Canadian small business owners can deduct any reasonable expense incurred to earn business income: home office costs, vehicle expenses, salaries, professional fees, advertising, insurance, and the cost of equipment and vehicles through capital cost allowance (CCA). The two rules that matter most are that the expense must relate to earning income, and you must have the paperwork to prove it. Here is the full list, organized by category, with the limits that apply for 2026.
What does the CRA actually let you deduct?
The core test is short: an expense is deductible if you incurred it to earn business income and the amount is reasonable. The CRA publishes a full list of business expense categories, and most everyday costs qualify. The complications sit in three places: some costs are only partly deductible (meals, anything with a personal-use component), some must be deducted over several years rather than all at once (equipment, vehicles, buildings), and some are never deductible (most fines and penalties, personal living costs, everyday clothing).
How do home office expenses work?
You can claim business-use-of-home expenses if the workspace is your principal place of business, or you use it only to earn business income and meet clients there on a regular, ongoing basis. Deductible costs include rent, mortgage interest (not principal), utilities, home insurance, property taxes and maintenance, prorated on a reasonable basis such as square footage.
Example: a 180-square-foot office in an 1,800-square-foot home is 10 per cent. If your annual mortgage interest, utilities, property tax and insurance total $22,000, you claim $2,200. Two cautions. First, home office expenses cannot create or increase a business loss; the excess carries forward to next year. Second, claiming CCA on the house itself can put part of your principal residence exemption at risk when you sell, which is why most owners deliberately skip it.
What vehicle expenses can you claim?
You deduct the business-use share of fuel, insurance, licence and registration, maintenance, loan interest and CCA (or lease payments). The split comes from a mileage log: 14,000 business kilometres out of 20,000 total is 70 per cent, so $11,000 of annual vehicle costs becomes a $7,700 deduction.
The CRA caps how much car you can write off. For 2026:
- CCA on a passenger vehicle is limited to a capital cost of $39,000 before tax for vehicles acquired on or after January 1, 2026 (the ceiling was $38,000 in 2025).
- Zero-emission passenger vehicles get a higher ceiling of $61,000 before tax.
- Deductible lease costs are capped at $1,100 per month before tax for new leases.
- Deductible loan interest is capped at $350 per month.
- If your corporation pays you a per-kilometre allowance instead, the 2026 tax-exempt limit is 73 cents for the first 5,000 kilometres and 67 cents after that.
Buy a $70,000 SUV and you still depreciate only $39,000 of it. That gap catches a lot of incorporated owners off guard.
What is the difference between a current expense and a capital expense?
A current expense keeps the business running (repairs, supplies, rent) and is deducted in full in the year. A capital expense buys or improves a lasting asset (a laptop, a vehicle, a renovation that upgrades rather than restores) and is deducted over years through CCA at rates the CRA sets by asset class. Repainting a worn storefront is current; rebuilding it into something better is capital.
| CCA class | Rate | Typical assets |
|---|---|---|
| Class 8 | 20% | Furniture, appliances, most equipment |
| Class 10 | 30% | Motor vehicles and passenger vehicles under the cost ceiling |
| Class 10.1 | 30% | Passenger vehicles above the ceiling ($39,000 for 2026 purchases); each vehicle gets its own class |
| Class 16 | 40% | Taxis and vehicles used in a daily car-rental business |
| Class 50 | 55% | Computer hardware and systems software |
| Class 54 | 30% | Zero-emission passenger vehicles, up to $61,000 |
| Class 55 | 40% | Zero-emission vehicles used for rental or taxi |
Two timing rules to know. The half-year rule normally limits you to half the class rate in the year of purchase. And enhanced first-year allowances have applied on and off since 2018; the 2024 Fall Economic Statement moved to reinstate accelerated first-year CCA for qualifying property acquired from January 1, 2025 onward, so the first-year math depends on when the asset became available for use. Confirm the current treatment before you file rather than guessing.
Which everyday operating costs are deductible?
- Office supplies and software: stationery, printer ink, cloud subscriptions such as QuickBooks or Microsoft 365.
- Professional fees: accounting, bookkeeping, legal and consulting fees are fully deductible. A flat-fee accounting plan (see our pricing) is itself a write-off.
- Advertising and marketing: Google and Meta ads, website hosting, SEO, signage, business cards.
- Salaries and subcontractors: wages plus the employer share of CPP and EI. Pay to family members must be reasonable for work actually done.
