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Business write offs are expenses you subtract from your business income before tax, so they only help if the spending was genuinely for the business. On $50,000 of net income in Ontario, an extra $4,000 of valid expenses trims the tax and CPP bill by about $1,147. It’s a real saving, but you still spent the other $2,853 yourself.
What counts as a write off?
The CRA’s tests are plain. The cost has to be incurred to earn business income, it has to be reasonable, and it has to be a current expense rather than a capital purchase. Personal costs are out, even when they feel business-adjacent. The CRA’s own page on types of operating expenses says that in most cases you can’t deduct personal and living expenses.
Current expenses come off in the year you pay them. A laptop or a work truck is capital property, so you can’t deduct the price directly. You claim capital cost allowance on it over time instead, on line 9936 of form T2125. Office furniture and calculators fall on the capital side too.
Which expenses show up on the T2125?
The form has named lines, and knowing them saves you from inventing categories.
| Line | Expense | A rule worth knowing |
|---|---|---|
| 8521 | Advertising | Restricted for foreign periodicals |
| 8523 | Meals and entertainment | Only 50% is allowed |
| 8690 | Insurance | Life insurance premiums are generally not deductible |
| 8860 | Professional fees | Fees on a capital purchase go into the asset’s cost |
| 9060 | Salaries and wages | Your own drawings don’t count |
| 9281 | Motor vehicle | Business part only, and CCA goes on line 9936 |
How do you write off part of your home?
Only if the space is your principal place of business, or you use it only for earning business income and regularly meet clients there. The claim covers a share of things like heating, electricity, insurance, property tax and rent. The share comes from a reasonable basis, such as the workspace area divided by the whole home. The CRA’s page on business-use-of-home expenses sets out the conditions.
Here’s the catch that trips people up. The home claim can’t create or increase a business loss, so it’s capped by your net business income. Whatever you can’t use carries forward to the next year, as long as you still meet the conditions.
What does a write off save you on real numbers?
Take a freelancer in Ontario with $50,000 of net income. The self-employed tax calculator gives income tax plus CPP of about $11,495. Enter $46,000 to reflect $4,000 of valid expenses and it falls to about $10,348. The difference is $1,147, or roughly 29 cents on each dollar written off. Put another way, a $4,000 expense really costs you about $2,853 after tax.
Now a meals example. If you spent $1,200 on client lunches, the deductible part is $600. The other $600 is just your cost, the price of doing business over a few too many double-doubles.
To see what you’d owe on a different figure, run the income tax calculator or check how much tax you’d pay in instalments with the instalment calculator.
What mistakes turn a write off into a problem?
Claiming the personal half of a phone bill is the classic one, and it’s the kind of thing that looks harmless on a busy Friday afternoon when you’re filling in the form and the bill is sitting right there. Others are deducting a capital purchase in one go, forgetting that the meals limit is 50%, and mixing your own drawings into salaries.
If you’re registered for GST/HST and claim input tax credits, the CRA says to reduce the related expense by the credit. Claiming both in full counts the same cost twice.
The CRA’s line 8523 page confirms the 50% cap on food, beverages and entertainment, and it applies to the lesser of what you spent and a reasonable amount.
What records should you keep?
Keep the paperwork. Records need the date, seller and what you bought, and stay six years. Our guide to business bookkeeping lists what goes in the file, and the profit margin calculator tells you if your prices leave anything after the costs. A shoebox of receipts works, as long as you can lay your hands on the one you need.
What can’t this page tell you?
The calculator takes one net income figure. It doesn’t total your expenses, doesn’t include EI or GST/HST, and it treats your entry as final. No dollar limit for vehicle or home claims was confirmed here, so read the CRA guide T4002 before you claim them.
Where does this information come from?
The rules come from the Canada Revenue Agency pages on business expenses, business-use-of-home expenses and form T2125. Figures in the example come from our calculator, using 2026 federal and Ontario tax rates. This site isn’t connected to the CRA.
Frequently asked questions
Can I write off my whole phone bill?
Only the part used for the business. Personal use isn't deductible.
How much of a business meal can I deduct?
The CRA allows 50% of the lesser of the amount spent or a reasonable amount.
Can I buy equipment and deduct it all at once?
Not usually. Capital property is claimed as capital cost allowance over time.
Can a home office claim create a loss?
No. It can't be more than your net business income before the claim, and unused amounts carry forward.
Do I get all the money back when I write something off?
No. You save tax only on the amount, roughly 29 cents on the dollar in our Ontario example.
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