Small Business Tax Deductions in Canada: Self-Employed Expenses

Short answer: Small business tax deductions in Canada are the reasonable expenses you incur to earn business income, claimed on Form T2125: supplies, advertising, professional fees, insurance, rent, interest and bank charges, the business share of your phone, home and vehicle, and capital cost allowance on equipment. Meals and entertainment are limited to 50%. The Canada Revenue Agency (CRA) can refuse any claim you cannot back with a receipt or record, so keep them for six years from the end of the tax year they relate to.

This guide covers self-employed expenses in Canada for sole proprietors, freelancers and contractors filing for the 2026 tax year. Every dollar you deduct lowers the profit that income tax and CPP are charged on, as set out in self-employed taxes in Canada. Where each deduction goes on the form is in Form T2125 explained.

What small business tax deductions can you claim in Canada?

You can deduct an expense if it is reasonable and you incurred it to earn business income; anything you also use personally is deductible only for its business share.

That test comes from the CRA’s business expenses guidance. Use this checklist when you go through the year’s receipts; the numbers are the T2125 lines.

Claim in full, if used only for the business

• Advertising and marketing, including your website (line 8521)
• Office expenses, stationery and supplies, and business software (lines 8810 and 8811)
• Professional fees: accountant, bookkeeper, lawyer (line 8860)
• Business insurance (line 8690)
• Interest and bank charges on business loans and accounts (line 8710)
• Business licences, permits and professional memberships (line 8760)
• Rent for business premises (line 8910)
• Repairs and maintenance of business equipment (line 8960)
• Business travel: fares and accommodation (line 9200)
• Delivery, freight and courier (line 9275)
• Wages paid to employees, with payroll records (line 9060)
• Bad debts: invoices you included in income that will not be paid (line 8590)

Claim only the business share

• Phone and internet (line 9220)
• Motor vehicle expenses, by business kilometres ÷ total kilometres (line 9281)
• Business-use-of-home expenses, by the share of your home used for work (line 9945)

Claim with a limit

• Meals and entertainment: 50% of the lesser of what you spent and what is reasonable (line 8523)
• Vehicle loan interest and leasing costs, which have monthly caps

Claim over several years

• Equipment, computers, tools and vehicles, through capital cost allowance (CCA, line 9936): for example 20% a year for most equipment (Class 8), 55% for computers (Class 50) and 100% for small tools under $500 (Class 12)

Two items on that list follow their own formulas and have their own guides, covered next.

How do home office and vehicle expenses work?

Both are claimed as a percentage of real costs: floor area for your home, kilometres for your vehicle.

Home office. You qualify if the workspace is your principal place of business, or you use it only for the business and regularly meet clients there. You then claim a reasonable share, usually the office’s area divided by your home’s total area, of rent, heat, electricity, insurance, maintenance, property taxes and mortgage interest. The claim cannot create or increase a business loss, but the unused part carries forward. The rules and a worked example are in business-use-of-home expenses.

Vehicle. A sole proprietor does not claim a per-kilometre rate. You total the year’s fuel, insurance, licence, repairs, interest and leasing costs and multiply by business kilometres ÷ total kilometres, supported by a logbook. How that works, and the simplified logbook option, is in CRA motor vehicle expenses.

What can’t you write off as a small business?

The CRA disallows costs that are personal, unreasonable or specifically excluded, including:

• Personal living expenses: groceries, everyday clothing, your own drawings from the business.
• The personal share of a mixed cost, such as the family use of your car or home internet.
• Fines and penalties, including parking tickets.
• The full cost of equipment in one year: that goes through capital cost allowance instead.
• Dues for clubs whose main purpose is dining, recreation or sport.
• Your own CPP contributions and income tax: these are not business expenses (part of your CPP is deducted on your T1, not the T2125).
• Anything you cannot support with a receipt or record, even if it was genuinely for the business.

How long does the CRA require you to keep receipts and records?

Six years from the end of the last tax year the records relate to, kept at your residence or place of business in Canada unless the CRA allows otherwise.

