Updated Checked by the Tax-Services.ca editorial team How we check
Business expenses are tax deductible in Canada when you paid them to earn business income and the amount is reasonable. The CRA’s guide for the self-employed says you can deduct any reasonable current expense you incur to earn income, and only the business part of it. That single test decides most claims.
What counts as a business expense you can deduct?
Ask two questions. Did the spending help earn income? And is the amount sensible for what you did? A laptop you use for client work passes. A laptop your kids also game on passes only for the business share.
The CRA says to enter only the business part of an expense on your forms. So if a phone bill is half personal, half of it goes on the form. Guessing a share is fine if you can explain the guess. Making one up is not.
Which limits catch people out?
Meals are the usual surprise. The CRA guide says the deductible amount is 50% of the lesser of what you spent and what was reasonable. There are exceptions, such as meals you bill to a client, and a few special rules for long-haul truck drivers, but plan on half.
| Item | What the CRA guide says |
|---|---|
| Meals and entertainment | 50% of the lesser of actual and reasonable cost |
| Long-haul truck drivers | 80% during eligible travel |
| Foot and bicycle couriers | $23 a day flat rate for extra food costs |
| Home workspace | Business share of rent, utilities, insurance and similar costs, claimed on line 9945 |
| Capital items (things that last) | Not deducted in full; claimed through capital cost allowance |
Current or capital costs, and why it matters
Some spending is fully deductible this year. Some isn’t. The CRA calls repairs and running costs that keep something as it was current expenses. Buying an asset that gives lasting benefit, or improves something beyond its original condition, is a capital expense. Those go through capital cost allowance, which spreads the deduction over years.
A new roof on a rented shop is a good test. Patching a leak is current. Replacing the roof with something better is probably capital. When it’s close, ask the CRA or a tax preparer. We didn’t test the borderline cases.
What is a deduction worth?
Here’s a plain example. You run a sole proprietorship in Ontario with $80,000 of net business income. Income tax and CPP together come to $22,126.47 on our self-employed tax calculator. Now suppose you find $10,000 of legitimate expenses you hadn’t counted. Net income drops to $70,000 and the total falls to $18,298.32. You keep $3,828.15 more.
So each $1,000 of real expense saved about $383 here. That is not a “discount” on spending. You still spent the money, and the tax system just absorbs part of the cost. Nobody gets rich by spending to save tax.
The calculator leaves out EI and GST/HST, so the real figure will differ. To see which bracket your next dollar falls in, use the marginal tax rate calculator.
Mistakes and what to keep
Mixing personal and business spending is the big one. If you can, run the business through its own card or account, so that the year-end totals fall out of the statements with no sorting, no guessing which coffee was a client meeting and no arguing with yourself in April.
The second is missing paper. The CRA says to keep receipts that support your claims. For a vehicle you also need a record of total kilometres and business kilometres, along with odometer readings at the start and end of the year. The page we read didn’t state how long to keep records, so look at the CRA’s records page for that.
Third, overclaiming a “reasonable” number. A lavish dinner every week is hard to call reasonable, and reasonableness is the CRA’s own test. And if you’re an employee rather than self-employed, different rules apply and this page doesn’t cover them.
Instalments are the last thing. If your tax bill for the year will be large, you may pay in quarters. Try the tax instalments calculator.
Where the numbers come from
The rules and the 50%, 80% and $23 figures come from the Canada Revenue Agency’s guide T4002, chapter 3 on expenses. The worked example comes from our calculators, which use 2026 federal and Ontario rates.
Frequently asked questions
What makes a business expense deductible?
The CRA says you can deduct any reasonable current expense you incur to earn income, and only the business part of it.
Can I deduct 100% of meals?
Usually not. The CRA guide sets the limit at 50% of the lesser of actual and reasonable cost, with a few exceptions.
Can I deduct my home office?
Yes, the business share of home costs, claimed on line 9945 of the CRA form. Personal use stays out.
What is the difference between current and capital expenses?
Current expenses keep property as it was and are deducted in full. Capital ones give lasting benefit and go through capital cost allowance.
How much can $10,000 of expenses save?
On $80,000 of net income in Ontario, our calculator shows $3,828.15 less income tax and CPP. EI and GST/HST are not included.
- 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.