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Self employed tax deductions in Canada come down to one test: the cost must be reasonable and spent to earn your business income. Pass it, and every $6,000 of expenses on a profit of $86,000 cuts your Ontario income tax and CPP bill by about $2,060.
What can you deduct as a self-employed person?
The CRA lists the usual categories on its business expenses page, and they read like a normal week of running a business. Advertising, professional fees such as an accountant or lawyer, business insurance, rent and utilities for business premises, salaries, supplies, office materials and travel all qualify. Meals qualify at half.
A few limits apply before anything else.
| Item | The rule |
|---|---|
| Personal costs | Never deductible. Mixed costs, only the business share |
| Meals and entertainment | 50% of the lesser of what you spent and a reasonable amount |
| Capital property | Not an expense. You claim capital cost allowance instead |
| Home workspace | Business share only, and it can’t create a loss |
| Records | Keep them, generally for six years |
A laptop is the classic capital case. You don’t write off the price in one go as if it were paper, you claim it under the capital cost allowance rules. Supplies you use up are different, and they’re deducted in the year you buy them.
Money you pay yourself isn’t an expense either. Sam, a freelance photographer in Halifax, can’t deduct the $2,000 she moves to her personal account each month. Her profit is taxed whether she spends it or leaves it sitting in the business account.
How does the meals limit work in dollars?
Take a $200 dinner with a client, assuming the amount is reasonable. Only half counts, so you deduct $100. At the 34 cents per dollar worked out below, that saves you roughly $34, which means the dinner still cost you about $166 after tax. Handy to know before you reach for the bill.
How does the home office deduction work?
You can claim a share of your home costs, but only if the workspace is your principal place of business, or you use it only for business and meet clients, customers or patients there on a regular basis. A corner of the sofa doesn’t count.
The share is on a reasonable basis, and the CRA’s own example is the area of the workspace divided by the area of the home. That share of heating, electricity, home insurance and cleaning supplies is deductible. So are the same share of property tax and mortgage interest. Mortgage principal isn’t deductible.
As an illustration, say your workspace is 100 square feet in a 1,000 square foot home. That’s 10%. If heat, electricity and insurance come to $4,800 for the year, the business share is $480. The numbers here are made up to show the method, so use your own.
Now the catch. Home expenses can’t be more than your net income from the business, so they can’t create or increase a loss. Whatever you can’t use carries forward to the next year while you still qualify. And if you claim capital cost allowance on the part of your home you use for business, a later sale can bring capital gain and recapture rules into play, so most people skip that particular claim.
How much tax does a deduction save?
Here’s a number to hold onto. Put $86,000 of net business income for an Ontario resident into the self-employed tax calculator. It shows $14,893.97 of federal and Ontario income tax and $9,292.90 of CPP, for $24,186.87.
Now say $6,000 of that came from spending you can prove and forgot to claim, so your real profit is $80,000. Income tax falls to $13,233.57 and CPP to $8,892.90. The total is $22,126.47, so you save $2,060.40 on $6,000, or about 34 cents per dollar.
Notice the CPP part. The calculator’s own deductions box lowers income tax but not CPP, so we entered the profit after expenses instead. That’s also how it works on a real return, since CPP is worked out on your net profit.
Expenses have a price too. You spent the money, so a deduction only gets back part of it. It never makes a purchase free. The income tax calculator and the marginal tax rate calculator show what your next dollar of income is taxed at.
What mistakes get expenses refused?
Poor records first. The CRA expects a record for every claim, and generally wants them kept six years from the end of the last tax year they relate to. A bank line isn’t a receipt.
Second, personal spending dressed up as business. A phone or car used for both needs a fair split, and you should be able to say how you got it. Third, claiming meals in full. Fourth, forgetting that GST/HST you claim back as an input tax credit reduces the expense you deduct. If you’re registered, the GST and HST calculator separates the tax from the price.
What about the vehicle, the phone, the cost of a trip? Those rules aren’t set out here, because the current detail wasn’t confirmed on full CRA pages. Look up motor vehicle expenses and travel expenses on canada.ca before you claim them.
Deductions lower tax owing, but you still pay in instalments if the bill is big. Estimating one? Expecting $9,000 of tax means four $2,250 payments in the tax instalments calculator.
What is a simple habit that makes tax time easier?
Sort receipts as you go. Once a week, take five minutes to photograph anything new and note whether it’s business, personal or split. It’s a small chore, and it beats a shoebox of faded paper in April, when you’re guessing what a $42 charge was for.
Where the numbers come from
Expense categories, the 50% meals limit, the home workspace rules and the six year record period come from Canada Revenue Agency pages on business expenses, business-use-of-home expenses, meals and entertainment and business records, read in 2026. The tax and CPP figures use the 2026 federal and Ontario data on this site and are estimates for an Ontario resident with no other income. This site isn’t affiliated with the CRA and gives general information only.
Frequently asked questions
Can I deduct my meals as a self-employed person?
Only half. The limit is 50% of the lesser of what you spent and a reasonable amount, with a few exceptions such as meals you bill to a client.
Can my home office create a business loss?
No. Home workspace expenses can't be more than your net business income, and unused amounts carry forward.
Is mortgage principal deductible?
No. Only the business share of mortgage interest counts, along with property tax and other home costs.
How long do I keep my records?
Generally six years from the end of the last tax year they relate to.
Is a laptop an expense I deduct at once?
Not usually. It's capital property, so you claim capital cost allowance instead of the full price in one year.
- 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