As a small business owner, managing expenses is a crucial part of running your business successfully. One way to boost your bottom line is by maximizing the tax deductions available to you. Knowing which expenses you can write off can save you thousands of dollars annually and keep your business thriving.

In this guide, we’ll break down everything you need to know about small business tax deductions, from travel to office expenses, with practical examples to help you navigate the tax season confidently.

• What are small business tax deductions?
• Tax write-offs vs. tax deductions vs. tax credits
• Common tax write-offs for businesses
• How to qualify for small business deductions
• How to claim tax deductions
• What does my accountant need to do my small business taxes?
• Small business deadlines to keep in mind
• Taking control of your small business taxes
• FAQs

What are small business tax deductions?

Small business tax deductions are expenses that the Canada Revenue Agency (CRA) allows business owners to subtract from their gross income to reduce the amount of taxable income. By claiming these deductions, businesses can lower the taxes they owe, freeing up resources to reinvest in their operations or improve profitability.

Tax deductions are also a way to account for the costs incurred while running a business. These deductions can encompass a wide range of expenses, including office supplies, travel, and salaries. Understanding which expenses qualify as deductions is essential for maximizing your tax savings while staying compliant with CRA regulations.

For example, if you earn $100,000 in business revenue and you have $30,000 in deductible expenses, you will only be taxed on $70,000 of income. This significantly reduces the amount of tax owed and helps small businesses manage their finances effectively.

Tax deductions help offset the cost of doing business, making it easier to manage cash flow and stay competitive. Claiming deductions can also improve profitability by reducing overall tax liability; provide clarity on how money is spent; and ensure compliance with tax laws, avoiding penalties and interest.

Tax write-offs vs. tax deductions vs. tax credits

The terms "tax write-offs," "tax deductions," and "tax credits" often come up during tax season, and while they all serve to reduce your tax burden, they work in slightly different ways. Understanding these distinctions is essential for small business owners looking to maximize savings and stay compliant with CRA regulations.

What is a tax write-off?

A tax write-off refers to any business expense that can be subtracted from your gross revenue to calculate your taxable income. In other words, a write-off is the general term for eligible costs that reduce the income subject to taxation. Common write-offs include rent, utilities, professional fees, and travel expenses.

If your business earns $100,000 in revenue and you incur $20,000 in eligible business expenses, you can "write off" those expenses, reducing your taxable income to $80,000.

What is a tax deduction?

A tax deduction is the same thing as a write-off, but the term "deduction" is more commonly used in the accounting profession, whereas "write-off" is often used in casual conversation or by business owners. "Tax deduction" and "tax write-off" are used interchangeably.

What is a tax credit?

Unlike deductions and write-offs, which reduce taxable income, a tax credit directly reduces the amount of tax you owe. Tax credits are often offered as incentives by the government to encourage specific behaviours or support certain groups, such as small business owners, students, or environmentally conscious companies.

Tax credits can be either:

• Refundable: If the credit exceeds the taxes you owe, the government refunds you the difference.
• Non-refundable: These only reduce your tax owed to zero but do not result in a refund.

Suppose your tax bill is $5,000, but you qualify for a $1,500 tax credit for hiring apprentices. Your total tax owed would be reduced to $3,500 ($5,000-$1,500).

To maximize your tax savings, it’s essential to understand and utilize deductions and credits effectively. While write-offs and deductions reduce your taxable income, credits provide direct financial relief by reducing the amount of tax owed. The next section will explore common deductions available to small businesses, complete with examples to guide you through the process.

Common tax write-offs for businesses

As a small business owner, understanding the expenses you can deduct (or what you can write off) is key to minimizing your taxable income and maximizing savings. The CRA allows you to claim a variety of deductions for business-related costs, provided they are reasonable and directly tied to earning income.

Below are some of the most common small business deductions you should be aware of, along with practical examples to help you navigate these claims.

1. Advertising

You can deduct advertising expenses related to promoting your business, such as online ads, social media campaigns, print ads, or sponsorships. However, ensure these ads are placed in Canadian media outlets to qualify under CRA rules.

A bakery running Facebook ads to attract local customers can deduct the cost of the ads as a business expense.

