Running your own business comes with both challenges and rewards. One common hurdle, managing your taxes, can be simplified and even turned into an opportunity. By understanding how to claim your business expenses effectively, you can maximize your tax return. 

You also want to do it right the first time—so you don’t have to make any adjustments later on. The tough part is that not all expenses are alike. The process of claiming that new pack of printer ink, for example, might be different than claiming the printer itself. 

Specifically, there are 2 main types of business expenses to be aware of: capital expenditures and current expenses. For and sole proprietors, incorporated business owners it's important to know the difference between the two and how they impact your tax returns. This way, you

can make the most of your deductions and avoid potentially time-consuming and costly audits by the Canada Revenue Agency (CRA).

Here, you can learn all about what current expenses and capital expenditures are and understand what you need to know about each to fill out your taxes.

What are current expenses?

Current expenses are short-term, often recurring payments that are used to keep your business running day-to-day. These usually include one-off, weekly, or monthly expenses that provide an immediate benefit and keep your company operational.

Examples of current expenses

The items below are considered current expenses:

• Rent payments
• Utility bills
• Office supplies
• Gasoline for a vehicle used for business purposes
• Employee payroll
• Insurance premiums
• Property or equipment maintenance costs

How to deduct current expenses from taxes

You can deduct the full cost of current expenses from your income on your T2 Corporation Income Tax Return. You must deduct these expenses in the tax year that you made them. So if you bought new office supplies, made office utility payments, and paid business insurance within a given tax year, you’ll deduct those expenses from your income when you file your business taxes.

Say you own a rental property that you purchased in 2020, but you repainted it in 2024. You’ll also claim any paint and labour expenses on your 2024 taxes. We’ll explain how to claim payments for that rental property in the next section.

What are capital expenditures?

Capital expenditures are payments made to acquire or significantly improve assets that provide long-term business benefits, meaning, beyond the tax year. If you buy a vehicle to use in your business, for instance, that would be a capital expense. Or if you replace a wooden porch on your rental property, that would be a capital expense. 

 

It's also important to understand the difference between asset repairs and improvements. Typically, repairs like paint jobs or emergency mechanical fixes are considered current expenses. On the other hand, major improvements or renovations that alter the original condition or value of the property are considered capital expenses.

Examples of capital expenditures

Common examples of capital expenditures include:

• Buildings or land
• Vehicles
• Office furniture
• Manufacturing equipment or machinery
• Technology, like computers and certain software programs
• Significant property renovations or improvements

How to deduct capital expenditures from taxes

Capital expenditures are not deducted in the same way as current expenses. Instead of deducting the full cost of your purchase in the tax year it was made, you deduct the value over several years. That’s because the capital expenditure will continue to provide revenue for your business, and its value will depreciate as time goes by.

What Capital Cost Allowance (CCA) is and why it's important

As a business owner, you can report these capital expenditures using the Capital Cost Allowance (CCA) deduction and the T2SCH8 Capital Cost Allowance (CCA) form.

The CRA sets CCA deduction rates for different types of capital expenditures; for example, most buildings are subject to a 4% deduction rate. The CRA also has a first-year CCA rule that says you can only claim 50% of the allowable deduction for an asset in the year that you purchase it.

For instance, if you buy a rental property for $150,000 in 2025 with a CCA rate of 4%, when you file your 2025 taxes, instead of deducting $6,000 (4% of %150,000), you deduct half of that or $3,000. Here's the math:

($150,000 x .04) / 2 = $3,000

The following year, you'll be left with the remaining balance ($150,000 - $3,000 =$147,000), which is known as the undepreciated capital cost (UCC). You'll then apply the CCA rate to this UCC and so on each year until the cost of the asset is fully covered. So, in the second year, your deduction will be:

$147,000 x .04 = $5,880

How to handle disposals

If you dispose of an asset, such as by selling a rental property, you also have to report it as a capital gain or loss in that given tax year. You can use Schedule 6 to calculate your gain or loss from the disposal of the property.

Chart: Capital expenditures and current expenses — a breakdown

Now that we've explained the definitions and tax considerations of current expenses and capital expenditures, here's a quick comparison:

	Current expenses	Capital expenditures
Definition	Day-to-day or recurring operational costs	Assets acquired or significantly improved
Business benefit	Short-term, within the tax year	Long-term, over years
Examples	Rent, utility bills, office supplies, gas	Rental properties, vehicles, equipment
Amount deducted	Full amount	Portion over time using Capital Cost Allowance (CCA)
When it's deducted	In the current tax year	Over several years

 

Understanding these differences is crucial for filing your business taxes. It’s important to know which expenses fall under each category so they're accurately deducted from your income according to the CRA guidelines.

For example, if you inaccurately claim a new vehicle purchase of $30,000 as a current expense instead of a capital expenditure. Instead of deducting a portion of that expense with a CCA, you’ll end up deducting the full $30,000 cost, which will significantly lower your taxable income and impact your return.

Do you have to file taxes if you only have expenses and no reportable income for the year?

Yes, incorporated business owners have to file their corporate tax returns even if they have no reportable income for the year. It's also beneficial to do so. If the amount of your expenses is greater than your income, that qualifies as a business loss. According to the CRA, businesses can carry losses backward by 3 years or forward 20 years using Schedule 4. This reduces taxes in future years when the business starts to earn a profit.

You can check your CRA account or Notice of Assessment (NOA) to see the current balance of your unclaimed losses

TurboTax Canada stands ready to help you file confidently and claim everything you’re entitled to, so you can keep building your business while trade dynamics shift.

Be prepared to file your corporate tax returns

Running a business can be expensive, with unexpected costs popping up at every turn. When you have an opportunity to offset some of those costs with tax deductions, you want to be ready.

By understanding the difference between capital expenditures and current expenses, you can accurately claim your deductions and streamline your bookkeeping throughout the year, so you're ready when tax season rolls around.

Claim your eligible expenses with confidence.

Use TurboTax Business Assisted, a CRA-certified tax software, to file your taxes with ease and accuracy. You can get unlimited help and guidance during your return, and a final review before you file, so you’re never on your own.

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