What Can You Write Off as a Small Business Owner in Canada?
Every tax season we get the same question, usually from someone who just finished their first profitable year. They slide a folder across the table, half hopeful and half worried, and ask what they can actually write off. The honest answer is this: more than most owners claim, and far less than the internet promises.
We spent years inside the CRA audit division before we started Better Books Canada. We have seen what holds up under review and what falls apart the moment someone asks for a receipt. So here is the real list, written for a Canadian small business owner who wants to keep every dollar they are entitled to and none they are not. Worth knowing before you start: the types of deductions you claim are one of the CRA’s own stated reasons for pulling a return, which we cover in what triggers a CRA audit.
The one rule that decides everything
You can deduct any reasonable expense you spend to earn business income. That single sentence from the CRA is the entire test, and every write off below lives or dies by it. See the CRA’s own summary of business expenses for the source.
Two words in that sentence do all the work. “Reasonable” means a number a sensible person would accept, not a luxury dressed up as a business cost. “To earn business income” means the expense has to connect to the work that pays you, not your personal life. Those judgement calls are exactly where general advice falls down, including AI tax advice in Canada.
The third piece is not in the sentence but matters just as much: you need a record. No receipt, no deduction. We will come back to that, because it is the part that sinks people in an audit.
Everyday operating costs
These are the ordinary costs of keeping the doors open, and they are fully deductible when they are for the business.
- Office supplies, the small stuff like pens, paper, stamps, and stationery
- Rent for business space, and the software and subscriptions you run on
- Phone and internet, the business portion only
- Advertising and marketing, including most online ads
- Business insurance, bank fees, and merchant processing charges
- Utilities and cleaning for a commercial space
The CRA lists these and more under types of operating expenses. The trick is keeping the business share clean. A phone you use for both work and family is only deductible for the work part, and you should be able to show how you landed on that split.
Wages, subcontractors, and professional help
If you pay employees, their gross wages and benefits are deductible. The same goes for money you pay a subcontractor to do work for your business. Which of the two you are actually dealing with matters, and getting your first employee onto payroll works through the difference and the paperwork that follows.
Professional fees count too. Accounting and bookkeeping fees, legal advice for the business, and the cost of preparing your tax and GST/HST returns are all deductible. If you are paying for both and not sure where one job ends, we compare which one your business needs. Good monthly financial reporting is not just deductible, it is what tells you whether the rest of these write offs are even worth chasing.
Meals and entertainment, the 50 percent rule
You can deduct meals and entertainment, but only half. The CRA caps it at 50 percent of the lower of what you actually spent or a reasonable amount, whichever is less. This is confirmed on the CRA’s meals and entertainment page.
So a 100 dollar client lunch becomes a 50 dollar deduction. Keep the receipt, and jot down who you met and why. “Lunch” on a credit card statement is not a record. “Lunch with supplier to renegotiate pricing” is.
There is an exception. If your business is selling food or entertainment, a restaurant or caterer billing a client for it, the 50 percent cap does not apply to those costs.
Vehicle expenses
If you use your vehicle for the business, you can deduct the business share of the running costs: fuel, insurance, repairs, licensing, and interest or leasing. The key is the percentage. If 40 percent of your driving is for business, you deduct 40 percent, so a mileage log is not optional. We walk through the whole calculation, the logbook the CRA accepts, and the three month sample method in our guide to business vehicle expenses and the mileage log.
A few 2026 ceilings to know, all announced by the Department of Finance in its 2026 automobile deduction limits:
- The cost ceiling for writing off a passenger vehicle (Class 10.1) rose to 39,000 dollars before tax for vehicles bought on or after January 1, 2026. For a zero emission vehicle (Class 54), the ceiling is 61,000 dollars.
- Deductible leasing costs are capped at 1,100 dollars per month.
- Interest on a vehicle loan is capped at 350 dollars per month.
- If you reimburse yourself or an employee by the kilometre, the tax exempt rate is 73 cents for the first 5,000 kilometres and 67 cents after that in the provinces.
You buy a 55,000 dollar gas vehicle for the business, but you can only base your write off on 39,000 of it. That ceiling surprises people every year, so plan the purchase with it in mind.