2. Bad debts

If your business uses the accrual method of accounting, you can deduct debts that are owed to you but cannot be collected. This commonly applies to unpaid invoices for goods or services.

A graphic designer completes a project for a client who later declares bankruptcy. The unpaid invoice can be claimed as a bad debt expense.

3. Vehicle costs

If you use a vehicle for business purposes, you can deduct costs such as fuel, insurance, repairs, and maintenance. If the vehicle is also used for personal purposes, you must track the percentage of business use and deduct expenses accordingly.

A mileage tracker is a great way to keep track of vehicle expenses. In addition to noting the mileage of your vehicle at the beginning and end of the year, for each trip note the date, purpose of the trip, and kilometres driven.

A delivery driver logs that 80% of their vehicle use is for business. They can deduct 80% of their fuel, insurance, and maintenance costs.

4. Standby charges

For business owners who provide vehicles to employees, standby charges refer to the taxable benefit associated with personal use of those vehicles. The CRA has specific rules for calculating these charges, and it’s important to track personal vs. business use accurately.

A company provides an employee with a leased car for work purposes, but the employee also uses it for personal errands. The standby charge must be calculated and included as a deduction.

5. Meals and entertainment

You can deduct 50% of the cost of meals and entertainment incurred for business purposes, such as taking a client to lunch or hosting a team-building dinner. Ensure these expenses are documented and include details like date, location, purpose, and attendees.

A consultant takes a potential client to a networking dinner and spends $100. They can deduct $50 (50% of the total cost) as a business expense.

6. Rent and business maintenance

If your business rents office space or a storefront, you can deduct the rental costs. You can also claim expenses for maintenance, repairs, or utilities associated with the property.

A florist renting a downtown shop can deduct their monthly rent, hydro, and costs for maintaining the space, such as repainting or replacing lighting fixtures.

7. Interest on loans

If you’ve taken out a loan to finance your business, the interest paid on that loan is deductible. This also applies to business lines of credit or credit cards used for business-related purchases.

A small restaurant owner takes out a $20,000 loan to renovate their kitchen. The interest paid on this loan can be claimed as a business deduction.

8. Office expenses

Expenses related to office supplies, such as stationery, paper, and software subscriptions, are deductible. These deductions also extend to home office costs if you use part of your home for business purposes. For home office expenses, the amount deducted must be prorated based on the percentage of your home used for business.

A freelance writer purchases a new printer and subscription to design software for client work. Both are eligible deductions. The same writer works from home and has no other office space. Their office takes up 20% of the square footage of their home. They can also deduct 20% of expenses like mortgage interest, property taxes, house insurance, and utilities.

9. Payroll

If you have employees, you can deduct salaries, wages, and benefits paid to them. This includes Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums you pay as an employer.

A small café employs three part-time staff and pays $30,000 annually in wages. These wages, along with the employer’s portion of CPP and EI, are deductible.

10. Travel

Business travel expenses, such as airfare, hotel stays, car rentals, and meals, are deductible if the trip is for work purposes. Keep detailed records of the trip’s purpose and all related receipts. Personal travel costs cannot be included.

A consultant travels to Montreal to meet with a client, incurring costs for airfare, two nights in a hotel, and meals. These expenses are deductible as they are directly related to business activities.

11. Business insurance

Premiums paid for insurance policies that protect your business, such as liability, property, or commercial auto insurance, are deductible. These expenses ensure your business is safeguarded and qualify as a necessary operating cost.

A retail store pays monthly premiums for commercial liability insurance to protect against customer injuries on the premises. The full cost of these premiums can be claimed as a deduction.

12. Bank charges

Fees for maintaining a business bank account or using business credit cards are deductible. This includes monthly account fees, transaction fees, and charges for wire transfers or overdrafts.

A small e-commerce business incurs a $20 monthly fee for its business checking account and additional transaction fees for online payments. These charges are eligible for deduction.

13. Depreciation

Also known as capital cost allowance (CCA), depreciation allows you to deduct a portion of the cost of long-term assets, like equipment or vehicles, over several years. The CRA has specific rates for different asset classes.

A photographer purchases a $5,000 camera. Using the CRA’s prescribed rate for equipment, they claim a portion of the cost (for example, 20%) as a depreciation deduction each year.

