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As a sole proprietor you can deduct any reasonable current expense you paid to earn business income, and you pay tax only on what’s left. In our Ontario run, $10,000 of extra expenses on $80,000 of net income cut income tax and CPP by $3,828.
Which tax deductions for business owners apply most often?
The CRA’s expense chapter for the self-employed lists dozens of lines, but a handful cover most small businesses. The table shows the rule attached to each.
| Expense | What the CRA rule says |
|---|---|
| Meals and entertainment | Claim 50% of the lesser of what you spent or what was reasonable |
| Vehicle | Only the business share, based on kilometres driven |
| Home workspace | Share of heating, electricity, insurance and similar costs, if the space qualifies |
| Conventions | Attendance is deductible, up to two conventions a year |
| Equipment and property purchases | Not deducted at once, claimed through capital cost allowance |
| Fines, penalties, personal spending, your own draws | Not deductible |
The reasonableness test sits behind all of it. A cost has to be sensible for your business, and you need paper to show it. A receipt with a note on who you met and why takes ten seconds at the time and is hard to rebuild a year later.
How much does $10,000 of deductions save?
Take an Ontario sole proprietor with $80,000 of net business income before a further $10,000 of expenses. We ran the self-employed tax calculator twice. At $80,000 the total of income tax and CPP is $22,126. At $70,000 it’s $18,298. The gap is $3,828, or about 38 cents per dollar spent.
The expense still cost you the full $10,000, and the saving only softens it. A deduction never makes a purchase free. It makes it cheaper.
Here’s the same idea on a smaller scale. If you take a client to lunch and the bill is $400, you can claim 50%, which is $200. At roughly that 38 cents per dollar, the tax saved is in the ballpark of $75, so the lunch really cost you about $325. Still worth it if the client signs, but not a freebie.
The calculator counts income tax and CPP, and leaves out EI and GST/HST. Your real bill can differ, especially with other income in the household.
Can you deduct your home office?
You can if the space is your main place of business, or if you use it only for work and regularly meet clients there. Claim a fair share of the running costs, such as the area of your workspace divided by the area of the whole home. Mortgage interest and property tax can count. Mortgage principal doesn’t.
A quick example. Priya works from a 15 square metre room in a 150 square metre house, so the workspace is 10% of the home. If heating, electricity and home insurance come to $6,000 for the year, her share is $600. The numbers are made up, but the method is the one the CRA describes on its business-use-of-home expenses page.
There’s a limit that surprises people. The home office deduction can’t be more than your net business income before those expenses, so it can’t create a loss. The CRA puts it this way on that page:
you cannot use these expenses to increase or create a business loss.
Business-use-of-home expenses, canada.ca
Anything unused carries forward to a later year.
If you claim capital cost allowance on your home and sell it later, you can face recapture and a capital gain on the business part. So think that through before you claim CCA on your home.
What’s a current expense and what’s a capital one?
A repair that puts something back as it was is a current expense, and you deduct it in the year. An upgrade that adds lasting value is a capital expense, and it goes through capital cost allowance over time. The CRA looks at how long the benefit lasts, if it’s maintenance or improvement, if it’s a separate asset, and how big it is compared with the property.
So a new roof on your workshop and a patched one land in different places. We haven’t listed the depreciation classes and rates here, because we haven’t confirmed them on a CRA page. Look at the CRA’s capital cost allowance guidance before you buy anything big.
Where do owners go wrong?
Deducting the whole car when half the kilometres are personal is the top one. Then there’s the meal problem: the 50% cap catches people who write off 100% of client lunches. The same cap applies to meals on the road, including when you travel or go to a convention.
Paying yourself doesn’t count either. A sole proprietor’s draws aren’t a business expense, so don’t put them on the expense sheet. And watch the tax side of instalments. Once your profit is steady, the tax instalments calculator shows whether instalments may apply to you.
To judge what an extra dollar of deduction is worth at your income, try the marginal tax rate calculator. The result near $200,000 in Ontario looks high because the Ontario Health Premium rises from $750 to $900 between $200,000 and $200,600 of taxable income, so treat that one figure with care.
What should you do if you’re not sure an expense counts?
Keep the receipt anyway and write down why you bought it. If the cost is large or odd, check the CRA’s description of the expense line before you claim it, or ask an accountant. Leaving out a doubtful $50 is usually cheaper than explaining it later.
What this page is based on
The rules come from the Canada Revenue Agency guide T4002 (chapter 3, expenses) and its page on business use of home expenses, read in September 2026, and the 50% meals limit is on its page on types of operating expenses. Tax and CPP figures in the example come from 2026 federal and Ontario schedules. Incorporated owners follow different rules that we haven’t covered here. This is an independent guide, separate from any government body.
Frequently asked questions
What can a self-employed person deduct?
Any reasonable current expense paid to earn business income, such as the business share of vehicle costs, home workspace costs and meals at 50%.
How much of a business meal can I claim?
50% of the lesser of the amount you spent or a reasonable amount.
Is buying equipment a deduction?
Not all at once. The CRA treats it as a capital expense and you claim it through capital cost allowance.
Can my home office create a loss?
No. The claim can't exceed net business income before those expenses, and unused amounts carry forward.
Are my own draws deductible?
No. Money you pay yourself as a sole proprietor is not a business expense.
- 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