The business use of your home
Run the business from home and you can deduct a slice of your housing costs: heat, electricity, insurance, cleaning, property tax, and mortgage interest. You take the business share, usually the square footage of your work space divided by the total area of the home. The CRA explains the method on its business use of home expenses page.
Two cautions from the audit side. These home costs cannot create or deepen a business loss, so if money is tight you carry the unused part forward to a future year. And we almost never claim capital cost allowance on the home itself, because it can cost you the tax free status on part of your principal residence when you sell.
Capital purchases and depreciation
Big ticket items like a laptop, machinery, furniture, or a vehicle are not written off all at once. They are “capital” costs, and you deduct them over several years through capital cost allowance, the tax version of depreciation. The CRA sorts these into classes of depreciable property, each with its own rate.
A 1,200 dollar laptop does not become a 1,200 dollar deduction this year. It gets added to a class and deducted at that class rate over time. This is one of the most common things owners get wrong on their own returns.
Travel and conventions
Business travel is deductible: flights, hotels, and the like, with meals on the road still held to the 50 percent rule. Conventions have their own limit. You can deduct the cost of attending up to two a year, and they have to relate to your business and generally be held within the area where the host organization normally operates. The CRA sets this out on its convention expenses page.
What you cannot write off
This is where we save clients the most grief, because a denied claim with interest is worse than a claim never made.
- Personal living costs. Your own meals, your regular commute, and your everyday clothing are not deductible, even if you wore the suit to a meeting. The same line catches creators who assume the wardrobe is a business cost, which we cover in what content creators can write off.
- The personal portion of anything shared. This is why mixing personal and business finances is the fastest way to lose an audit. One bank account for the business keeps the line clean.
- Most club dues and membership fees for golf or recreation.
- Anything you cannot support with a record. No receipt, no log, no deduction.
What this looked like from the auditor’s chair
When we ran reviews, we rarely started by doubting the business. We started with the records. A clean set of books with receipts that matched the claims usually meant a short, calm review. A pile of bank statements with no receipts behind them meant we started disallowing, and the burden flipped to the owner to prove each one. Books that are reconciled every month are what make that first request easy to answer.
We once reviewed a contractor who claimed 12,000 dollars in vehicle costs with no mileage log to back it. The expense itself was probably real, but without a record of business versus personal driving there was nothing to defend it. It got cut to about 4,000 dollars. Eight thousand dollars of deduction gone, not because the spending was fake, but because the paper trail was not there.
The owners who sailed through were not the ones with the fewest expenses. They were the ones who could show the why behind each number in under a minute. If you want the full picture from this side of the desk, we wrote a companion piece on what auditors look for during a CRA audit. The single best habit you can build is storing every receipt as you go, which is exactly why we offer receipt and invoice storage as a service.
Frequently asked questions
Can I write off my car if I use it for both business and personal trips?
Yes, but only the business share. Track your business kilometres against your total kilometres for the year, and deduct that percentage of your vehicle costs. Without a log, the CRA can reduce or deny the claim.
How much of a business meal can I deduct in Canada?
Generally 50 percent of the cost, as long as the meal has a genuine business purpose. Keep the receipt and note who you met and why. The same 50 percent cap applies to meals while you travel.
Can I deduct my home office if I run my business from home?
Yes, if the space is your main place of business or you use it regularly to meet clients. You deduct the business share of costs like heat, insurance, and property tax, usually based on square footage. These costs cannot create a loss, so any excess carries forward.
Do I need to keep receipts, or are bank statements enough?
You need the receipts. A bank statement shows that money left your account, not what it bought or why it was for the business. The CRA can disallow expenses backed only by statements.
Can I write off a new laptop or equipment in full this year?
Usually not all at once. Equipment is a capital cost deducted over several years through capital cost allowance at a set class rate. Smaller supplies, by contrast, are deducted in the year you buy them.
Keep more of what you earn, the right way
The owners who keep the most are not the ones who claim the most. They are the ones who claim with confidence because the records are there. Structure matters as much as deductions do, so if you are weighing a corporation, read when to incorporate in Canada before you decide. If you would rather spend your time running the business than sorting receipts, reach out to our team and we will set your books up so every dollar you are owed is easy to claim and easy to defend.
Last updated: June 2026. Verify current figures against canada.ca, since limits change yearly.
