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To claim business expenses on your Canadian taxes, the cost has to be a reasonable current expense you paid to earn business income. Self-employed people report these on form T2125. At $80,000 of net income in Ontario, an extra $5,000 of valid expenses cuts the combined income tax and CPP bill by about $1,913.
What can you actually deduct?
The CRA’s rule is short. You can generally deduct any reasonable current expense you incur to earn business income. Pens and paper count. So do minor repairs, advertising, software subscriptions and the phone bill for the business line.
What you can’t do is deduct the cost of capital property in one go. The CRA’s examples are calculators, filing cabinets, chairs and desks. Those go through capital cost allowance, or CCA, which lets you deduct a part of the cost instead. Capital repairs are treated the same way, while minor repairs and maintenance are deductible in full.
Meals are the one that trips people up. The most you can claim for food, drinks and entertainment is 50% of the amount you spent, or of a reasonable amount if that’s lower. A $200 client dinner gets you a $100 deduction, at best.
How does a home office claim work?
If you work from home, you may claim a share of heating, home insurance, electricity, cleaning materials, property taxes and mortgage interest. CCA on the home is also allowed, though it comes with a catch: if you claim it, capital gain and recapture rules can apply when you later sell the house. Most people skip that one.
You need one of two things. Either the space is your main place of business, or you use it only to earn income and you regularly meet clients or patients there.
The split has to be reasonable. The usual basis is the workspace area divided by the total floor area. If a room does double duty, work out the hours it’s used for business, divide by 24, and apply that to the business part of your costs.
And one hard limit: home expenses can’t create or increase a business loss. They’re capped at your net business income.
What is it worth to claim?
Here’s a real comparison from the self-employed tax calculator, for an Ontario sole proprietor.
| Net business income | Income tax | CPP | Total |
|---|---|---|---|
| $80,000 | $13,234 | $8,893 | $22,126 |
| $75,000 | $11,720 | $8,493 | $20,213 |
So a $5,000 expense saves about $1,913, or 38 cents on the dollar. That’s a benefit of a genuine cost, not a discount. You still spent the $5,000. Spending money only to get a deduction leaves you $3,087 poorer.
Enter net income, after your expenses, in the tool. Its separate deductions box lowers income tax but doesn’t touch CPP, so it’s the wrong place for business costs. It also leaves out EI and GST/HST. Use the income tax calculator if you also have employment income, and the marginal tax rate calculator to see what the next dollar of income costs you.
What records should you keep?
Receipts, invoices and statements. That’s it. A neat spreadsheet isn’t the test, but you do need to show that each claim is a real cost with a business purpose. A card statement alone doesn’t say what you bought.
Keep personal and business spending on separate cards. It’s the cheapest fix there is for a messy return. If you also collect GST/HST, our page on online store taxes covers the sales side, and the tax season checklist covers timing.
Where these numbers come from
The rules are from the Canada Revenue Agency’s pages on business operating expenses, business-use-of-home expenses and the T4002 guide. Tax figures come from this site’s self-employed calculator, using 2026 rates. We didn’t state motor vehicle limits, because the CRA page we read sends you to another guide for those.
Frequently asked questions
What business expenses can I claim in Canada?
Any reasonable current expense you incur to earn business income, such as supplies, minor repairs, advertising and a business phone line.
How much of a business meal can I claim?
The CRA says the maximum is 50% of the amount you spent, or of a reasonable amount if that's lower.
Can I claim a home office?
Yes, if it's your main place of business, or you use it only for income and meet clients there regularly. The claim can't create a business loss.
Can I deduct a laptop or desk in full?
Not as a current expense. The CRA treats items like desks and chairs as capital, so you claim capital cost allowance instead.
How much tax does a $5,000 expense save?
For an Ontario sole proprietor at $80,000 net income, our calculator shows about $1,913 less income tax and CPP. Your figure will differ.
- 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
- Ontario income tax and sales tax in 2026
How Ontario income tax works in 2026: the five brackets, the surtax and health premium, the 13% HST, and the calculators that switch to Ontario
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.