Small Business Tax Deductions Explained: What You Can Write Off

For most small business owners, success comes down to two things: growing revenue and controlling costs. One of the most effective, and often overlooked, ways to control costs is by claiming every eligible tax deduction available under the Income Tax Act.
Whether you operate as a sole proprietor, partnership, or corporation, understanding small business tax write-offs in Canada can significantly reduce your taxable income and keep more cash in your business.

This guide explains:

• What tax deductions are
• The most common small business write-offs
• Lesser-known deductions many owners miss
• Expenses you cannot deduct
• Best practices to stay CRA-compliant

What Are Small Business Tax Deductions?
A tax deduction is an expense that the Canada Revenue Agency (CRA) allows you to subtract from your business income to determine your taxable income.
The general rule is simple: If an expense is incurred to earn business income, is reasonable, and is properly documented, it is usually deductible, unless specifically prohibited.
Claiming deductions does not increase audit risk when done correctly. In fact, failing to claim them means overpaying tax.

The Most Common Tax Write-Offs for Small Businesses in Canada

1. Home Office Expenses
Home office expenses are one of the largest deductions for many small business owners.

If you work from home, you may deduct a portion of expenses such as:

• Mortgage interest or rent
• Property taxes
• Utilities (heat, electricity, water)
• Home insurance
• Maintenance and repairs

The deduction is based on the percentage of your home used for business (by square footage or rooms).

Only the business-use portion is deductible, not personal use.

2. Motor Vehicle and Automobile Expenses
If you use your vehicle for business purposes, you can deduct the business-use portion of costs, including:

• Fuel and oil
• Insurance
• Maintenance and repairs
• License and registration fees
• Lease payments or interest

You may also claim Capital Cost Allowance (CCA) on purchased vehicles (subject to limits).

Keeping a mileage logbook is critical to support this deduction.

3. Capital Assets (CCA)
Some purchases benefit your business over several years and must be deducted gradually through Capital Cost Allowance (CCA) instead of all at once.

Common capital assets include:

• Computers and technology
• Office furniture
• Equipment and machinery
• Vehicles
• Leasehold improvements

CCA allows you to write off these assets over time based on CRA-prescribed rates.

4. Office Supplies and General Expenses
Day-to-day operating expenses are fully deductible, including:

• Stationery and office supplies
• Cleaning supplies
• Small tools and equipment
• Postage and courier fees

These are different from capital items, which must be depreciated.

5. Advertising and Marketing
You can deduct expenses incurred to promote your business, such as:

• Online and digital advertising
• Website hosting and domain fees
• Social media ads
• Business cards, flyers, signage
• Trade shows and promotional materials

Advertising with Canadian media outlets is generally fully deductible.

6. Professional Fees
Fees paid for professional services are deductible, including:

• Accounting and bookkeeping
• Legal fees
• Tax preparation software and services
• Consulting fees

These costs are common and frequently scrutinized, documentation matters.

7. Salaries, Wages, and Benefits
If you have employees, you can deduct:

• Gross wages and salaries
• Employer CPP contributions
• Employer EI contributions
• Employee benefits

Payments to contractors are also deductible but must be reported properly.

8. Rent and Utilities

Rent paid for business premises is fully deductible. This includes:

• Office or retail rent
• Shared workspace or co-working fees
• Business utilities

For home offices, rent and utilities must be prorated.

9. Meals, Entertainment, and Travel

• 50% of meals and entertainment expenses are deductible
• Business travel expenses (airfare, hotels) are deductible
• Vehicle and meal expenses while travelling for business are partially deductible

Receipts must show the business purpose.

10. Lesser-Known Tax Deductions Small Businesses Often Miss
Many business owners overlook these valuable write-offs:

• Bank charges and processing fees
• Bad debts (uncollectible receivables already included as income)
• Business licenses and memberships
• Interest on money borrowed for business purposes
• Insurance premiums (commercial policies)
• Private Health Services Plan (PHSP) premiums
• Start-up costs
• Cell phone and internet (business portion)

Small deductions add up, especially over multiple years.

Expenses That Are NOT Tax Deductible
Some common expenses are not deductible, even if they feel business-related:

• Personal clothing and dry cleaning (unless uniforms or safety gear)
• Commuting from home to work
• Fines, penalties, and parking tickets
• Golf club dues and gym memberships
• Life insurance premiums (with limited exceptions)
• The value of your own labor

Claiming non-deductible expenses is a common CRA adjustment.

Sole Proprietors vs Corporations: Does It Matter?
Yes, because the reasons are,

• Sole proprietors deduct expenses on their T1 return
• Corporations deduct expenses on the T2 return

• Keep every receipt (digital copies are acceptable)
• Use accounting software or organized bank exports
• Separate personal and business accounts
• Track vehicle mileage consistently
• Review expenses annually with a CPA
• Good record-keeping is your best audit defense.

Final Thoughts
Understanding small business tax deductions in Canada is one of the easiest ways to reduce taxes, yet many owners leave thousands of dollars unclaimed each year.
By knowing what you can deduct, keeping proper documentation, and planning ahead, you can legally minimize taxes while staying fully compliant.

Diamond CPA, Scarborough, Toronto, helps Canadian small business owners identify missed deductions, optimize expense claims, and build tax-efficient structures that support long-term growth.

Disclaimer
This article is for general information only and does not constitute tax advice. Tax rules change and results depend on individual circumstances. Consult a qualified tax professional before acting.