Whether you’re self-employed or incorporated in Canada, understanding how tax deductions work can significantly reduce your taxable income. The Canada Revenue Agency (CRA) allows businesses to deduct expenses that are ordinary, necessary, and directly related to earning income—but the rules vary depending on your business structure and expense type.
This article covers:
📚 Tip
This article is for educational purposes only and isn’t tax advice. Always consult a qualified tax professional, or visit the CRA’s “Business taxes” page, for guidance specific to your situation.
How your business structure affects taxes
Sole proprietors
File business income and expenses using Form T2125
Income is taxed at your personal marginal rate
You’re responsible for both employer and employee Canada Pension Plan (CPP) contributions
Most deductions are claimed directly against personal income
Incorporated businesses
File a T2 Corporation Income Tax Return
May qualify for the Small Business Deduction (SBD) on the first $500,000 of active income
Can pay owners by salary or dividends (different tax treatment)
More flexibility for tax planning and expense allocation
Quarterly tax installments
If your net tax owing exceeds $3,000, the CRA requires quarterly installments:
Due in March, June, September, and December
Setting aside 25–30% of income helps avoid penalties
Use CRA My Business Account to calculate and manage payments
Common Canadian small business tax deductions
Category | Deduction | What it covers | Key notes |
Workspace | Business-use-of-home | Portion of rent, utilities, insurance, property taxes | Based on space or time used for business |
Transportation | Vehicle expenses | Fuel, insurance, repairs, leasing, depreciation | Deduct business-use percentage only |
Operations | Office supplies | Stationery, printer ink, business cards | Fully deductible if business-only |
Operations | Professional fees | Accounting, legal, consulting services | Must relate to business activity |
Marketing | Advertising and promotion | Website, ads, sponsorships, finder’s fees | Canadian-targeted ads may be fully deductible |
Meals | Meals and entertainment | Client meals, tickets, events | Usually 50% deductible (exceptions apply) |
Compliance | Licenses and memberships | Business licenses, trade memberships | Social or recreational clubs aren’t deductible |
People | Salaries and subcontractors | Employee wages, contractor payments | Payroll contributions are deductible. For step-by-step instructions on completing and submitting T4 slips and summaries, refer to the CRA's “RC4120 Employers' Guide.” |
Risk | Business insurance | Liability, Errors and Omissions (E&O), equipment insurance | Excludes home and auto insurance |
Assets | Capital Cost Allowance (CCA) | Depreciation on equipment and vehicles | CRA class rules apply |
Travel | Business travel | Transport, lodging, meals | Meals generally limited to 50% |
Finance | Interest and bank fees | Loan interest, merchant fees, processing fees | Personal fees aren’t deductible |
Savings | Registered Retirement Savings Plan (RRSP) contributions | Personal retirement contributions | Reduce overall taxable income |
Losses | Bad debts | Unpaid invoices written off | Must show reasonable collection attempts |
Special deduction rules to know
Meals and entertainment (100% deductible)
Provided as part of your business, for example, catering
Reimbursed by clients and itemized on invoices
Included in employee taxable income
Company-wide events, up to 6 per year
Fundraising for registered charities
Advertising restrictions
Foreign publications targeting Canadian audiences may not qualify
Editorial content ratios affect deductibility
Tips to maximize your deductions
Keep detailed records and receipts
Separate personal and business expenses
Track mileage and home-office use consistently
Use bookkeeping tools to simplify reporting
Work with a tax professional for planning and compliance
Free CRA support
The CRA Liaison Officer Initiative (LOI) offers free personalized guidance to small businesses, including:
Record-keeping best practices
Understanding CRA rules
Avoiding common tax errors
Still have questions? Feel free to send us a message by clicking the Question Mark icon on any HoneyBook page. Our team is always happy to help!
HoneyBook Tax Hub is designed to provide information relevant for tax preparation but does not provide tax, financial, or legal advice. It is not a substitute for a licensed professional. Users are solely responsible for the accuracy and compliance of their filings. We recommend confirming any information given here by seeking the assistance of a licensed professional in your area. We do not guarantee completeness, real-time updates, or assume liability for errors, omissions, or penalties.