Business Expense Deductions Canada 2025

What self-employed Canadians can deduct from business income, how to claim it on Form T2125, and what records the CRA requires.

The Golden Rule of Business Deductions

The CRA's test for deductible business expenses is simple in principle: the expense must be incurred for the purpose of earning income from your business and must be reasonable in the circumstances. An expense that is personal in nature, capital in nature (i.e., a long-lived asset), or specifically prohibited by the Income Tax Act cannot be deducted as a current business expense. When an expense is mixed personal and business, only the business portion is deductible.

Fully Deductible Business Expenses (100%)

Category	Examples	Notes
Advertising and promotion	Google Ads, Facebook Ads, flyers, business cards	Must be for Canadian audience (some restrictions for foreign media)
Professional fees	Accountant, lawyer, consultant	For business purposes only
Office supplies	Paper, printer ink, pens, folders	Keep all receipts
Software subscriptions	Microsoft 365, QuickBooks, Canva	Business-use subscriptions
Bank charges	Monthly fees, transaction fees	Business account only
Insurance (business)	E&O, business liability	Not personal life or health insurance
Subcontractor payments	Freelancers, contract workers	May need to issue T4As
Courier and postage	Canada Post, FedEx for business	Business mail/shipping only
Professional development	Courses, books, conferences	Must relate to current business

Partially Deductible Expenses

Meals and entertainment (50%): Business meals with clients, entertainment at events where business is discussed — only 50% is deductible. The CRA requires that you record the business purpose, date, location, and the names of people entertained. Keep all receipts. Note that 100% of food and beverages at a company-wide event (e.g., holiday party for all staff) may be deductible.

Vehicle expenses (business %): Calculated as business kilometres divided by total kilometres for the year. Requires a mileage logbook. Includes gas, insurance, repairs, maintenance, registration, loan interest (max $10/day), and CCA on the vehicle value.

Home office (business %): Calculated based on the proportion of the home used regularly and exclusively for business. Typically the square footage of the dedicated workspace divided by total home square footage, multiplied by eligible home expenses.

Phone and internet (business %): A reasonable estimate of business use. Most self-employed Canadians claim 50–80% depending on how heavily they use these for work.

Capital Cost Allowance (CCA): Deducting Assets Over Time

Major purchases that have a useful life of more than one year (computers, cameras, office furniture, vehicles) are generally not deducted in full in the year of purchase. Instead, they are capitalized and depreciated through Capital Cost Allowance over multiple years. Each asset class has a prescribed CCA rate: computer equipment is Class 10 (30%) or Class 50 (55%); office furniture is Class 8 (20%); vehicles are Class 10 (30%). The half-year rule applies in the year of acquisition, allowing only 50% of the normal CCA in the first year.

Record-Keeping Requirements

The CRA requires you to keep all business records for a minimum of 6 years from the end of the tax year they relate to. For expense claims, you need: original receipts showing vendor name, date, amount, and a description of what was purchased; mileage logbooks for vehicle claims; home workspace measurements and utility/rent records for home office claims; and bank and credit card statements to corroborate expense records. Digital copies of receipts are acceptable, but ensure they are legible and backed up securely.