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Company tax deductions are the business costs a corporation subtracts from its revenue before the tax rate is applied. Each dollar you deduct saves tax at your corporate rate, not a full dollar. On a small Alberta company with $100,000 of profit, a $20,000 expense cuts the combined tax from $11,000 to $8,800, so it costs $17,800 after tax.
What can a company deduct?
The CRA’s rule of thumb is that an expense has to relate to earning business income. Rent, wages, insurance, office costs, advertising, software and professional fees usually fit that test. Personal costs don’t, even when they’re paid from the company account.
Keep the paper. The CRA’s own pages talk about logbooks and receipts as the proof it can ask for, and a deduction you can’t support is one you can lose.
Two categories behave differently from the rest. Meals and entertainment are limited to 50% of the lesser of what you spent and an amount that’s reasonable in the circumstances. And equipment that lasts more than a year usually isn’t deducted all at once.
How does capital cost allowance work?
When you buy a computer, a truck or a machine, you don’t write off the full price in year one. Instead the CRA has you group property into classes, and each class has a rate. Most claims use the declining balance method, so you take the rate on what’s left each year.
There’s also a half-year rule. In the year you buy something, you can usually claim only on half of the net additions to the class. The government has run temporary first-year boosts for some kinds of property in recent years, so check the CRA’s class table for the year you buy before you count on either number. And land can’t be depreciated at all.
Here’s the declining balance idea with plain numbers. Say you buy $10,000 of furniture and equipment, which sits in a class with a 20% rate. If the half-year rule applies, year one is $10,000 times 20% times one half, which is $1,000. Year two is 20% of what’s left, so 20% of $9,000, or $1,800. The claim keeps shrinking, and the balance never quite hits zero.
A CCA claim is optional. You can take less than the maximum in a low-profit year and save the room for a year when the tax rate hurts more. The CRA’s class table is long, so look up your class before you claim.
Which corporate rate does a deduction save at?
The one your last dollar of profit is taxed at. The CRA’s corporation tax rates page confirms the federal 15% and 9% figures and Ontario’s general 11.5%.
| Item | Rate |
|---|---|
| Federal general rate | 15% |
| Federal small business rate, first $500,000 | 9% |
| Alberta general rate | 8% |
| Alberta small business rate | 2% |
| Ontario general rate | 11.5% |
The small business rate needs a Canadian-controlled private corporation. The $500,000 limit is shared with associated companies, and it shrinks when taxable capital is between $10 million and $50 million or investment income is over $50,000. Alberta runs its own corporate tax, so check its small rate on alberta.ca.
Ontario’s small business rate is a separate story. It’s being cut on 1 July 2026, so a company whose year straddles that date gets a blend. Treat an Ontario answer for 2026 as an estimate, and use our corporate tax calculator only as a ballpark until you confirm the blended rate for your year-end.
What does a $20,000 expense really cost?
Here are the numbers for an Alberta company with $100,000 of active business income. Federal tax at 9% is $9,000 and Alberta at 2% is $2,000, so $11,000 in all, or 11%.
Spend $20,000 on a deductible expense and profit drops to $80,000. Federal tax falls to $7,200 and Alberta to $1,600. The total is $8,800, and you saved $2,200.
That’s 11 cents per dollar.
The spending still costs you $17,800 in the end, and a deduction never turns a purchase into a gain, however much a salesperson or an end-of-year rush makes it feel like one, so buy things because the business needs them.
On profit above the $500,000 limit the 15% federal general rate applies, so each dollar saved is worth more. The corporate tax calculator lets you change province and income.
Is your own pay a deduction?
Salary you pay yourself is a deductible expense for the company, and it’s taxable to you personally. A dividend works the other way round: the company doesn’t deduct it, and you pay personal tax on it. That’s why owners ask whether to take salary or dividends, and it’s a question for a bookkeeper or accountant who can see your whole picture.
Where do owners get caught out?
Mixing personal and business spending is the big one. Pay a personal bill from the company and you’ve handed the CRA a question you’d rather not answer. The deduction is the least of your worries then.
Timing matters too. A company’s tax is worked out on its own year-end, not the calendar, so a purchase just after year-end lands in the next year.
Also, the company deduction is only half the picture. When you pull profit out as a dividend, you pay personal tax on it. The dividend tax calculator shows that second layer. If you’re a sole proprietor with no corporation, the self-employed tax calculator is the right tool, though it leaves out EI and its deductions lower income tax but not CPP.
What we left out: how much you can write off for a home office, a vehicle or a per-diem meal rate. The rules differ by situation, so ask a bookkeeper who knows your industry. For a wider view of the savings that exist outside business, see how a tax incentive works.
Where these numbers come from
The federal rates and the small business deduction rules come from the CRA‘s corporation tax rates page and the T2 return guide. The 50% meals limit and the capital cost allowance rules come from CRA business expense pages. Alberta and Ontario rates are from the provincial tax pages, checked in September 2026 as noted above. This is an independent guide, not government advice.
Frequently asked questions
What can a company deduct?
Costs that relate to earning business income, such as rent, wages, insurance, advertising and professional fees. Personal costs don't qualify.
How much of a business meal can be deducted?
The CRA limits meals and entertainment to 50% of the lesser of the amount spent and a reasonable amount.
Can I deduct the full cost of equipment in one year?
Usually not. Equipment is grouped into classes for capital cost allowance, generally on a declining balance, and only half of net additions count in the year of purchase.
What is the federal small business rate?
It's 9% on the first $500,000 of active business income for a Canadian-controlled private corporation. The limit is shared with associated companies.
Does a deduction save the full amount spent?
No. It saves tax at your corporate rate. At a combined 11%, a $20,000 expense saves $2,200.
- How Canadian income tax works: brackets and credits
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