Small business expenses: What you can claim and deduct

Published Friday 7 November 2025

Table of contents

• What are tax deductions?
• What can I deduct for my small business?
• What are the most common tax deductions for small businesses?
• What are less common expenses your business can claim?
• What expenses are not tax-deductible?
• How to track expenses for small business
• Start using Xero for free
• FAQs on small business expenses

Key takeaways

• Track all business expenses meticulously by keeping detailed records of receipts and purchases, as proper documentation protects you during CRA audits and ensures you claim every eligible deduction.

• Claim the business portion of mixed-use expenses like home office costs, vehicle expenses, and utilities by calculating the percentage used for business purposes and maintaining accurate logs to support your deductions.

• Recognize that expenses must be reasonable, directly related to earning business income, and incurred in the same tax year to qualify as deductible business expenses under CRA regulations.

• Utilize both common deductions like office supplies and advertising costs, as well as overlooked deductions such as professional dues and bank account fees to maximize your tax savings.

What are tax deductions?

Tax deductions are expenses the CRA lets you subtract from your business income, reducing the taxes you owe. The more legitimate deductions you claim, the less you pay in taxes.

This makes claiming every eligible business expense crucial for maximizing your tax savings.

What can I deduct for my small business?

Deductible business expenses are costs necessary to operate and maintain your business. To qualify, expenses must be reasonable and directly related to earning business income.

Your deductible expenses fall into three main categories:

• equipment used only for business, such as dry cleaner hangers, massage tables, or design software
• costs for your business location, such as rent, utilities, and property expenses
• personal items used for business, such as vehicle mileage for deliveries

What are the most common tax deductions for small businesses?

Common tax deductions can significantly reduce your business tax bill. These Canada Revenue Agency (CRA) approved expenses cover most small business operations and can save you hundreds or thousands of dollars each year:

Business startup costs

Business startup costs include expenses incurred during your first year of operation. These must occur in the same tax year your business begins to qualify for deductions.

Common startup expenses include:

• professional fees, such as lawyer and accountant consultations
• equipment purchases, such as computers, machinery, and supplies
• detailed records of purchases made during your first year

Advertising and marketing fees

You can deduct the cost of physical and digital materials used to market your business. This includes flyers, business cards, signs, trade show materials, and design costs. You can also claim digital advertising, such as website development, domain registration, and web hosting.

Business equipment

You can claim the cost of machinery and computer equipment you use in your business. If an item, such as a laptop, will last more than one year, you must capitalize it. Otherwise, you can claim it as a current expense. For example, you can claim computers and printers used for client projects in a design studio.

Office expenses

You can claim expenses related to running your business, such as computers, phones, and software. You cannot claim desks, chairs, calculators, or filing cabinets as office expenses, as these are capital items.

Office supplies

You can claim the cost of small items, such as pens, pencils, paper clips, and cleaning supplies you use in your business.

Rent

You can claim the rent you pay for your business property and office space, including land and buildings.

Home office

If you run your business from a home office, you can deduct a portion of your home expenses. The amount you can claim depends on factors such as the size of your workspace. You can deduct a share of utilities, rent, mortgage interest, and maintenance fees based on the space you use for your business. The Canada Revenue Agency (CRA) does not allow these deductions to create a business loss; they can only reduce your net business income to zero.

Maintenance and repairs

Costs incurred for minor repairs or maintenance done on equipment or property that you use to earn business income are deductible. You cannot deduct the value of your labour.

Telephone, internet, and utilities

Electricity bills, internet service providers, cell phone costs, and other such utilities can all be deductible, as long as these expenses are related to your business activities and not personal expenses. Utilities expenses can also be deducted in line with the size of the space used for your business.

Salaries, wages, and employee benefits

You can claim the gross salaries you pay to employees. You can also claim benefits, such as premiums you pay for your team's Employment Insurance (EI) and Canada Pension Plan (CPP).

Meal and entertainment expenses

You can claim 50% of the amount you spend on business meals and entertainment. You can claim 100% of the cost for up to six office parties or similar events for all employees at a location each year. For example, if you take a client to dinner or a show, you can claim half the cost.

