Owning a business in Canada comes with valuable tax advantages, including the ability to deduct eligible business expenses. However, determining what qualifies, and what doesn’t, isn’t always straightforward. These are some of the most common questions I hear from business owners:
- Can I deduct my home internet?
- Are meals with clients fully deductible?
- Is a new laptop an expense or a capital asset?
These distinctions matter more than ever, especially as the CRA increases reviews and compliance checks on small businesses heading into 2025.
Below, we break down what you can and can’t deduct, common pitfalls to avoid, and how to keep your business audit-ready this year.
What qualifies as a business expense
The CRA’s guiding principle is simple: expenses must be incurred to earn business income. Some commonly deductible expenses include:
Office supplies and software
Items such as pens, printer ink, accounting software (including QuickBooks or Xero), and Microsoft 365 subscriptions are generally deductible.
Professional fees
Fees paid for accounting, legal, or consulting services related to your business are fully deductible.
Meals and entertainment (50%)
Client meals are only 50% deductible and must serve a clear business purpose. Personal meals or social events do not qualify.
Home office expenses
If you work from home, you may deduct a portion of expenses such as utilities, internet, property taxes, mortgage interest (not principal), and certain repairs. The deductible portion is based on square footage or reasonable use of space.
Vehicle expenses
When a vehicle is used for business purposes (excluding regular commuting), costs such as fuel, insurance, maintenance, and lease payments may be claimed. A detailed mileage log is required to separate business and personal use.
Salaries and wages
Employee wages are deductible, along with employer CPP and EI contributions. For incorporated businesses, reasonable salaries paid to owners may also qualify.
Expenses you cannot deduct
Some costs may feel business-related, but the CRA does not allow them:
- Clothing – Regular attire is not deductible unless it is a branded uniform or required protective gear.
- Personal grooming – Haircuts, cosmetics, and personal care remain personal expenses.
- Client gifts over $500 or involving alcohol – These are subject to restrictions and partial deduction rules.
- Club memberships – Gym, golf, or social club memberships are not deductible, even if used for networking.
Common mistakes that trigger CRA attention
To reduce the risk of an audit, avoid these frequent issues:
- Claiming 100% of meals or vehicle expenses without proper support
- Significant year-over-year expense increases without explanation
- Writing off personal purchases such as vacations or home furniture
- Missing receipts or unclear business purpose
- Mixing personal and business banking or credit cards
What the CRA is focusing on in 2025
The CRA continues to increase scrutiny in the following areas:
- Gig economy workers and side hustles
- Home office and vehicle claims in hybrid or remote work situations
- “Aggressive” deductions that appear personal in nature
- Digital transactions and online sellers, including Etsy, Shopify, Amazon, and influencers
If your business falls into any of these categories, strong documentation and accurate bookkeeping are essential.
How to stay audit-ready
To stay compliant and reduce stress at tax time:
- Keep organized digital or physical copies of all receipts
- Use accounting software to properly track and categorize expenses
- Maintain a mileage log for vehicle claims
- Consult your accountant before claiming borderline expenses
- Review your books regularly instead of waiting until year-end
Understanding your deductions isn’t just about minimizing taxes—it’s about making informed decisions, staying compliant, and keeping more of what you earn. Let’s make 2025 your most confident and empowered year as a business owner.
Disclaimer
The information provided in this blog is for general informational purposes only and does not constitute professional advice. Any actions taken based on this content are at the reader’s discretion. Readers are encouraged to consult their trusted advisor to address their specific circumstances.
