Canada's Business Expense and Tax Deduction Rules

Business Expenses & Tax Deductions for Canadian Businesses

Canadian business deductions.
See if that business expense can be deducted. Image (c) Eric O'Connell / Getty Images

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

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

Tax Credits

In addition to deductions for business expenses, there are various tax credits which your business may qualify for, including:

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:

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.

See also:

Income Tax FAQs for Small Businesses

Guide to Canadian Corporate Tax

8 Tax Strategies To Maximize Your Business Income Tax Deductions