Business expenses in Canada: what you can deduct and which structure fits you

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You freelance or run a small company in Canada and want to know which costs cut your tax bill. This guide gives you the 2026 deduction rules, the write-off rates for equipment, and a comparison of structures so you can pick the right one for what you do.

Canada business expenses in 2026: the key figures

Is this guide for you?

Read on if you…

• are self-employed in Canada and want to know what you can deduct;
• run, or plan to set up, a Canadian corporation;
• are choosing between sole proprietorship, partnership and corporation.

Probably not your case if you…

• are a salaried employee – see personal tax deductions and benefits in Canada;
• run your business from another country with no Canadian clients or presence.

What can you deduct as a business in Canada?

The Income Tax Act sets one test. The expense must be spent to earn business income, and the amount must be reasonable – basically what an arm's-length business would pay. Personal and living expenses are never deductible.

Running costs, deductible in full

• office or co-working rent;
• salaries to staff, including family members if the pay matches real work;
• the employer share of CPP and EI, and half your own CPP if self-employed;
• accounting, legal and professional fees;
• software subscriptions, hosting, phone and internet;
• advertising and website costs;
• business travel, accommodation and transport;
• professional insurance, licences and memberships;
• interest on money borrowed for the business.

Partly deductible

• Meals and entertainment: 50%. Up to six staff events a year for all employees are 100% deductible.
• Mixed-use costs such as a phone or car: only the business share.
• Conventions: up to two a year.

Never deductible

• club dues and recreational facilities such as golf memberships;
• interest and penalties on late tax;
• your own salary as a sole proprietor;
• capital purchases deducted in one go – they go through CCA instead.

How do capital cost allowance and home office rules work?

Capital cost allowance

Equipment isn't deducted the year you buy it. Instead, you claim capital cost allowance (CCA) – a yearly write-off of a set percentage of the remaining balance.

In the first year, you normally claim half the usual rate. Budget 2025 proposed bringing back enhanced first-year write-offs for some assets.

Home office

You can deduct a share of rent, utilities, insurance and maintenance. One of two conditions must hold:

1. it's your principal place of business; or
2. you use it only for business and meet clients there regularly.

Use the floor area to set the share. Here's the catch: a home office expense can't create or increase a loss. Any excess carries forward.

Your car

Keep a logbook for the full year, at least for a base year. Deduct only the business share of fuel, insurance, repairs, interest and CCA. Driving from home to your office isn't business use.

Sole proprietor, partnership or corporation: which structure fits?

The structure changes how your profit is taxed after expenses. Deductions work almost the same in each. For the legal detail, see legal forms of business in Canada.

Honestly? For profit under about $80,000 that you spend fully, a sole proprietorship is simpler. Once you can leave profit in the company, a corporation usually wins. You pay roughly 12% to 13% combined on retained small business profit, versus 30% to 50% personally. Dividends to family members are restricted by the tax on split income (TOSI) rules.

Management and control: the trap for nomads

A company incorporated in Canada is a Canadian resident. A foreign company can become Canadian resident too, if it's managed and controlled from Canada – basically where key decisions are made.

The reverse also bites. If you leave Canada but keep running your Canadian company from abroad, another country may claim it. A home office abroad can also become a permanent establishment – a taxable presence there. Before you move, check your setup at Heavnn business setup.

Common mistakes (and what they cost)

• Deducting 100% of client meals → the CRA reassesses half, plus interest and possibly penalties.
• No vehicle logbook → the business share of your car costs can be refused entirely.
• Deducting a laptop in one year → reassessment to the CCA rate, and a tax bill for the difference.
• Paying family members for no real work → salaries denied and added back to your income.
• Running a Canadian company from abroad → the company may be taxed in two countries.

Frequently asked questions

What business expenses are tax deductible in Canada?

Any reasonable expense you incur to earn business income. That includes rent, staff costs, professional fees, software, advertising, travel, insurance and interest on business loans. Meals and entertainment are 50% deductible. Equipment is deducted over time through capital cost allowance. Personal expenses, club dues and tax penalties are never deductible.

Can I deduct my home office as self-employed in Canada?

Yes, if your home office is your principal place of business, or you use it only for business and meet clients there regularly. Deduct the business share of rent, utilities, insurance and maintenance, based on floor area. The deduction can't create a loss. Any unused amount carries forward to the next year.

How much of a meal can I deduct in Canada?

Usually 50%. That covers client meals, entertainment and meals while travelling for business. There are exceptions: up to six events a year open to all your staff are fully deductible. Meals you bill back to a client and show separately on the invoice are also fully deductible.

How does capital cost allowance work in Canada?

Instead of deducting equipment in the year you buy it, you claim a percentage of the remaining balance each year. Computers are in class 50 at 55%, furniture in class 8 at 20% and vehicles in class 10 at 30%. In the first year, you normally claim half the regular rate. Software is 100%.

Is it better to be a sole proprietor or a corporation in Canada?

It depends on how much profit you leave in the business. If you spend everything you earn, a sole proprietorship is simpler and costs less to run. If you can retain profit, a corporation pays about 12% to 13% combined on the first $500,000 of active income. Tax is due again when you pay yourself dividends or salary.

How long can I carry forward business losses in Canada?

Non-capital business losses can be carried forward 20 years and back three years. Sole proprietors can first offset a loss against their other income in the same year, such as investment income or salary. Corporations use losses only against their own income. A change of control can restrict them.

Related guides

• Legal forms of business in Canada
• Personal tax deductions and benefits in Canada
• Canada tax landscape overview
• Specific taxes in Canada, including GST/HST
• Business expenses in the United Kingdom
• Business expenses in Ireland
• All country tax guides

Sources

• Canada Revenue Agency – Business expenses
• Canada Revenue Agency
• Income Tax Act – Justice Laws Website
• Corporations Canada
• PwC Worldwide Tax Summaries – Canada

This guide is general information, not personalised tax advice. See how we research and review.