Business Expenses & Receipts for the Self-Employed (CRA Rules)

Short answer: The Canada Revenue Agency (CRA) lets self-employed Canadians deduct any reasonable expense incurred to earn business income — but only the business portion, and only if you can back it up with a receipt or record. You report these expenses on Form T2125, deduct only the business-use share of mixed personal/business costs, and keep every receipt for six years. No receipt, no deduction.

Every dollar of legitimate expense you deduct lowers your taxable profit — and therefore your tax and CPP bill. 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.

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

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.

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. 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.

How Keel helps 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 this: capture receipts the moment you spend, create invoices, and log business trips, all stored encrypted on your iPhone with no bank connection, no cloud, and no account (“Data Not Collected”). Your receipts stay on your device, in your control, ready to support your T2125.

Honest scope for Canadian users: Keel is currently US-centric, so it does not calculate Canadian GST/HST or your deductions, and its built-in mileage rate is the US IRS rate. Think of Keel as your private receipt vault, invoice maker, and trip logbook — the raw evidence — while your accountant or Canadian tax software applies the CRA rules.

Try Keel free (3 invoices/month plus unlimited receipts; Pro roughly $7.99/month or $59.99/year USD — 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. A few costs are calculated rather than receipted (like capital cost allowance or the business-use-of-home percentage), but the underlying purchases and bills still need documentation.

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. Keep them longer if the CRA notifies you or if there is an ongoing objection or appeal.

Are digital photos of receipts acceptable to the CRA? Yes. The CRA accepts electronic records provided they are complete, legible, and kept for the full retention period. See Information Circular IC05-1 on canada.ca.

Can I deduct meals with clients? Usually only 50% of the cost of business meals and entertainment is deductible, per the CRA. 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. Confirm your situation on canada.ca.

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