Business Expenses in Canada: What You Can Deduct

The CRA allows Canadian businesses to deduct expenses that are "incurred for the purpose of earning income." In practice, this means any ordinary and necessary business expense is deductible — but with specific limits and conditions for common categories like meals, vehicles, and home offices.

This guide covers the most common deductible business expenses in Canada and the exact rules that apply to each.

The Golden Rule: Reasonable and Income-Earning

To be deductible, an expense must meet two conditions:

1. Incurred to earn income: The expense must have a direct or indirect link to business revenue. A business dinner with a client qualifies. A personal dinner does not.
2. Reasonable in the circumstances: The CRA can deny deductions that are clearly excessive — paying $10,000/month rent for an office that's only worth $2,000/month, for example.

Fully Deductible Business Expenses

These expenses are 100% deductible when incurred for business purposes:

• Office rent or co-working space: Monthly rent for a commercial space used for business
• Office supplies: Paper, printer ink, postage, small office tools
• Software subscriptions: Accounting software, design tools, project management apps, cloud storage
• Professional development: Courses, books, industry conferences, seminars (when related to current business activities)
• Professional fees: Bookkeeping, accounting, legal fees, consulting fees for business purposes
• Advertising and marketing: Google Ads, social media ads, website costs, business cards, brochures
• Bank charges: Business account fees, credit card processing fees, wire transfer charges
• Insurance: Business liability insurance, errors and omissions, commercial property insurance
• Phone and internet: Business portion of cell phone and internet plans (full cost if used exclusively for business)
• Employee wages: Salaries, wages, and bonuses paid to arm's-length employees

Partially Deductible: Meals and Entertainment

The CRA limits meals and entertainment deductions to 50% of the amount paid (excluding HST). This applies when you take a client to dinner, attend a business lunch, or host a client event. Keep receipts showing: the date, amount, restaurant/venue name, the business purpose, and who attended.

Vehicle Expenses

If you use your personal vehicle for business, you can deduct the business-use percentage of all vehicle costs: gas, insurance, repairs, registration, and CCA (depreciation).

Calculate your business-use percentage with a mileage logbook: total business kilometres ÷ total kilometres driven. For example, if you drove 20,000 km total and 14,000 were business-related, your business use is 70%.

• Standard mileage rate (2026): $0.73/km for the first 5,000 km, $0.67/km thereafter (employees claiming employment expenses)
• Self-employed and corporations: Must use the actual cost method (not the per-km rate) — track all vehicle costs and multiply by business-use %
• Luxury vehicle limit: CCA on passenger vehicles (Class 10.1) is capped at $37,000 (+ HST) for vehicles acquired in 2025

Home Office Expenses

If you work from home, you can deduct the portion of home costs attributable to your workspace — but only if your home office is your principal place of business or you use it exclusively to meet clients.

Deductible home office costs include: rent (tenants), heat, electricity, internet, cleaning supplies, and home insurance. Homeowners cannot deduct mortgage principal or interest (only on business use of home). Calculate the deductible percentage using either the space ratio (office sq ft ÷ total home sq ft) or the number of rooms method. See our detailed guide: Home Office Deduction Canada.

Capital Expenses vs. Current Expenses

Not all business spending is deductible immediately. The CRA distinguishes between:

• Current expenses: Recurring operating costs — fully deductible in the year paid (office supplies, rent, wages)
• Capital expenses: Assets with a useful life beyond one year — not immediately deductible but depreciated over time through Capital Cost Allowance (CCA)

Examples: A new laptop ($2,000) is a capital expense — deduct via CCA Class 50 (55%/year). A laptop repair ($300) is a current expense — fully deductible.

Non-Deductible Expenses

These are commonly confused as deductible but are not:

• Personal or living expenses (groceries, personal clothing, family vacations)
• Fines and penalties (CRA penalties, parking tickets)
• Political donations
• Life insurance premiums (unless a business loan requires them as collateral)
• Expenses to earn exempt income