Self-Employed Expenses in Canada: Deductions and Receipt Rules

Short answer: The Canada Revenue Agency (CRA) lets you deduct self-employed expenses in Canada when they are reasonable and incurred to earn business income — but only the business-use portion, and only where a receipt or record backs them up. You claim them on Form T2125, cut mixed personal/business costs down to the business share, deduct most business meals at 50%, and keep every receipt for six years. No receipt, no deduction.

Every dollar of legitimate expense you deduct lowers your taxable profit — and with it your income tax and your CPP contributions, the arithmetic laid out in self-employed taxes in Canada. But the CRA’s rule is strict: expenses must be reasonable, incurred to earn income, and documented. This guide covers what you can claim, what you cannot, and exactly how to keep receipts the CRA way.

What business expenses can a self-employed person deduct in Canada?

The CRA’s general test is that an expense must be a reasonable cost incurred to earn business income. Below are common deductible categories reported on the T2125. Amounts must be reduced to the business-use portion where an item is used for both business and personal purposes. The category-by-category detail is on the CRA’s business expenses page at canada.ca.

Expense category	Typically deductible	Watch-outs
Supplies and materials	Yes	Fully, if used in the business
Advertising and marketing	Yes	Some limits on foreign/online media; verify on canada.ca
Business-use-of-home	Yes (portion)	Based on the area/percentage used for business
Phone and internet	Yes (business portion)	Split personal vs business use
Motor vehicle	Yes (business portion)	Actual costs × business km ÷ total km; needs a logbook
Meals and entertainment	Usually 50%	The 50% limit applies to most business meals
Professional fees	Yes	Accounting, legal, bookkeeping
Software and subscriptions	Yes	Business tools
Bank and merchant fees	Yes	On business accounts
Insurance	Yes	Business coverage
Salaries paid to others	Yes	With proper payroll records
Capital assets (equipment)	Via CCA	Claimed as capital cost allowance over time, not all at once

Vehicles are the fiddliest line on that list, because sole proprietors do not claim a per-kilometre rate the way employees receive an allowance — you total the actual running costs and prorate them by business kilometres. That method, and the logbook it depends on, is set out in self-employed vehicle expenses in Canada.

What can I NOT deduct?

The CRA disallows costs that are personal, unreasonable, or specifically excluded. Common non-deductible items include:

• Personal living expenses (groceries, personal clothing, your own draw from the business).
• The personal-use portion of any mixed expense (for example, the personal share of your car or home internet).
• Traffic fines and penalties, including parking tickets.
• The full cost of capital equipment in one year — that is depreciated through capital cost allowance (CCA) instead.
• Club dues and most membership fees for dining, recreation, or sporting facilities.
• Expenses you cannot support with a receipt or record — even if they were genuinely business-related.

How do I calculate business-use-of-home expenses?

Home office costs are the deduction most often claimed wrong, because they are calculated rather than receipted. The CRA lets you claim a workspace in your home if either of two conditions is met: it is your principal place of business, or you use the space only to earn business income and use it on a regular and continuous basis to meet clients, customers, or patients.

If you qualify, you claim a share of heating, electricity, home insurance, cleaning materials, property taxes, mortgage interest, and — if you rent — rent. The share has to be worked out on a reasonable basis, usually the area of the workspace divided by the total area of your home. If the space doubles as personal living space, the CRA asks you to reduce it further by time: work out how many hours a day you use the room for business, divide by 24, and apply that to the area share. If you ran the business for only part of the week or part of the year, scale the claim down again.

Three limits are worth knowing before you claim:

• It cannot create or increase a loss. Business-use-of-home expenses cannot exceed your net income from the business before you deduct them. Anything left over carries forward and can be claimed against the same business next year.
• It has its own place on the form. The calculation goes in Part 7 of Form T2125 and the result lands on line 9945 — and the same cost cannot also appear somewhere else on the form.
• Claiming CCA on your home has a sting in the tail. If you deduct capital cost allowance on the business part of your home, the capital gain and recapture rules apply when you eventually sell it. Many sole proprietors deliberately leave the CCA portion unclaimed for that reason.

The two eligibility tests and a worked example are on the CRA’s business-use-of-home expenses page.

What are the CRA rules for keeping receipts?

The CRA requires you to keep adequate books and records to support every amount you report. The headline rules:

1. Keep supporting documents. For expenses that means receipts, invoices, contracts, and bank/credit-card statements.
2. Retain them for six years from the end of the last tax year they relate to. If you file a return late, the six years runs from the filing date.
3. Electronic records count. Digital copies and photos of receipts are acceptable, provided they are complete, readable, and retained for the full period. The CRA addresses electronic record-keeping on canada.ca (Information Circular IC05-1).
4. You stay responsible even if someone else keeps the books. Outsourcing to a bookkeeper does not remove your legal obligation to keep and produce records.