14. Professional fees

Payments to professionals such as accountants, bookkeepers, and lawyers for services directly related to your business are fully deductible. This includes fees for tax preparation, financial advice, or legal consultations.

A bakery hires an accountant to prepare its taxes and pays a $1,000 fee. This cost is deductible as it is directly tied to operating the business.

15. Utilities

Expenses for utilities like electricity, water, heating, and internet services used in your business operations are deductible. If you work from a home office, you can deduct a percentage of these costs based on the proportion of your home used for business.

A graphic designer who uses 10% of their home as an office claims 10% of their electricity, heating, and internet costs as business expenses.

How to qualify for small business deductions

To claim small business deductions in Canada, your business must meet certain criteria set by the CRA. These guidelines ensure that only legitimate business expenses tied to earning income can be deducted. Here are the key factors that determine if your business qualifies to claim deductions:

1. Your business generates income

The CRA requires that your business be a legitimate income-generating activity. This means there must be a reasonable expectation of profit, even if the business is operating at a loss in its early stages.

For example, a freelancer earning income from client projects qualifies, but a hobbyist occasionally selling crafts without regular profit may not.

2. Expenses must be reasonable and necessary

To qualify as deductible, expenses must be reasonable and directly related to running your business. The CRA assesses whether the costs are appropriate for the type and scale of your business.

A marketing consultant deducting software subscriptions needed for client work would qualify, but extravagant personal purchases disguised as business expenses would not.

3. The expense must be incurred to earn income

You can only claim deductions for expenses incurred to generate income. Personal expenses unrelated to your business, or mixed-use expenses without proper allocation, do not qualify.

A delivery driver can claim a portion of their vehicle expenses based on the percentage of business use, but personal trips must be excluded.

4. Your business must be registered (if applicable)

While sole proprietors and partnerships may not always need to register their business, doing so adds credibility and helps establish that the activity is legitimate. For businesses required to collect GST/HST (annual revenues of $30,000 or more), registration is mandatory.

5. Proper documentation must be maintained

The CRA requires detailed records to substantiate any deductions claimed. This includes receipts, invoices, contracts, and other evidence showing that the expense was incurred and used for business purposes. Without adequate proof, the deduction may be disallowed.

A consultant who claims travel expenses for attending a conference should keep receipts for airfare, hotel stays, and meals, along with proof of the conference’s business relevance.

6. Expenses must align with CRA guidelines

Certain deductions, such as meals, entertainment, or vehicle expenses, have specific limits and conditions under CRA rules. For instance, meals and entertainment are typically only 50% deductible, and vehicle expenses require a detailed logbook to track business use.

7. The business owner must be a Canadian resident

For tax purposes, the CRA requires that the individual claiming deductions be a Canadian resident. Residency is determined based on factors such as where you live, your ties to Canada (such as home, family, or assets), and how long you’ve lived in the country.

If you operate a small business in Canada but live outside the country and are considered a non-resident for tax purposes, you may not be eligible to claim small business deductions.

8. The business must operate in Canada

The CRA requires that the business operate primarily within Canada to qualify for deductions. While you may conduct some business activities internationally (such as working with overseas clients), your primary operations, such as your office location or majority of revenue-generating activities, should be based in Canada.

A marketing consultant with a home office in Toronto and clients in the U.S. would qualify for deductions because the business operates out of Canada.

How to claim tax deductions

Claiming business expenses involves careful documentation and adherence to CRA guidelines. By following the steps outlined below, you can ensure that you claim eligible deductions correctly, minimize your taxable income, and stay compliant with tax regulations.

1. Track all business expenses and maintain documentation

The foundation of claiming tax deductions is keeping detailed and accurate records of all your business-related expenses. The CRA requires you to retain these records for at least six years from the end of the tax year they relate to. Proper documentation ensures you can substantiate your claims if ever audited.

To make tracking expenses simple, open a dedicated business bank account and credit card to avoid mixing personal and business expenses. Use the business account exclusively for income and expenses related to your company. Reconcile your accounts monthly or quarterly to ensure all expenses are properly categorized and up to date.

For each expense, maintain supporting documentation, such as:

• Receipts or invoices
• Contracts for services or rentals
• Vehicle mileage logs (for business use)
• Tax forms

Tip: Use accounting tools like QuickBooks to categorize and track your expenses automatically. This saves time and ensures your records are organized and in compliance with CRA requirements.

