1. Business-Use-of-Home Expenses
What it covers: A portion of your rent or mortgage interest, utilities, property taxes, and home maintenance costs based on the percentage of your home used for business.
How to calculate
If you have a dedicated workspace in your home: divide the total area of the workspace by the total area of the home to find your percentage.
If you have no dedicated workspace: Divide the hours you spend using your home for business by the number of hours in a day, then multiply that number by the percentage of the home that is occasionally used for business.
We've created a Home Office Deduction tracker template for your use here.
Eligible Expenses:
Heating, electricity, and water
Home insurance (if self-employed, not incorporated)
Property taxes
Mortgage interest (if self-employed, not incorporated)
Cleaning supplies and services
Maintenance and minor repairs
Capital cost allowance (CCA) for home depreciation
2. Vehicle Expenses
What it covers: Costs associated with using your vehicle for business purposes, such as:
Fuel
Repairs and maintenance
Insurance
Leasing or depreciation
Licensing and registration fees
How to calculate: Deduct the percentage of vehicle use directly related to business. Keep a logbook for trips, mileage, and purposes. Use the number of kilometers driven for business divided by the total kilometers driven in the tax year to find the percentage of your total motor vehicle expenses that you can deduct. For example, if you drive 100,000 km in 2024, and 50,000 of those were for business, use 50% of your total expenses on your tax form T2125.
3. Office Supplies
What it covers: Stationery, printer ink, business cards, and any other supplies directly used in your day-to-day operations. These are fully deductible if solely for business purposes.
4. Professional Fees
What it covers: Fees paid to accountants, lawyers, or consultants related to your business operations or taxes.
5. Advertising and Promotion
What it covers: Costs for advertising your business online, in print, on social media, or through local sponsorships. Includes website hosting, design fees, and promotional materials. Finder’s fees can also be deducted here if you paid any fees for lead generation to referrals.
When deducting advertising expenses in periodicals, the deductible amount depends on the content and target market:
Full Deduction (100%) You can deduct the entire advertising expense if:
Your advertisement targets a Canadian market.
The issue contains 80% or more original editorial content (non-advertising material).
Partial Deduction (50%) You can deduct 50% of the advertising expense if:
Your advertisement targets a Canadian market.
The issue contains less than 80% original editorial content.
Non-Deductible Expenses - Advertising expenses are not deductible if:
Your advertisement is directed primarily at a Canadian market but appears on a foreign broadcaster.
6. Meals and Entertainment
What it covers: Meals and entertainment such as tickets, parties,
When claiming meals and entertainment expenses for your business, you can deduct up to 50% of the lower of:
The actual amount incurred for these expenses.
An amount that is reasonable given the circumstances.
You'll need to calculate the allowable portion for business use when reporting these expenses on the Meals and Entertainment line of the T2125 form.
Exceptions to the 50% Limit - In certain situations, the 50% limit does not apply. You can deduct 100% of the meal and entertainment expenses if:
You provide meals, beverages, or entertainment as part of your business.
Example: Restaurants, hotels, or catering services that provide these to customers for compensation.You bill your client for the meal and entertainment costs.
Make sure to itemize these costs on the client's invoice.The expenses are included in an employee’s taxable income.
The employee must work at a remote or special work location that is at least 30 kilometers from the nearest urban center (population of 40,000+).
This does not apply to expenses for conferences, conventions, or seminars.
You host an office event and invite all employees.
The limit is up to six events per year.You incur meal expenses for a fundraising event.
The event must primarily benefit a registered charity.You provide meals at a temporary work camp.
The camp must be built to accommodate employees working on-site, and employees cannot reasonably return home daily.
7. Business taxes, licences and memberships
What it covers: Professional association fees, trade organization memberships, or subscriptions to industry-related publications and software.
Deductible License Fees - You can deduct 100% of the annual fees for licenses required to operate your business. Examples include:
Beverage licenses.
Business registration fees.
Trade licenses.
Motor vehicle licenses and registration permits.
Deductible Business Taxes - Certain business-related taxes may also be deductible. Examples include:
Municipal taxes.
Land transfer taxes.
Gross receipt tax.
