Small business tax deductions in Canada (2026)
Every dollar you spend to earn business income is potentially deductible — but CRA has specific rules about what qualifies, what percentage you can claim, and what records you need. This guide covers the most common deductions for Canadian sole proprietors, partnerships, and incorporated businesses.
The basic rule
An expense is deductible if it is "reasonable," was incurred to earn business or professional income, and is not capital in nature (capital expenditures are depreciated over time via CCA). The expense must have actually been paid or incurred — you can't deduct future estimates or contingencies.
The most common deductions
Advertising and marketing
Google Ads, Facebook ads, flyers, business cards, website hosting and development, sponsorships, trade show booths — all 100% deductible.
Limit: Advertising on foreign digital platforms (Google, Meta) has no restriction. Advertising in foreign newspapers or broadcasters is not deductible unless directed to Canadians.
Vehicle expenses
If you use a vehicle for both business and personal travel, only the business-use portion is deductible. CRA requires a mileage log.
Deductible vehicle costs: gas, oil changes, insurance, repairs, parking, license fees, car wash, lease payments (see below), CCA (on purchased vehicles — Class 10 or 10.1).
| Vehicle type | 2026 rules |
|---|---|
| Purchased vehicle (not luxury) | Class 10 at 30% declining balance; maximum CCA cost $37,000 (Class 10.1 for vehicles over $37,000) |
| Leased vehicle | Monthly lease deduction capped: $1,050/month (2026); reduced by imputed interest if balloon payment structure |
| Zero-emission vehicle (ZEV) | Class 54 (100% in year 1 for ZEVs under $61,000 cost cap); accelerated CCA available |
Mileage log requirement: Record date, destination, business purpose, and km for every business trip. CRA will disallow the claim without it.
Meals and entertainment
Only 50% of eligible meals and entertainment costs are deductible — a longstanding CRA rule. The other 50% is disallowed regardless of how clearly it is a business expense.
What qualifies: Client meals where business is discussed, staff holiday parties (up to 6 per year at 100%), meals while travelling for business (100% if overnight travel), food costs directly tied to a business event.
Record needed: Keep the receipt plus a note of who attended and the business purpose discussed.
Home office (work-space-in-the-home)
If you work from home and it is your principal place of business, you can deduct the business-use portion of rent, utilities, internet, property tax, insurance, and mortgage interest.
The percentage is based on your workspace area relative to total home area. Deduction cannot exceed business income — excess carries forward.
Full home office deduction guide →Salaries, wages, and owner-manager remuneration
Wages paid to genuine arm's-length employees are fully deductible. CPP employer contributions and EI premiums on those wages are also deductible.
Incorporated business: You can pay yourself a salary (deductible for the corporation), a dividend (not deductible — comes from after-tax profit), or a mix. The right strategy depends on your marginal rates and CPP objectives.
Spouse or family member wages: Deductible only if the work is real, the amount is reasonable for what was done, and you can prove it. CRA scrutinizes this heavily.
Professional and business fees
Accounting fees, legal fees related to your business (not personal), bookkeeping, consulting, payroll processing. Annual incorporation/registration fees. Trade and professional association dues. Tax preparation fees for your business return.
Note: Legal fees to buy capital property (commercial real estate, equipment) are added to the cost of the asset, not expensed immediately.
Insurance
Business liability insurance, errors & omissions (E&O), commercial vehicle insurance, contents and equipment insurance, key person life insurance (where the business is the beneficiary on a business loan) — all deductible.
Not deductible: Life insurance premiums are generally not deductible for the business unless the policy is collateral for a business loan (limited deduction based on the loan term).
Office supplies and expenses
Printer paper, toner, pens, postage, courier costs, cleaning supplies for the office, coffee for the office, subscriptions to business software (SaaS), cloud storage, project management tools — all 100% deductible.
Computers and equipment: A laptop or phone is a capital expenditure (Class 8 at 20%, or Class 10 at 30% for some equipment), not immediately expensed unless using the Accelerated Investment Incentive (first-year deduction allowance).
