How self-employed deductions work in Canada

Self-employed income and expenses are reported on Form T2125 (Statement of Business or Professional Activities), submitted with your T1 personal return. Your net business income — gross revenue minus deductible expenses — is what actually gets taxed.

One rule sits above all others: you can only deduct the business portion. Personal expenses aren’t deductible, and where something is used for both, you claim only the business share.

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Fully deductible business expenses

These are straightforward — if it’s a genuine business cost, claim it in full:

  • Advertising — online ads, business cards, signage, website costs, social media advertising
  • Office supplies — paper, ink, postage, stationery and other consumables
  • Software and subscriptions — SaaS tools, domain names, web hosting, cloud storage
  • Professional fees — accountant, legal, consulting and tax preparation fees for your business return
  • Business insurance — premiums on business-related policies
  • Travel — airfare, hotels, car rentals, taxis and train tickets for business travel
  • Subcontractors — what you pay others to do work for you
Not sure what counts toward your deductions?
The Self-Employed Expense Calculator lets you enter costs by category and see how they reduce your taxable income.
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The three deductions that trip people up

Meals and entertainment — 50% only

You can deduct 50% of business meals and entertainment. The 50% limit also applies to meals while travelling. Meals taken alone while working are generally not deductible. Write the attendees and business purpose on every receipt — CRA auditors routinely ask, and a bare receipt without context is weak support.

Vehicle expenses — business portion, with a logbook

You claim a portion of your vehicle costs based on business use, which means keeping a detailed daily logbook of business and personal trips. Without one, the claim is difficult to defend.

Home office — strict conditions apply

You can claim home office expenses only if the workspace is your principal place of business, or is used exclusively and on a regular and continuous basis for meeting clients. Occasional use does not qualify.

The home office deduction is also limited to your net business income — it cannot be used to create a loss.

Equipment and capital cost allowance

Expensive equipment isn’t deducted all at once. It’s depreciated through Capital Cost Allowance (CCA), where each asset class has its own declining-balance rate.

Computers and systems software fall under Class 50 at 55% — so a $2,000 laptop generates roughly $1,100 in the first year, then 55% of the remaining balance the next year, and so on.

Receipt requirements: what the CRA expects

You don’t submit receipts with your return, but you must be able to produce them on request. Bank or credit card statements alone are not sufficient — the CRA may ask for itemized receipts showing what was purchased. Clear digital photos are accepted.

This is the most common reason legitimate deductions get denied: the expense was real, but the paperwork wasn’t there two years later.

Frequently asked questions

What can I write off as self-employed in Canada?

Advertising, office supplies, software subscriptions, professional fees, business insurance, travel, subcontractors, and the business portion of vehicle and home office costs. Meals and entertainment are limited to 50%. All expenses are reported on Form T2125.

Can I deduct my home office if I’m self-employed?

Only if the workspace is your principal place of business, or is used exclusively and regularly for meeting clients. Occasional use doesn’t qualify, and the deduction can’t create a loss — it’s limited to your net business income.

How much of a business meal can I deduct?

50% of the cost. The same limit applies to entertainment and to meals while travelling. Record the attendees and business purpose on each receipt.

Do I need receipts for self-employed expenses?

Yes. You don’t file them with your return, but the CRA can request them. Credit card statements alone aren’t sufficient — you need itemized receipts. Clear digital copies are accepted.

Do deductions reduce my CPP contributions too?

Yes. Deductions reduce your net business income, and self-employed CPP is calculated on that net figure — so a deduction lowers both your income tax and your CPP.

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Track expenses by T2125 category all year

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