Receipt-keeping checklist

• Capture the receipt at the time of purchase (photo or paper)
• Make sure it shows the vendor, date, amount, and what was bought
• Note the business purpose if it is not obvious
• For meals, record who you met and why (50% deductible)
• Keep the GST/HST shown on the receipt (needed for input tax credits if you are registered)
• Store records so they stay readable for six years
• Separate business and personal spending where you can

Do I really need the paper receipt, or is a bank statement enough?

A bank or credit-card statement shows that money left your account, but it usually does not show what you bought or the GST/HST charged. The CRA generally wants the actual receipt or invoice as the primary supporting document, and what is a receipt sets out the fields a document needs to qualify. This matters most if you are registered for GST/HST: to claim input tax credits, you need documentation showing the tax and, for purchases of $100 or more, the supplier’s GST/HST number. Keep the receipts, not just the statement.

How does GST/HST affect my expenses?

If you are registered for GST/HST, you can recover the GST/HST you paid on eligible business purchases by claiming input tax credits (ITCs) — but only with proper documentation, and only for the business-use portion. If you are not registered (a small supplier under $30,000), you generally cannot claim ITCs, so you deduct the full receipt amount (tax included) as your expense. The right treatment depends on your registration status; see “Input tax credits” on canada.ca.

The same $100 rule cuts both ways. Suppliers must show their GST/HST number on invoices of $100 or more before their customers can claim an ITC, which means your own invoices need that number once you register — the fields to include are in how to invoice in Canada as a freelancer.

How does Keel help you capture receipts privately?

Missing receipts are the number-one reason legitimate deductions get denied. Keel: Invoice Maker & Receipts (by Ilura Technology) is built for exactly that gap: capture receipts the moment you spend, with Apple Intelligence reading them on the device so the image and the text never leave your iPhone; create and send invoices as PDFs; and log business trips as you drive. There is no account, no login, no bank connection, and no cloud — the App Store privacy label reads “Data Not Collected.” Entries are written to an append-only, hash-chained ledger, so a back-dated or altered record is detectable rather than invisible.

At year end, the Accountant Pack exports a CSV plus a one-page summary PDF, and the whole year can leave the app as a single file — the format your accountant or your Canadian tax software wants when it is time to fill in the T2125.

Honest scope: Keel is a record keeper, not a tax engine or a filing service. It does not connect to your bank, so entries are typed or captured from a photo — the deliberate cost of keeping everything on the device — and it does not file anything with the CRA. Think of it as your private receipt vault, invoice maker, and trip logbook: the raw evidence, while your accountant or tax software applies the CRA rules.

Try Keel free (unlimited invoices, receipts and mileage free; Keel Pro is a one-time $249.99 Lifetime purchase, not a subscription — see the App Store for local pricing): Keel: Invoice Maker & Receipts on the App Store.

Frequently asked questions

What business expenses can I claim without receipts in Canada? As a rule, none. The CRA can disallow any expense you cannot support with a receipt or adequate record, and the burden of proof sits with you rather than with the auditor. A few amounts are calculated rather than receipted — capital cost allowance, the business-use-of-home percentage, the business-kilometre ratio — but the underlying purchase invoices, utility bills, and logbook still have to exist behind them.

How long do I keep receipts and records? Generally six years from the end of the last tax year they relate to, per the CRA. File that return late and the six years runs from the date you actually filed. Keep them longer if the CRA has asked you to, or while an objection or appeal is unresolved. If you want to destroy records earlier than six years, you have to ask the CRA for written permission first.

Are digital photos of receipts acceptable to the CRA? Yes. The CRA accepts electronic records provided they are complete, legible, and kept in a readable format for the full retention period; Information Circular IC05-1, Electronic Record Keeping, sets out what it expects. Photograph receipts the day you get them, because thermal till paper often fades to blank within a year or two, and back the images up — a lost phone is not a defence.

Can I deduct meals with clients? Usually only 50% of food, beverage, and entertainment costs is deductible, and that 50% applies to the lesser of what you actually spent and what is reasonable in the circumstances. Exceptions exist: costs you bill to a client and itemize on the invoice, and up to six staff events a year to which everyone at a location is invited, fall outside the limit. Record who you met and the business reason.

Do I deduct the GST/HST I paid on purchases? If you are registered for GST/HST, you generally claim it back as an input tax credit rather than deducting it as an expense. If you are not registered, you typically deduct the full amount including tax. Either way, keep the receipt showing the tax charged, plus the supplier’s GST/HST number on anything costing $100 or more. Confirm your own situation on canada.ca.

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This article is general information, not tax advice. Consult a qualified accountant or tax professional.