The CRA’s record-keeping rules add four details:

1. Late returns run longer. If you file late, the six years count from the date you filed.
2. Destroying records early needs permission. You ask the CRA with Form T137, Request for Destruction of Records, or a written request.
3. Some records last longer. Records about buying and selling long-term property, such as equipment or a vehicle you claim CCA on, can have to be kept beyond six years.
4. Electronic records count. Photos and scans are acceptable if they are complete, legible and kept in an electronically readable format for the full period; the CRA sets out its expectations in IC05-1, Electronic Record Keeping.

Using a bookkeeper does not move the obligation: the records are still yours to keep and produce.

Receipt-keeping checklist

• Capture the receipt the day you pay (photo or paper)
• Check it shows the seller, date, amount and what you bought
• Note the business purpose if it is not obvious
• For meals, note who you met and why
• Keep the GST/HST shown, and the supplier’s GST/HST number on purchases of $100 or more
• Store everything so it stays readable for six years

Is a bank statement enough, or do you need the receipt?

Keep the receipt: a bank or card statement shows that money left your account, but usually not what you bought or the GST/HST charged.

The CRA’s business records guidance expects expenses to be backed by original documents such as receipts and supplier invoices; a statement alone rarely shows what the money bought. It matters most once you are registered for GST/HST, because an input tax credit on a purchase of $100 or more needs the supplier’s GST/HST number, which only the receipt or invoice shows. What each document is for is explained in receipt vs invoice.

How does GST/HST change what you deduct?

If you are registered, you claim the GST/HST on business purchases back as an input tax credit and deduct only the pre-tax amount; if you are not, you deduct the full amount including tax.

Input tax credits follow the same business-use share as the expense, and they need the documentation above. Small suppliers under the $30,000 threshold who have not registered cannot claim them, per the CRA’s input tax credit page. The same documentary rules apply to your own sales: once registered, your invoices need your GST/HST number on anything of $100 or more, as covered in how to invoice in Canada.

…and where does Keel fit?

Keel: Invoice Maker & Receipts, an iPhone app by Ilura Technology OÜ, keeps the receipts and expenses this checklist depends on, alongside the invoices you send and your business mileage records, each kept under its job. Records stay on the iPhone, with no account, no bank connection and no cloud sync; the App Store privacy label reads “Data Not Collected”. Receipts are read on the device with Apple Intelligence, entries go into an append-only, hash-chained ledger so corrections stay traceable, and at year end the Accountant Pack exports a CSV plus a one-page summary PDF for your accountant. Because nothing comes in from a bank feed, each receipt is one you add yourself when you pay.

Keel is a record keeper: it does not decide what is deductible, fill in a T2125, file returns, connect to the CRA or calculate tax owed. It is free with no invoice limit (free invoices carry a small “Made with Keel” footer), and Keel Lifetime, a one-time purchase ($249.99 USD; local price on the App Store), adds accountant-ready exports and advanced reports, plus custom branding, a signature and premium templates. Keel 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, and the burden of proof is on you. A few amounts are calculated rather than receipted, such as capital cost allowance, the home office percentage and the business-kilometre ratio, but the purchase invoices, utility bills and logbook behind them still have to exist.

Are digital photos of receipts acceptable to the CRA? Yes, if they are complete, legible and kept in an electronically readable format for the full six years; IC05-1 sets out what the CRA expects. Photograph receipts the day you get them, because thermal till paper can fade within a year or two, and keep a backup so one lost phone does not take the records with it.

Can I deduct meals with clients? Usually only 50% of food, beverage and entertainment costs, applied to the lesser of what you spent and what is reasonable. Exceptions include meal costs you bill to a client and itemize on the invoice, and up to six staff events a year open to everyone at a location. 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 deduct the full amount including tax. Either way, keep the receipt showing the tax charged, and the supplier’s GST/HST number on anything of $100 or more.

Can I deduct my CPP contributions as a business expense? Not on the T2125. CPP on self-employment income is worked out on Schedule 8; part of it is then deducted on line 22200 of your T1 and the rest claimed as a non-refundable credit on line 31000. The split is explained in CPP for the self-employed.

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