Business travel expenses

Half of the cost of entertainment, beverages, and meals when you travel on business can be written off. Also, the costs of public transportation fares, flights, train trips, car rentals, and hotel accommodations are fully deductible.

Motor vehicle expenses

You can claim all vehicle expenses if you use the vehicle only for business. If you use it for both business and personal reasons, claim only the business portion. Keep a logbook to record your business use, parking fees, insurance, and fuel.

Professional fees

You can deduct accounting, bookkeeping, and freelance contractor fees when consulting with professionals for your business.

Capital cost allowance (CCA)

For large purchases, such as furniture, buildings, and equipment, you can claim a percentage of the cost over time. This is called capital cost allowance (CCA). The class for depreciable property depends on the age and type of the asset. As of 2017, the eligible capital property system was replaced by CCA Class 14.1.

What are less common expenses your business can claim?

Less common tax deductions can provide additional tax savings that many small businesses overlook. These CRA-approved expenses may apply to your specific situation and help maximize your deductions:

Professional dues

You can claim dues you pay to a professional organization, such as the Chartered Professional Accountants of Canada or the Canadian Federation of Independent Business. You cannot claim dues for clubs that involve sports, dining, or entertainment.

Bank account fees

You can claim bank fees, including monthly fees, cheque fees, credit card fees, and monthly interest charges.

Business insurance

You can claim premiums for business insurance. You cannot claim life insurance unless it is used as collateral for a business loan.

Bad debt

You can deduct an account receivable if you won't be paid and it has been posted as income for the year. You can also deduct the cost of trying to get paid, including for legal counsel or a collection agency.

Private health premiums

You can claim payments you make for your own private health insurance coverage.

Other expenses:

You can claim costs that are specific to your business. For example, retailers can claim the cost of buying racks for clothing.

What expenses are not tax-deductible?

Non-deductible expenses are costs the CRA specifically prohibits as business deductions. Understanding these boundaries helps you avoid costly mistakes and potential audits:

• your own time or labour costs
• legal penalties, such as traffic tickets, parking fines, and late payment fees
• regular clothing and dry cleaning (except uniforms and safety gear)
• personal insurance, such as life insurance and personal health insurance premiums
• major repairs or costs reimbursed by insurance

How to track expenses for small business

Expense tracking ensures you claim all eligible deductions and stay organized for tax season. Proper record-keeping can save you time, money, and stress while maximizing your tax savings.

1. Keep detailed records

Keep detailed records by saving all receipts and logging every business purchase. This documentation protects you during CRA audits.

Modern solution: Upload receipts to Xero and Hubdoc to eliminate physical storage needs while maintaining digital records.

2. Track spending trends

Track your expense trends over the year, so you know the types of write-offs and deductions you may be eligible for.

3. Plan ahead for large purchases

Anticipate your large purchases before the end of the tax year to fully take advantage of the tax deductions available to you.

4. Get help from an accountant or bookkeeper

Ask an accountant or bookkeeper for advice on how to claim your deductions and keep track of your finances.

Start using Xero for free

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Explore Xero accounting software and choose the plan that best suits your needs. Start your free trial.

FAQs on small business expenses

Here are answers to common questions about small business expenses.

What are the biggest expenses for small businesses?

The biggest small business expenses typically include rent, employee costs, inventory, marketing, and office supplies. These five categories often account for 70-80% of total business spending.

Planning ahead helps you identify and control these major costs before they impact your cash flow.

How much can I write off as a business expense?

The Canada Revenue Agency (CRA) details the common and less common business expenses that your business can write off. The important point to remember is that, to qualify, they must be incurred in order to earn business income and be reasonable under the circumstances. Expenses incurred in a business's fiscal year must be claimed against your income in that same fiscal year.

How do I maximize my LLC tax deductions?

All businesses in Canada can deduct expenses they incur to run and sustain their business. The CRA has a comprehensive list of business expenses that you can write off. The condition is that expenses must be incurred to earn the business income in the year that it is being claimed.

What are some ways to cut down on small business expenses?

Paying close attention to your business expenses is important for profitability. You can control expenses by budgeting, tracking costs, managing variable costs, and reviewing fixed costs to get the best value.

What deductions can I claim without receipts?

For more information, visit the Canada Revenue Agency (CRA) website.