2. Differentiate between business and personal expenses

The CRA requires that deductions apply only to expenses incurred solely for business purposes. If you use certain assets, like a vehicle or home office, for both personal and business use, you must allocate the expenses proportionately.

If 60% of your vehicle use is for business, you can deduct 60% of fuel, insurance, and maintenance costs, provided you have kept detailed records, like a logbook.

3. Use the correct tax forms

Accurately reporting income and claiming deductions requires using the correct tax forms provided by the CRA. Understanding these forms is essential for compliance and ensuring that all business income and expenses are properly documented. Below are the key forms small businesses need to be familiar with, along with their purposes and what you’ll need to report.

Form T2125: Statement of Business or Professional Activities

This is the primary form for sole proprietors, freelancers, and unincorporated business owners to report their business income and claim deductions. It’s part of the T1 General Tax Return, where personal and business income are combined. The T2125 requires a detailed breakdown of your earnings, operating expenses, and capital costs.

What you’ll report on Form T2125:

• Business income earned during the year
• Cost of goods sold, if applicable
• Operating expenses such as rent, advertising, and utilities
• Capital expenses like equipment or property depreciation

GST/HST return

If your business earns $30,000 or more annually, you’re required to register for a GST/HST and file periodic returns. These returns ensure that you remit taxes collected from customers and claim input tax credits (ITCs) for GST/HST paid on business-related purchases.

What you’ll report on the GST/HST return:

• Total revenue for the reporting period
• GST/HST collected on sales of goods or services
• Input tax credits for GST/HST paid on eligible business expenses

Purpose: The GST/HST return calculates the net GST/HST your business owes or will be refunded.

T4 Statement of Remuneration Paid

If your business has employees, you’re required to issue T4 slips to each employee and submit a summary to the CRA. This form reports employee wages, taxable benefits, and deductions made for the year.

What the T4 includes for each employee:

• Total employment income
• Federal income taxes deducted
• Employer and employee CPP and EI contributions
• Any taxable benefits provided

Deadline: T4 slips must be issued by February 28 of the following year.

T5018 Statement of Contract Payments

For businesses in the construction industry, the T5018 form is used to report payments made to subcontractors. This helps the CRA ensure compliance with tax obligations within the sector.

What the T5018 includes:

• Contractor’s name, address, and business number
• Total payments made to each contractor during the year

A contractor who hires plumbers or electricians for specific projects must file a T5018 to report those payments.

Payroll deductions remittance form

If you have employees, you must remit payroll deductions to the CRA on a regular schedule (monthly, quarterly, or annually). This includes income tax, CPP contributions, and EI premiums deducted from employees’ pay, along with the employer’s share.

What you’ll report on the remittance form:

• The payroll period covered
• Total wages paid during that period
• Employee and employer deductions for federal tax, CPP, and EI

Using the correct tax forms ensures compliance and reduces the risk of errors or penalties.

4. Ensure deductions meet CRA requirements

The CRA stipulates that deductions must be:

• Reasonable: The expense should be necessary and proportionate to the income it generates.
• Directly related to earning income: For example, a printer used to generate invoices for clients qualifies, but a personal vacation does not.

5. Claim deductions in the correct tax year

Expenses should generally be claimed in the year they are incurred. However, certain costs, such as prepaid expenses or capital expenses, may need to be amortized over several years.

For example, if you purchase a laptop for your business, you cannot deduct the entire cost in one year. Instead, you would claim a portion of the cost as depreciation over its useful life.

6. File your taxes with precision

When filing your tax return, ensure that all tax deductions are reported accurately. Using accounting tools like QuickBooks can simplify this process by automatically generating reports and summaries of deductible expenses.

Tip: Double-check your calculations and consider consulting a tax professional to ensure you’re maximizing deductions and avoiding errors.

7. Consult a tax professional for complex deductions

Some deductions, such as those related to capital expenses or standby charges, can be complex. Seeking the advice of an accountant or tax professional can help you navigate these rules and ensure compliance.

