Canada's Business Expense and Tax Deduction Rules
Business Expenses & Tax Deductions for Canadian Businesses
This is a general list of deductible business expenses for Canadian small businesses. Click on the linked business expense in the list to be taken to pages with more information about using that particular business expense as a tax deduction on your Canadian income tax.
Note: This list is not all-inclusive. If the item you're thinking of using as a business tax deduction isn’t on this list, that doesn't mean it’s not a legitimate business expense.
The Canada Revenue Agency (CRA) defines a deductible business expense as “any reasonable current expense you paid or will have to pay to earn business income”.
Common Business Expenses
- Accounting & Legal fees (related to business activities)
- Advertising expenses (see also: 10 Low-Cost Ways to Promote Your Business)
- Automobile expenses (business use of a vehicle expenses and Capital Cost Allowance deductions on the purchase of a vehicle - see What Motor Vehicle Expenses Can You Claim on Income Tax in Canada? and How to Claim CCA (Capital Cost Allowance) on a Vehicle Bought for Business Use)
- Bad Debts (moneys owed to you that you are unable to collect)
- Bank Charges
- Business Taxes & Business Licenses
- Cloud Computing Service Provider Fees
- Collection Agency fees
- Conference and Convention fees
- Expert Advice (consultant fees, for instance)
- Interest expenses (on money borrowed to run your business)
- Insurance expenses (for buildings, machinery or equipment)
- Internet Service Provider (ISP) fees (for business use)
- Membership Dues (for business-related organizations, also includes subscriptions to business-related publications)
- Meals and Entertainment expenses
- Office Rent/Lease expenses
- Office Supplies expenses
- Postage & Courier expenses (shipping and delivery)
- Private Health Service Plan (PHSP) premiums - you can deduct PHSP premiums you pay to insure yourself or any member of your household as long as you are actively involved in your business and it provides more than 50% of your total income
- Promotion expenses
- Property Taxes
- Repair & Maintenance expenses
- Salaries of employees – including salaries of family members (employing family members is an excellent way to save on taxes by income splitting). Note that you cannot pay family members a salary over and above what you would pay someone else to do the job.
- Business Software (for example, office suites and tax preparation and accounting software)
- Telephone/Telecommunications expenses
- Travel expenses
Business Expenses and Tax Deductions Especially for Home-Based Businesses
Note that if you are operating a home-based business you must separate the business portion of expenses from personal expenses. For example, you cannot deduct all of the mortgage payment on your home or your entire electricity bill - you can deduct a portion based on the percentage of your home used for business purposes.
Other Tax Deductions for Payroll Employees
- Employer-paid premiums for Canada or Québec Pension Plan contributions
- Employment Insurance
- Workers' Compensation
- Sickness, accident, disability or income insurance plans
In addition to deductions for business expenses, there are various tax credits which your business may qualify for, including:
- Scientific Research and Experimental Development Tax Credits - if your business is engaged in qualifying scientific research and development you may be eligible for a tax credit
- Investment Tax Credits - this includes credits for apprenticeship job creation, investments in qualifying property, child care spaces, etc. (see Investment Tax Credits for Canadian Businesses)
Capital Cost Allowance Deductions
When you are working with business expenses as tax deductions, you will also want to know about Capital Cost Allowance (CCA) deductions. CCA allows you to deduct the cost of depreciating capital assets such as buildings, vehicles, equipment, furniture, and machinery.
For more information on CCA see:
- 8 Small Business Tax Strategies to Reduce Income Tax in Canada (Section 5)
- How to Calculate Capital Cost Allowance (CCA)
Keep Those Receipts
Make sure you retain all receipts for claimed business expenses - if you are audited or otherwise asked to provide receipts to support your claims and you cannot provide them your claims will likely be disallowed.
When in Doubt About an Expense, Check with Your Accountant
As always, check with your accountant or with the Canada Revenue Agency if you’re in doubt about the tax deduction potential of a particular business expense. Being overly aggressive when deducting expenses is a sure way to attract the attention of the CRA. This is particularly true for sole proprietorships and construction and food services businesses (See 10 Red Flags That Will Get Your Canadian Small Business Audited).
Reasonable Expectation of Profit
In order to deduct expenses, your business must have a "reasonable expectation of profit", according to the CRA. You cannot deduct business expenses for an indefinite period of time without your business eventually becoming profitable.