Running a small business in Canada can feel like a bit of a financial juggling act, but it also opens the door to some fantastic tax opportunities if you know where to look.
If you own a small business in Canada, getting a handle on what you can and can’t deduct can really pay off come tax season. Let’s sort through which business expenses the CRA allows you to write off, and we’ll also touch on a few things that might seem deductible but actually aren’t.
So, let’s dive in and figure out what “eligible expenses” really mean according to CRA guidelines!
1. What Are CRA-Eligible Business Expenses?
The Canada Revenue Agency (CRA) says that eligible business expenses are basically any reasonable costs you rack up to earn income for your business. This can include everything from office supplies and rent to mileage, advertising, and even part of your utilities—as long as they’re directly tied to how you run your business.
Current vs. Capital Expenses
- Current expenses: everyday costs like paper, phone bills, or travel.
- Capital expenses: long-term purchases like computers, vehicles, or office furniture (deducted over time through the Capital Cost Allowance system).
The CRA’s “Reasonable Expectation” Standard
- It should be incurred to earn income.
- You’ll need documentation to back it up (receipts, invoices, or logs).
- It should be reasonable in both amount and nature for your type of business.
Why Record-Keeping Matters
Keep all supporting documents for at least six years in case of a CRA review. They can refuse any expense without proper documentation.
2. The Complete List of CRA-Eligible Business Expenses
A. General Operating Expenses
- Office supplies
- Utilities (for commercial office space)
- Telephone and internet (business-use portion)
- Rent
- Insurance
- Interest on business loans and bank fees
- Repairs and maintenance
- Delivery and shipping
- Property taxes (commercial)
B. Home Office Expenses
Deduct a percentage of costs if your home is your primary business space.
- Rent or mortgage interest
- Property taxes
- Utilities
- Insurance
- Internet
- Maintenance
C. Vehicle Expenses
- Fuel, maintenance, repairs
- Insurance and registration
- Lease or loan interest
- Parking and tolls
- Depreciation (CCA)
D. Travel and Meals
- Transportation (airfare, taxis, rentals)
- Accommodations
- 50% of meals while traveling
E. Meals & Entertainment
- Meals with clients (50% deductible)
- Tickets to events (limited deductibility)
- Staff parties (may be 100% deductible)
F. Professional Fees and Management
- Accounting and bookkeeping
- Legal and consulting services
- Tax filing or CRA representation
G. Salaries, Wages, and Contractor Payments
- Salaries and wages
- Employer CPP, EI, and benefits
- Subcontractor fees
H. Capital Assets & Depreciation (CCA)
- Computers and tech equipment
- Furniture
- Vehicles
- Heavy machinery
I. Advertising & Promotion
- Online/social ads
- Business cards, flyers, signage
- Sponsorships and trade booths
- Website development and hosting
J. Business Taxes, Fees, Licenses, and Memberships
- Business licenses and permits
- Annual incorporation fees
- Professional association dues
- Chamber of commerce memberships
- Online subscriptions (QuickBooks, Canva, Dext)
3. Common Mistakes and Red Flags to Avoid
Claiming Personal Expenses
Don’t mix personal and business costs. Only deduct the business-use portion of mixed expenses.
Overstating Home Office or Vehicle Usage
Be realistic. Use square footage for offices and mileage logs for vehicles.
Missing or Incomplete Documentation
- Receipts and invoices
- Contracts
- Mileage logs
- Bank statements (with receipts)
Misclassifying Contractors vs. Employees
If you control how/when work is done, the CRA may consider them employees. This triggers payroll obligations and potential backdated penalties.
4. Expenses You Can’t Write Off (But Many People Think You Can)
Clothing and Grooming
Not deductible unless it’s protective gear (e.g., steel-toe boots).
Fines and Penalties
Parking tickets, speeding fines, late filing penalties, and tax interest are not deductible.
Club Memberships and Entertainment
Golf clubs, gyms, and social memberships are generally non-deductible. Entertainment like concerts or hockey games are usually non-deductible too.
Life Insurance Premiums
Generally not deductible unless required as collateral for a loan.
Mortgage Principal Payments
Mortgage interest and related expenses may be deductible, but the principal is not.
Meals for Yourself While Working from Home
Not deductible unless tied to client meetings or business travel.
5. How to Maximize Your Deductions Legally
Use Accounting Software or Hire a Professional
Tools like QuickBooks or Dext help with tracking. A bookkeeper can provide clarity, strategy, and ensure you don’t miss deductions.
Separate Business and Personal Finances
Use dedicated accounts to keep expenses clear, justify deductions, and create an audit trail.
Track Expenses in Real Time
- Save and categorize receipts weekly
- Use receipt apps like Dext
- Maintain a mileage log
Understanding what you can and can’t deduct is a smart way to lower your tax bill and keep more of your hard-earned money. But it’s even more crucial to track those expenses accurately and make sure you’re following CRA rules.
Navigating the complexities of tax deductions can be tricky, but you don’t have to do it alone! Reach out to us, and we’ll help you get every deduction you are entitled to.
Disclaimer
This blog provides general information and should not be seen as legal advice. Always consult a lawyer before making any final decisions.