Claiming tax deductions doesn’t have to be overwhelming. With proper record-keeping, the right tools, and a clear understanding of CRA guidelines, you can confidently claim eligible expenses and keep your business on solid financial footing. 

What does my accountant need to do my small business taxes?

Working with an accountant to prepare your small business taxes can save time and ensure accuracy. To make the process efficient, you need to provide them with all the relevant documentation and details about your business finances.

Here’s a checklist of what your accountant will need to complete your taxes:

Income records

Provide a detailed account of all income your business earned during the tax year.

This can include:

• Invoices issued to clients
• Receipts for sales or services
• Records of any additional revenue (for example, rental income from business property)

Tip: Use accounting tools like QuickBooks to generate income reports for the year.

Expense records

Your accountant will need documentation for all deductible expenses. This includes:

• Receipts and invoices for purchases (for example, office supplies, advertising, professional fees)
• Records of vehicle use, including mileage logs for business travel
• Proof of rent or lease payments

Tip: Categorize expenses into groups that align with CRA deductions (such as travel, meals, and office supplies) to streamline tax preparation.

Tax forms and prior-year returns

If this is not your accountant’s first time filing for you, provide a copy of last year’s tax return.

For this year, they will need:

• Form T2125: Statement of Business or Professional Activities
• Any applicable GST/HST returns
• T4s, T5s, or other relevant forms if you issued employee salaries or dividends

Payroll records

If you have employees, supply:

• Payroll summaries for the year
• Deductions made for CPP and EI
• T4 slips for employees

Bank and credit card statements

These provide a comprehensive view of all transactions related to your business, helping your accountant verify income and expenses. Note that the CRA will not accept bank and credit card statements as proof of expenses, which is why you also need to keep all your receipts.

Investment and loan information

If your business has loans or investments, include:

• Statements showing interest paid (for deductions)
• Records of capital gains or losses

CRA correspondence

If you received any notices, assessments, or other correspondence from the CRA during the year, share this with your accountant so they can address any issues or updates.

Small business deadlines to keep in mind

Missing important tax deadlines can result in penalties and interest charges, so it’s crucial to stay informed and organized.

Here are the key deadlines for small business owners:

Personal income tax deadline (including sole proprietors)

• Due date: April 30, unless it falls on a weekend or holiday.
• If you’re a sole proprietor or in an unincorporated partnership, your business income is reported as part of your personal taxes on the T1 return.

Note: While the filing deadline for self-employed individuals is June 15, any taxes owing must still be paid by April 30.

GST/HST filing deadlines

The deadline for GST/HST returns depends on your filing frequency:

• Monthly: One month after the end of the reporting period.
• Quarterly: One month after the end of the quarter.
• Annually: Three months after your fiscal year-end.

For example, if your fiscal year ends on December 31 and you file annually, your GST/HST return is due by March 31.

Payroll remittance deadlines

If you have employees, payroll remittances are typically due:

• Monthly: By the 15th of the month after payroll deductions were made.
• Some businesses may qualify for quarterly remittances.

Tip: Check the CRA guidelines to confirm your remittance schedule.

T4 and T5 slips

• Deadline to issue: February 28 of the following business year.
• These slips must be issued to employees and shareholders for wages and dividends paid.

Instalment payment deadlines

If your business is required to pay taxes in instalments, these payments are due quarterly, on:

• March 15
• June 15
• September 15
• December 15

Tip: Use CRA’s online services to track your instalment requirements and ensure timely payments.

Staying on top of deadlines

Keeping a calendar with reminders for these key dates can help you avoid penalties and interest charges. Using accounting tools like QuickBooks can also automate tracking and reporting, giving you peace of mind during tax season.

By staying organized and aware of your responsibilities, you’ll make tax time easier for both you and your accountant.

Taking control of your small business taxes

Navigating small business taxes can feel overwhelming, but with the right knowledge, tools, and support, you can confidently manage your finances and maximize deductions. By understanding key tax forms, tracking your expenses diligently, and meeting all deadlines, you’ll not only reduce your taxable income, but also position your business for long-term success.

Whether you’re preparing your taxes independently or with the help of an accountant, tools like QuickBooks can simplify the process by organizing your records, generating reports, and ensuring accuracy. Take control of your business finances today — explore how QuickBooks can help you save time and stay on top of your business expenses this year.