Bank charges and interest
Business bank account fees, credit card processing fees (Stripe, Square), business credit card annual fees (business portion), interest on business loans, lines of credit used for business — all deductible.
Not deductible: Interest on a personal loan used to buy personal items, even if those items are used part-time for business.
Business travel
Flights, hotels, taxis, rental cars — all deductible when the trip is primarily for business. If you add personal days to a business trip, only the business-proportion costs are deductible.
What you need: Receipts for everything. A travel log with dates, destinations, business purpose, and who you met. CRA requests these regularly for business travel claims over $2,000.
Telephone and internet
The business portion of your cell phone and internet bill is deductible. If you use your phone 70% for business, deduct 70% of the monthly cost. A dedicated business line is 100% deductible.
Research and development (SR&ED)
Scientific Research and Experimental Development (SR&ED) expenditures get an investment tax credit (ITC) on top of a full deduction. The federal ITC for Canadian-controlled private corporations (CCPCs) is 35% on the first $3 million of qualifying R&D. Larger corporations get 15%. Work with an SR&ED specialist — the filing requirements are complex.
Capital cost allowance (CCA)
Capital purchases — equipment, computers, furniture, vehicles — are not expensed immediately. They are added to a CCA class and depreciated at the class rate each year. The Accelerated Investment Incentive (AII) allows a 1.5× first-year rate for most eligible property acquired after 2018.
| Asset type | CCA class | Annual rate | Notes |
|---|---|---|---|
| Computer hardware | Class 50 | 55% | Declining balance |
| General equipment | Class 8 | 20% | Declining balance |
| Vehicles (under $37,000) | Class 10 | 30% | Declining balance |
| Vehicles (over $37,000) | Class 10.1 | 30% | One vehicle per class; recapture rules apply |
| Zero-emission vehicles | Class 54/55/56 | Up to 100% | Full immediate deduction available |
| Buildings (non-residential) | Class 1 | 4% | Declining balance on building only (not land) |
| Software (non-custom) | Class 12 | 100% | Full deduction in year of acquisition |
| Leasehold improvements | Class 13 | Straight-line | Over lease term (min 5 years) |
| Goodwill / eligible capital | Class 14.1 | 5% | Declining balance; replaces old eligible capital rules |
Full CCA class reference: CCA classes page →
What you cannot deduct
Personal living expenses
Rent, groceries, personal clothing — the "but for" test: would you have spent it without the business? If yes, not deductible.
Fines and penalties
Parking tickets, CRA late-filing penalties, bylaw fines — none of these are deductible. The government policy is that penalties shouldn't be subsidized.
Capital expenditures (directly)
Buying a truck or building cannot be expensed — you claim CCA over several years.
Life insurance premiums
Generally not deductible. Limited exception if the policy is required collateral for a specific business loan.
Political contributions
Not deductible as a business expense. Individuals may get a federal tax credit (line 40900).
Donations to charity
Not deductible as a business expense for corporations either — but corporations can claim a charitable donation deduction separately on their T2.
What records you must keep
CRA requires you to keep business records for a minimum of 6 years from the end of the tax year to which they apply. For a 2026 return filed in 2027, keep records until at least 2033.
Records include:
- All receipts and invoices for expenses claimed
- Bank and credit card statements showing payments
- Mileage log (if claiming vehicle expenses)
- Contracts with clients and suppliers
- Payroll records if you have employees (T4 slips, ROEs, deduction calculations)
- GST/HST records (if registered) including all invoices showing the GST/HST charged and ITCs claimed
Digital records are accepted. CRA's My Business Account allows you to upload documents directly. But keep originals — a screenshot of an emailed receipt is fine, but CRA prefers the original where possible.
Have a complex deduction question?
A small business CPA can review your situation, catch deductions you're missing, and make sure your records will hold up if CRA reviews your return.
Rules sourced from the Income Tax Act (Canada), CRA IT bulletins, and current CRA guidance. Vehicle limits and class thresholds indexed annually. Verify current year limits at canada.ca/cra.