- Insurance: commercial property and liability premiums. Personal life insurance generally is not deductible.
- Interest and bank charges: interest on money borrowed for the business, account fees, payment processing fees.
- Meals and entertainment: capped at 50 per cent of the lesser of what you spent and a reasonable amount. Spend $3,000 on client lunches, deduct $1,500. Note who you met and why.
- Travel: flights, hotels and transit for business trips; meals while travelling follow the same 50 per cent rule.
- Phone and internet: the business-use percentage of your plan.
- Training: courses that maintain or upgrade existing skills are current expenses; training that provides a lasting new qualification may be treated as capital.
Which deductions matter most in your industry?
Real estate agents
Brokerage desk fees and commission splits, board and association dues (TRREB, OREA, CREA), licensing, errors-and-omissions insurance, staging, listing photography, lockboxes, client gifts and 50-per-cent client meals, plus heavy vehicle use between showings. Agents operating through a PREC also deduct the corporation's own accounting and legal costs. Our real estate accounting service covers both setups.
E-commerce sellers
Cost of goods sold is the big one, and inventory is deducted when it sells, not when you buy it, which surprises sellers who stock up before Q4. Add shipping and packaging, Shopify subscriptions and app fees, Amazon referral and FBA fees, payment processing and product photography. Once worldwide taxable sales pass $30,000 over four consecutive calendar quarters you must register for GST/HST, after which tax paid on purchases comes back through input tax credits rather than deductions. Details on our e-commerce accounting page.
Car rental businesses and Turo hosts
Cleaning and detailing, maintenance, commercial insurance or protection-plan costs, platform fees, parking, tolls, and depreciation on the fleet itself. Vehicles used in a daily rental business generally fall into Class 16 at 40 per cent, faster than the 30 per cent most cars get, while occasional hosting of a personal vehicle usually stays in Class 10 or 10.1. Our car rental accounting service sorts the classification for you.
What records does the CRA expect you to keep?
Itemized receipts (not just card statements), invoices, bank records, mileage logs and home office measurements, kept for six years from the end of the tax year they relate to. A deduction you cannot document is a deduction the CRA can deny with interest added. Our guide to CRA record-keeping rules lays out a system that makes this painless.
Frequently Asked Questions
Can I deduct 100 per cent of my cell phone and internet?
Only the business-use portion. If 60 per cent of your usage is business, you deduct 60 per cent of the plan cost. A dedicated business line or a second phone used solely for work can be claimed in full. Pick a defensible percentage, write down how you arrived at it, and keep a few months of bills. Mixed-use costs claimed at 100 per cent are one of the quickest ways to draw CRA attention to the whole return.
Are client meals ever fully deductible?
Client meals are capped at 50 per cent, almost without exception. The main carve-outs: staff events such as a holiday party open to all employees at a location are fully deductible up to six events per year, and businesses that provide food for compensation, like restaurants, are outside the rule. If you bill a meal to a client and itemize it on the invoice, the 50 per cent limit shifts to the client instead of you.
Can home office expenses create a business loss?
No. Business-use-of-home expenses can only reduce your business income to zero; they cannot create or deepen a loss. Whatever you cannot use this year carries forward and can be claimed against income from the same business next year, subject to the same limit. Every other category on this list, from vehicle costs to CCA, can produce a loss, so calculate your home office claim last, after everything else is entered.
Is it better to lease or buy a vehicle for tax purposes?
Neither wins automatically, because the CRA caps both routes. For 2026, lease deductions top out at $1,100 per month before tax, while purchases cap the depreciable cost at $39,000 ($61,000 for zero-emission vehicles) plus $350 per month of loan interest. Leasing usually front-loads deductions; buying spreads them out but leaves you with an asset. Run both scenarios against your actual price, business-use percentage and cash flow; on vehicles above the ceilings the difference can be thousands per year.
How long do I have to keep receipts and records?
Six years from the end of the last tax year they relate to, and the CRA can ask for them at any point in that window. Credit card statements alone often are not enough; reviewers want itemized receipts showing what was actually bought. Digital copies are acceptable if legible and complete, so photographing receipts into your bookkeeping software the day you get them satisfies the requirement with almost no ongoing effort.
Every deduction on this list is money you keep, but only when it is claimed correctly and backed by records. SNF Accounting's CPAs handle bookkeeping, tax and CRA-ready documentation for Canadian small businesses on fixed pricing from $199 per month. Book a free 30-minute consultation and we will walk through which of these deductions you are missing right now.