Most owners remember the obvious expenses, like rent and advertising. The deductions that slip through the cracks usually need record-keeping during the year. If the paperwork isn't there at tax time, the claim often isn't either.
The CRA's basic rule: a business expense is a cost you incur to earn business income, it must be reasonable, and you need a receipt, invoice or other document to support it. Here are some that are easy to miss.
1. Business-use-of-home expenses
If you work from home, you may be able to deduct part of your household costs if your workspace meets one of these conditions:
it's your principal place of business, or
you use it only to earn business income and regularly meet clients or customers there.
Eligible costs can include part of your heat, electricity, home insurance, maintenance and, if you rent, rent. Homeowners can also claim part of property taxes and mortgage interest. Use a reasonable split, such as the workspace's area divided by your home's total area.
These expenses can't create or increase a business loss. Any amount you can't use can be carried forward to the next year.
You can claim capital cost allowance on the business part of your home, but capital gain and recapture rules may apply when you sell. Think carefully before you do.
2. Vehicle expenses (and the logbook that supports them)
If you use a vehicle for both business and personal driving, you can deduct the business share of costs like fuel, insurance, maintenance, licence fees, loan interest and lease payments. Business parking can generally be deducted in full.
The share is based on business kilometres ÷ total kilometres, so the logbook is everything. For each business trip, record the date, destination, purpose and kilometres, and note your odometer reading at the start and end of the year.
The CRA also allows a simplified logbook: after one full year establishes a "base year," you can keep a three-month sample in later years, as long as results stay within 10% of the base year.
3. Capital cost allowance (CCA)
You can't deduct the full cost of equipment, furniture or computers in the year you buy them. Instead, you claim capital cost allowance over time. Common classes include:
Class 8 (20%): furniture, appliances and other equipment, including tools costing $500 or more.
Class 50 (55%): general-purpose computer hardware and its systems software.
Class 12 (100%): small tools under $500, and computer software that isn't systems software (software is subject to the half-year rule).
If you register for GST/HST, input tax credits on these purchases reduce their capital cost.
4. Phone costs
You can deduct the business percentage of cellphone airtime. The basic monthly rate of a home landline isn't deductible, but business long-distance calls are, and a separate business-only line can be deducted in full.
5. Professional fees
Accounting and legal fees for advice and help keeping your records are deductible, as are fees for preparing and filing your income tax and GST/HST returns.
6. Bank charges, memberships and subscriptions
Bank charges you incur to run your business.
Annual dues to trade or commercial associations, and subscriptions to publications. (Club memberships for dining, recreation or sports aren't deductible.)
Business licences and permits.
7. Meals and entertainment, at the right rate
Business meals and entertainment are generally deductible at 50% of the lesser of the amount spent and a reasonable amount. Keep the receipt.
8. Family members on payroll
A salary paid to your spouse or child can be deductible if the work is necessary for the business and the pay is what you'd pay someone else. Report it on a T4 and keep proof of payment.
9. HST input tax credits
If you're registered for GST/HST, you can generally recover the GST/HST you paid on business purchases by claiming input tax credits (ITCs). CRA examples include business-use-of-home expenses, fuel, professional fees, rent, phone and utilities, and travel.
ITCs depend on documents. For purchases of $100 or more, your receipt generally needs the supplier's GST/HST number, and larger purchases need more detail. Most businesses have four years to claim a missed ITC. Remember to reduce your income tax expense by the ITC amount so you don't count it twice.
Records make the deduction
Every item here depends on documentation. Records generally have to be kept for six years from the end of the tax year they relate to. A good system captures receipts as you go. Our comparison of an Excel bookkeeping template vs QuickBooks can help you choose one, and our bookkeeping services can keep it organised for you.
Frequently asked questions
What is the most overlooked tax deduction in Canada?
There's no official CRA ranking. Claims that depend on year-round records, like business-use-of-home, vehicle costs and HST input tax credits, are the easiest to lose.
Can I deduct my home office if I also use the room personally?
Possibly, if it's your principal place of business, prorated for personal use.
Can I deduct the full cost of a new laptop?
Generally not in one year. Computer hardware is claimed through CCA.
What if I missed an ITC last year?
Most registrants can claim it on a later return within four years.
Make sure nothing gets left behind
Oakridge Business Services helps Ontario small businesses keep receipts, mileage and HST records organised all year, so your records are complete and ready at tax time. Book a free consultation to see what your books might be missing.
This article is general information, not tax advice for your situation.
