Updated Checked by the Tax-Services.ca editorial team How we check
Startup costs in Canada are usually deductible only if you’d already started the business when you spent the money. The CRA says you need to have “carried on a business” in the fiscal period the expense belongs to, so the date your business begins decides most of the answer. Spend before that date and the cost may be stuck. Spend after it and you can generally deduct reasonable current expenses, while big purchases go through capital cost allowance instead.
When does a business actually start?
Not when you get the idea, and not when you pick a name. The CRA looks for a significant activity that’s a regular part of the business or needed to get it going. Signing a lease, buying stock to sell, or taking your first order can count. Reading about franchises or comparing suppliers usually doesn’t. The CRA’s older bulletin on this topic (IT-364, now archived) says research done in the hope of entering some business isn’t the start of one.
Why care? Costs from before the start date can’t create a business loss to offset other income. If you’re weighing a purchase in late autumn and your first sale won’t come until January, the timing matters. Write down the day of your first real business step and keep the proof, like the signed lease or the first invoice.
Picture Dana in Saskatoon, who has been pricing out a mobile coffee cart for months. The browsing and the spreadsheets are research. The day she signs the cart rental and takes her first deposit from a wedding client is a much better candidate for the start date. She’d be wise to note that date, save the contract, and keep every receipt from then on in one folder.
Which startup costs are current and which are capital?
Current expenses are the ones that recur and get used up: rent, advertising, software subscriptions, supplies, professional fees for the business. You deduct them in the year you pay them. Capital costs buy something that lasts, like a van, a computer or shop equipment. You can’t deduct those in full. The CRA’s self-employed guide (T4002) says you claim capital cost allowance on capital property instead.
The guide gives a few tests. Does the cost give a lasting benefit? Does it improve the asset or only restore it? Is it a separate asset? If you repair used equipment to get it ready for your business, that repair counts as capital, even though a repair is normally current.
| Startup item | Usually treated as | How it reaches your return |
|---|---|---|
| Rent and utilities after opening | Current | Deducted in the year paid |
| Website hosting, ads, software subscriptions | Current | Deducted in the year paid |
| Legal or accounting fees for running the business | Current | Deducted in the year paid |
| Van, computer, shop equipment | Capital | Capital cost allowance over time |
| Fixing up used equipment before first use | Capital | Added to the asset’s cost |
| Research before you begin | Pre-business | Not deductible against income |
Some items sit in a grey zone, such as the cost of setting up a corporation. The treatment of those isn’t spelled out in the sources used for this page, so check the current guide before you claim them.
What does a startup cost do to your tax bill?
Take a sole proprietor in Ontario. Say the business took in $46,000 in its first year and spent $6,000 on deductible costs, so net income is $40,000. The self-employed tax calculator shows $8,564.63 of income tax plus CPP on $40,000. On $46,000 it would be $10,347.82. Those costs saved $1,783.19, and about $714 of it is lower CPP, with the rest lower income tax.
That’s about 30 cents back on each dollar spent, which is nice but still leaves you 70 cents out of pocket. A deduction softens a purchase. It never pays for it.
Now the other side. A $5,000 piece of equipment with 13% HST costs $5,650, as the GST/HST calculator shows. Getting the $650 back depends on your GST/HST registration, and those rules aren’t covered on this page. Check the CRA’s GST/HST pages before you plan around it.
Where should the startup money come from?
Many owners fund the first months with savings, a card or a credit line. Interest on money borrowed for the business is a cost worth tracking separately. Take a $22,000 balance at 8%. The line of credit calculator shows a $600 monthly payment clears it in 3.6 years and costs $3,311 in interest, if the rate never moves. Keep business and personal spending in separate accounts from the first day, because untangling them later is slow.
If you plan to incorporate, run the numbers on the corporate tax calculator before you buy anything big. And for a rough sense of whether the outlay pays back, the ROI calculator turns cost and expected value into a yearly return.
What should you keep from day one?
More than you’d guess. A simple startup folder holds the lease or rental contract, the first invoice or order, receipts for every purchase however small, and a short note of what each one was for. A $12 box of supplies is only a few bucks, so it feels too small to bother with. Fifty of them don’t.
If you buy something that’s part business and part personal, like a phone or a laptop you also use at home, write down the business share when you buy it. Guessing the split a year later is where people get into trouble.
Startup cost mistakes that cost money
The common one is claiming things from before the start date and hoping nobody asks. Another is putting a $3,000 laptop through as a supply, when it’s capital and belongs in capital cost allowance, which spreads the deduction over several years. People also forget receipts for small early purchases, and those add up.
The CRA puts the record rule plainly:
Keep your records for six years from the end of the last tax year they relate to, unless you have permission from the CRA to destroy them earlier.
Keeping Records, Canada Revenue Agency, canada.ca
That includes records made by accounting software. If a bookkeeper keeps them, you’re still the one responsible.
Some of this is judgement. How you group a cost, and whether it’s really capital, can be a judgement call. When the amount is large, ask an accountant before you file, not after.
Where this information comes from
The rules quoted here come from CRA pages on business start-up costs, the T4002 guide and record keeping, read on 30 September 2026. Tax figures in the example come from our 2026 federal and Ontario data. No level of government runs or endorses this site. Software, bank and lender prices are not covered, since they couldn’t be verified.
Frequently asked questions
Can I deduct costs from before I open?
Not against business income. The CRA says you must have carried on a business in the period the expense relates to, so costs before the start date generally don't count.
What's the difference between a capital and a current cost?
A current cost is used up or recurs, like rent or ads. A capital cost buys something lasting, like a van, and is claimed through capital cost allowance.
Do I need a corporation before I spend?
No. A sole proprietor can deduct eligible costs once the business has started. Incorporating changes how tax is calculated, not the start date test.
How long do I keep startup receipts?
The CRA says six years from the end of the last tax year the records relate to, including electronic records.
Is the HST on startup purchases refundable?
It depends on your GST/HST registration. We couldn't confirm the rules for this page, so check the CRA's GST/HST pages.
- 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