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What Business Expenses Can a Canadian Sole Proprietor Deduct?

2025-05-02 · 6 min read

Deductions Are How You Legally Lower Your Tax Bill


As a Canadian sole proprietor, you pay income tax on your net business income — that's revenue minus deductible expenses. The more legitimate expenses you track and claim, the less tax you pay.


The CRA allows you to deduct any expense that is reasonable and incurred to earn business income. Here are the most common and valuable ones.


The Most Valuable Deductions


Home Office (Line 9945)

If you work from home, you can deduct a proportional share of:

  • Rent or mortgage interest
  • Property taxes
  • Utilities (heat, electricity)
  • Home internet
  • Maintenance costs

    • Calculate the percentage: office square footage ÷ total home square footage. Apply that percentage to each cost.


    Professional Fees (Line 8860)

    Your accountant's fees, legal fees, business consultant fees — all deductible. This includes the cost of tax preparation software you buy to file your own return.


    Equipment and Technology

    Laptops, monitors, cameras, microphones, software subscriptions — if used for business, they're deductible. Large purchases (over ~$500) may need to go through CCA (Capital Cost Allowance) rather than being expensed immediately.


    Telephone & Internet (Line 9220)

    The business portion of your phone and internet bills. If you use your phone 70% for business, deduct 70% of the bill.


    Advertising (Line 8520)

    Facebook ads, Google ads, website hosting, domain names, business cards, promotional materials.


    Travel (Line 9200)

    Flights, hotels, taxis, Ubers, and parking for business travel. Note: your regular commute doesn't count.


    Meals & Entertainment (Line 8523)

    Business meals and client entertainment — but only 50% is deductible. Always keep receipts and note the business purpose.


    What You Cannot Deduct


  • Personal expenses (grocery runs, personal vacations)
  • The personal portion of mixed-use items (if you use your car 60% personally, only 40% of car expenses are deductible)
  • Club memberships unless the primary purpose is to earn income
  • Fines and penalties

    • The Golden Rule: Keep Records


    The CRA can audit you for up to 6 years after filing. You need to be able to prove every deduction with:

  • Receipts or invoices
  • A description of the business purpose
  • The date

    • Digital receipts stored in the cloud are fully acceptable.


    Stay Organized with ClaimHero


    ClaimHero lets you log each expense against the exact CRA T2125 category, add a description, and attach notes. At year-end, export a complete summary organized the way your accountant expects it. Free to start.


    Track your T2125 expenses year-round with ClaimHero — free to start.