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Small business tax deductions in Canada come down to one test: the cost has to be spent to earn business income. Each allowed dollar comes off your profit before tax. On $90,000 of net income in Ontario, a further $10,000 of legitimate expenses saves $3,246.40 of income tax and CPP combined.
What makes an expense deductible?
The CRA’s test is whether the money was spent to earn income from the business. Personal costs don’t qualify. A cost with both uses can only be claimed for its business share, and that split is where most arguments start. Keep the receipt, note what it was for, and you’ve done most of the work.
The examples people usually think of are office costs, insurance, advertising, phone and internet for the business, professional fees and business travel. We aren’t listing limits for each one here. The CRA’s business expenses pages set them out by type, and they’re worth reading before you file.
Which deductions have limits you should know?
| Cost | What the CRA says |
|---|---|
| Meals and entertainment | Maximum 50% of the lesser of the actual cost or a reasonable amount |
| Home workspace | Allowed if it’s your main place of business, or you use it only for business and regularly meet clients there |
| Home workspace ceiling | Can’t create or increase a business loss; unused amounts carry forward |
| Home capital cost allowance | Claiming it can bring capital gain and recapture rules if you sell |
| Records | Keep for six years from the end of the last tax year they relate to |
The meals rule surprises people. Spend $2,000 on client lunches and the most you can claim is $1,000. There are exceptions, such as up to six office parties a year where all employees are invited, and costs billed directly to clients.
For the home, the CRA suggests a reasonable basis such as the area of the workspace divided by the area of the home. Pick a method, apply it the same way each year and keep the measurements.
What is a deduction worth in dollars?
Here’s the same sole proprietor in Ontario at two profit levels, from the self-employed tax calculator.
| Net business income | Income tax | CPP, both halves | Total |
|---|---|---|---|
| $90,000 | $16,079.97 | $9,292.90 | $25,372.87 |
| $80,000 | $13,233.57 | $8,892.90 | $22,126.47 |
So $10,000 of allowed expenses saves $3,246.40, about 32 cents on the dollar at that income. It isn’t free money. You still spent $10,000 to save $3,246, so buying something only for the deduction is a losing trade. Spend when the business needs it.
The calculator has a separate deductions box, and that’s for items like an RRSP contribution, not for business costs. Enter expenses by lowering your net income. A $6,000 RRSP deduction on $80,000 cuts income tax from $13,233.57 to $11,304.57, but it doesn’t touch CPP. The RRSP calculator covers the growth side.
What if you run a corporation?
Most operating expenses work the same way, because the company deducts them from its own income. On $300,000 of active business income, the corporate tax calculator shows $35,088 of tax in Ontario for calendar 2026, or 11.7%. Every $10,000 of allowed expense would lower that by about $1,170. Ontario’s rate changed on July 1, 2026, so that 11.7% is a blended figure we worked out, and a company with another year end will see something different.
Then GST/HST. Registered businesses can often claim back the tax they pay on business purchases, but we haven’t confirmed the rules here, so check the CRA page for your case. Our GST/HST calculator shows how much tax sits inside a price.
Which mistakes trigger trouble?
Mixing personal and business spending is the big one. A single account for both makes the receipts hard to defend if the CRA asks. Claiming all of a phone bill that you also use at home comes next. Deducting full meals is a third. It’s half, so claiming the whole bill is an error.
Also watch the pull to inflate. A claim you can’t back up can be refused, and the interest and penalties can cost more than the deduction. If you’re weighing a form of business, read our guide to small business income tax too.
Where the numbers come from
Expense rules, the 50% meals limit, home workspace conditions and record keeping come from Canada Revenue Agency pages. Examples use this site’s calculators with 2026 data checked on September 29, 2026. They exclude EI, GST/HST and most credits. This site has no link with any government body.
Frequently asked questions
What makes a business expense deductible?
You must have spent it to earn business income. Personal costs don't count, and mixed costs can be claimed only for the business share.
How much of my business meals can I deduct?
The CRA allows a maximum of 50% of the lesser of the actual cost or a reasonable amount, with a few listed exceptions.
Can I deduct a home office?
Yes, if it's your main place of business, or you use it only for business and regularly meet clients there. It can't create or increase a loss.
How long do I keep receipts?
Six years from the end of the last tax year they relate to, unless the CRA says otherwise.
What is $10,000 of expenses worth?
About $3,246 of income tax and CPP at $90,000 of net income in Ontario, by our calculator.
- 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.