Every deductible expense for self-employed Canadians and small business owners — with CRA rules and audit tips
Deducting legitimate business expenses is not tax avoidance — it is exactly what the Income Tax Act intends. Expenses incurred for the purpose of earning business income are deductible against that income, reducing your net taxable income and your tax bill. This guide covers every major expense category the CRA recognizes, the deductible percentage, and what documentation you need.
| Expense Category | Deductible % | CRA Notes |
|---|---|---|
| Advertising & Marketing Google Ads, Facebook Ads, print ads, business cards, website design, branded materials | 100% | Must be for Canadian or "general" audience. Ads in foreign media limited to 50% if primarily serving Canadians. |
| Meals & Entertainment Business meals with clients, entertainment, golf, sporting events | 50% | Must have a clear business purpose. Keep receipts noting who attended and the business purpose. See our full guide. |
| Office Expenses Pens, paper, printer ink, staples, file folders, desk supplies | 100% | Consumable supplies used in the office. Keep receipts. |
| Software & Subscriptions Adobe CC, Microsoft 365, accounting software, project management tools, cloud storage | 100% | Must be for business use. Personal subscriptions (Netflix, Spotify) are not deductible. |
| Professional Fees Accountant, bookkeeper, lawyer, consultant fees paid | 100% | Business purpose required. Legal fees for personal matters not deductible. |
| Phone Monthly cell phone plan, business line | Business % | Allocate based on business vs personal use. A separate business-only phone is 100% deductible. |
| Internet Home or office internet service | Business % | Many freelancers claim 50–80% if internet is critical to their work. Keep bills. |
| Home Office Rent, utilities, insurance, maintenance (business-use portion) | Business % | Part 7 of T2125. Cannot create a business loss. See our home office guide. |
| Vehicle Expenses Fuel, insurance, maintenance, registration, loan interest | Business % | Logbook required. Business km ÷ total km. See our vehicle expense guide. |
| Travel Flights, hotels, car rental, taxis, ground transport for business trips | 100% | Must be primarily for business. Mixed personal/business trips: deduct business portion only. Keep boarding passes, hotel receipts. |
| Professional Development Courses, seminars, conferences, textbooks, professional journals | 100% | Must be to maintain or improve skills for current business. Training for a new career is not deductible. |
| Rent (business premises) Office, studio, workshop, storage unit rent | 100% | Separate commercial space is fully deductible. Keep lease agreements and payment records. |
| Wages & Salaries Employees, subcontractors, assistants | 100% | Employees: must withhold CPP/EI/tax and remit. Subcontractors: get their GST/HST number. Issue T4A if paid $500+. |
| Insurance (business) E&O, liability, business property insurance | 100% | Business insurance is fully deductible. Personal life insurance premiums are not. |
| Bank & Credit Card Fees Monthly account fees, transaction fees, merchant fees | 100% | Business account fees only. Personal banking fees are not deductible. |
| Interest on Business Loans Line of credit interest, business loan interest | 100% | Only the interest portion — not principal repayments. Loan must be for business purposes. |
| Capital Purchases (CCA) Computers, cameras, equipment, furniture, vehicles | CCA Rate | Depreciated over time, not fully deducted in year of purchase. Different CCA classes apply. |
| Startup Costs Pre-opening expenses, market research, incorporation fees | 100% | Generally deductible in the year incurred or first year of business. See startup cost guide. |
| Bad Debts Client invoices you cannot collect | 100% | Must have been previously included in income. Take reasonable steps to collect before writing off. |
| Health Insurance (PHSP) Private Health Services Plan contributions | 100% up to limit | Sole proprietors limited to $1,500/person. Incorporated businesses have more flexibility. |
| Subscriptions & Dues Professional association fees, trade journals, LinkedIn Premium | 100% | Must be relevant to your business. Club memberships (golf, fitness) are specifically NOT deductible. |
| Gifts to Clients Holiday gifts, client appreciation items | 100% | If the gift includes entertainment (e.g., tickets to a show), the 50% meal/entertainment rule applies instead. |
| Postage & Shipping Courier, Canada Post, packaging materials | 100% | Keep records of business-purpose shipments. |
| Club Memberships Golf club, fitness club, dining club | 0% — Not Deductible | Specifically excluded by the Income Tax Act. Even if used for business purposes. |
| Personal Clothing General work attire, suits | 0% — Not Deductible | Clothing that can be worn outside work is personal. Exception: uniforms or protective gear required for work (hard hat, safety vest, etc.). |
| Commuting Travel from home to regular office/workplace | 0% — Not Deductible | Commuting is personal travel. Exception: if your home IS your principal place of business, trips to client sites count as business travel. |
When you purchase a business asset costing more than approximately $500, it usually cannot be fully deducted in the year of purchase. Instead, it is added to a CCA class and depreciated over time:
| CCA Class | Rate | Common Assets |
|---|---|---|
| Class 8 | 20% | Office furniture, equipment, most tools, printers, cameras |
| Class 10 | 30% | Vehicles costing $36,000 or less (2026) |
| Class 10.1 | 30% | Vehicles costing over $36,000 (capped at $36,000) |
| Class 50 | 55% | Computer hardware and systems |
| Class 12 | 100% | Small tools under $500, software (some), video cassettes |
| Class 14.1 | 5% | Goodwill, customer lists, some intangibles |
The Accelerated Investment Incentive (AII) allows 150% of the normal first-year CCA deduction for eligible property acquired after November 20, 2018 — providing faster tax write-offs on new equipment purchases.
The CRA requires that all business expenses be "reasonable in the circumstances." This means a sole proprietor with $60,000 in revenue probably cannot justify $40,000 in advertising expenses. Expenses must be proportionate to your business size and type. If an auditor reviews your file, they will apply common sense — does this expense make sense for this type and size of business?
The CRA requires all supporting documentation to be kept for six years from the end of the tax year they relate to. This includes: receipts, invoices, bank statements, credit card statements, contracts, logbooks, and any other documents that support your claimed deductions. Digital copies are fully accepted — apps like Dext, AutoEntry, or simply a well-organized Dropbox folder work perfectly.
Pay all business expenses through your KOHO business account and get a clean monthly statement — perfect for T2125 preparation and CRA audit defence.