Health and education tax.
Hospital tax.
Deductible Membership Dues - You can also deduct annual dues or fees for:
Memberships in trade or professional associations.
Subscriptions to industry-related publications.
Non-Deductible Membership Dues
You cannot deduct membership dues or initiation fees for clubs where the primary purpose is:
Dining.
Recreation.
Sporting activities.
8. Salaries and Subcontractor Payments
What it covers: Wages paid to employees or subcontractors who help run your business.
Employee Compensation and Deductions - You can deduct the gross salaries and wages paid to employees, along with related employer contributions such as:
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions.
Employment Insurance (EI) premiums.
Provincial Parental Insurance Plan (PPIP) premiums (for residents of Quebec).
Workers' compensation premiums related to employee remuneration.
Reporting Requirements for Salaries Paid to Family Members
For further details, including step-by-step instructions on completing and submitting T4 slips and summaries, refer to the CRA's Employer's Guide - Filing the T4 Slip and Summary
9. Insurance Premiums
What it covers: Business-related insurance, such as liability insurance, equipment insurance, or errors and omissions coverage. This does not include business use of home insurance, or motor vehicle insurance.
10. Capital Cost Allowance (CCA)
What it covers: Depreciation of long-term business assets like computers, furniture, vehicles, or machinery.
How it works: The CRA specifies categories (or "classes") of assets with different depreciation rates. For example:
Class 8: Furniture, computers, and equipment (20% declining balance rate).
Class 10/10.1: Vehicles (30% declining balance rate).
12. Travel Expenses
What it covers: Business-related travel, such as transportation, accommodation, and meals.
Limitations: Meals and entertainment are typically 50% deductible unless explicitly for a large business event. Eligible expenses include:
Public transportation fares (e.g., bus, train, or airfare).
Hotel accommodations for business trips.
Meals and beverages consumed while traveling.
13. Interest and Bank Fees
Bank Transaction Fees - You can deduct reasonable bank fees or charges directly related to your business bank account. These may include:
Monthly account maintenance fees.
Transaction fees for deposits, withdrawals, and transfers
Fees for accepting electronic payments (e.g., credit card processing or e-transfer fees)
Note: Personal bank fees are not deductible unless they are incurred for a business-related transaction.
Interest on Business Loans - Interest paid on money borrowed for business purposes is deductible, including:
Business loans or lines of credit used for purchasing equipment, inventory, or other business needs.
Credit card interest if the card is used solely for business expenses.
Interest on loans for buying or improving business assets, such as office equipment or vehicles.
Example: If you have a line of credit used to purchase supplies for your business, the interest paid is fully deductible.
Limits on Deductible Interest
Certain restrictions apply:
Passenger Vehicles and Zero-Emission Vehicles (ZEPVs): Interest on loans used to purchase these vehicles is subject to a deduction limit.
Vacant Land: Interest can only be deducted up to the income generated by the land.
Mortgage Interest for Business: If you have a home office, you can deduct a portion of your mortgage interest. The deductible amount is based on the percentage of your home used for business.
Credit Card Processing and Merchant Fees (Including HoneyBook Payments)
Fees charged by payment processors such as PayPal, Square, or Stripe are fully deductible as business expenses. These fees are often a percentage of each transaction and are considered necessary for earning business income.
Loan Fees and Prepaid Interest - You can deduct fees related to obtaining a loan for your business, including:
Application and processing fees.
Loan guarantee or brokerage fees.
Legal fees related to securing financing.
These fees are generally deducted over a five-year period, unless they are fully payable in the year they are incurred.
Interest on Loans Against Insurance Policies - If you borrow against a life insurance policy to fund your business, the interest on this loan may be deductible, provided it is not added to the policy’s adjusted cost basis. Ensure you obtain verification from your insurer using Form T2210.
16. Retirement Contributions
While there is no small business specific deduction for retirement contributions, contributing to an RRSP will reduce your overall taxable income.
Benefit: These contributions reduce taxable income while helping you save for retirement.
17. Bad Debts
What it covers: Unpaid invoices that you’ve reasonably tried to collect but were unable to. These can be written off as a deduction.