Reduce the expense by the credit |
| Grants and rebates received | Reduce the expense too |
That input tax credit line surprises people. If you claim back the GST/HST on a $1,130 purchase, the expense you deduct is the $1,000 before tax, not the full $1,130.
What does a $10,000 deduction save?
Compare two years in Ontario, one with $70,000 of net income and one with $60,000 after the extra $10,000 of expenses. In our tax library, income tax on $70,000 is $12,382.25 and on $60,000 it’s $9,417.25. The gap is $2,965.00. That’s a bit under 30 cents on each dollar.
You save on CPP as well. On net self-employed income the rate is 11.9% between $3,500 and $74,600, so $10,000 less income saves $1,190. All in, the deduction saves roughly $4,155, or 41.5 cents on the dollar. It’s a model with no credits in it, so your own number will differ.
Now the flip side. A deduction is never free money. A $10,000 expense costs you $10,000 and returns about $4,155 through tax. Spending on something you don’t need to get a write-off is a poor trade.
Want to run your own income through it? Use the self-employed tax calculator, but note that its deductions lower income tax and leave CPP alone and it skips EI, so the CPP part above is a hand calculation. The income tax calculator is closer for pure income tax.
What records will I need?
Keep the receipt, the invoice or the bank record, and note what the cost was for. For a car, keep a logbook, because the CRA asks for mileage and the hours you worked when you claim those. The CRA says to keep tax documents for at least 6 years, and that’s a good rule for business papers too.
A folder per year and a photo of each receipt is enough.
Common mistakes and limits
People deduct the whole phone bill, the whole meal, or the whole home, when only the business part belongs on the return. Others forget that a capital purchase can’t be written off in one go, and some claim an expense they can’t tie to income at all. Any of these turns a clean claim into a question from the CRA that you’ll struggle to answer.
The GST/HST side is separate. If you charge it, see the GST/HST calculator to split a price into net and tax. Quarterly instalments matter once your bill grows, and the tax instalments calculator shows what you’d send in.
We didn’t confirm the rules for home offices or vehicles. The CRA guide T4002 covers both.
Where the numbers come from
The rules are from the Canada Revenue Agency’s business expenses page and its tax guide T4002, read in September 2026. The 2026 Ontario tax and CPP figures come from our own tax data, which matches the CRA’s published rates and rests on one derived item: the self-employed CPP rate is both halves of the employee rate. This site has no link with the CRA or any government.
Frequently asked questions
What business expenses can I deduct in Canada?
Any reasonable current expense you paid to earn business income, and only the business part of mixed costs. Capital items go through capital cost allowance.
How much of a business meal can I deduct?
Usually 50% of the lesser of what you spent and a reasonable amount. There are exceptions, such as meals you bill to a client on the invoice.
Do I deduct GST/HST on a purchase?
If you claim the input tax credit, reduce the expense by that credit. You deduct the amount before the tax.
How long should I keep my receipts?
The CRA says to keep tax documents for at least 6 years.
How much tax does a $10,000 expense save?
In our Ontario model with $70,000 of net income, about $2,965 of income tax and $1,190 of CPP. Your own credits change the result.
- 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
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.