Guide to Sole Proprietorship Tax Deductions in Canada

Before you file your taxes, here's what you need to know.

Key self-employment deductions to track

Every dollar you spend running your business has potential value at tax time. The CRA recognizes that sole proprietors need home offices, reliable vehicles, and other essentials to operate. If you claim these costs properly, you can lower your taxable income, which in turn will help you keep more of your hard-earned money.

“You might be surprised what you can claim as someone who's self-employed,” says Catchpole. She shares a list of deductions that can make a big difference for a sole proprietorship:

• Home office expenses: Working from home means you can claim a percentage of your rent (or mortgage interest), utilities, insurance, and maintenance costs, based on how much square footage your workspace occupies. “The space must be your primary place of business or dedicated exclusively to your work,” says Catchpole. “It can't be, say, your family's dining table.”
• Vehicle and transportation costs: Business mileage adds up fast. Keep records of every work-related trip to claim your share of fuel, insurance, maintenance, and lease expenses. Transit passes, parking fees, and rideshares for your business also qualify as Canadian small business tax write-offs.
• Professional development: Any courses, certifications, or conferences that improve your skills related to your business are deductible. “These expenses can often be overlooked because owners view them as personal expenses,” says Catchpole.
• Technology and supplies: Office supplies, including computers, software subscriptions, and furniture, all count. Physical items over $200 are typically claimed as a capital cost allowance (property that loses value over time, such as computers, equipment, or furniture), with the expense spread over several years. Also worth noting: the 2025 federal budget proposed several tax incentives, collectively referred to as the “Productivity Super-Deduction,” that will allow businesses to write off a larger share of their capital investments sooner. (Stay tuned for more details.)
• Professional services: Accounting, legal, and bookkeeping fees and bank charges are all small-business tax deductions. You can also claim tax-preparation software such as TurboTax as a business expense.
• Marketing and advertising: Website costs, business cards, social media ads, and promotional materials qualify as Canadian small-business tax write-offs.
• Insurance premiums: Liability insurance and portions of health insurance may be deductible, depending on the structure of your business.
• Meals and entertainment: You can deduct 50% of reasonable meal and entertainment expenses when they're directly related to earning business income. The key is proper documentation: keep receipts and take note of who you met with and the purpose of the meeting.

How to pay yourself as a sole proprietor

Since every dollar you earn as a sole proprietor flows directly into your account as income, you have to pay applicable self-employment taxes, plus Employment Insurance (EI) and both the employer and employee portions of Canada Pension Plan (CPP) contributions. Keeping close track of your business expenses can reduce your taxable income, which in turn lowers your self-employment tax obligations. The more legitimate expenses you track and claim, the less you'll owe on your earnings.

Overlooked deductions for sole proprietors

Some deductions get missed simply because they seem too mundane or insignificant to bother tracking. Many sole proprietors focus on the big expenses and forget about the smaller, everyday costs that add up over time. Here are some you don't want to leave out.

• Bank charges: Every fee you pay through your business account is deductible, from monthly service charges to transaction costs and cheque orders. If you use your personal bank account for both personal and business transactions, you can only claim the portion of fees related to your business. For example, if 60% of your account transactions are business-related, it would be reasonable to claim 60% of the fees. This proportion should be consistent from year to year.
• Interest payments: Business loans and vehicle financing come with interest costs that can directly reduce what you owe at tax time.
• Bad debts: When a client fails to pay an invoice you've already claimed as income, you can deduct the unpaid amount along with any legal or collection fees you paid trying to recover the money.
• Home office cleaning supplies: The products you buy to keep your workspace clean qualify as business expenses.
• Professional memberships: Annual dues for industry associations and trade organizations count as legitimate sole proprietor tax deductions.

Deductions help you minimize your taxes, not avoid them

The deductions listed above aren't loopholes or creative accounting moves. The CRA accepts these costs as part of doing business, provided you can back them up with records and receipts, and that you use common sense about the amounts you claim.

Meals and entertainment need particular care: the CRA allows 50% as a deduction, but it watches this category closely during audits. A few client lunches throughout the year look normal, but claiming expensive dinners multiple times per week may draw scrutiny. If you abuse this deduction or are unable to back up your claims, the CRA may disallow your deduction and reassess your taxes—with interest and penalties added on.

Simplify the process with the right tax tools

If you're worried about missing out on business deductions when filing your taxes, help is at hand. TurboTax Online will walk you through each step of your tax return and suggest deductions that many people miss. And, if you use QuickBooks for bookkeeping throughout the year, you can file your expenses as you go, instead of hunting for receipts at the last minute.

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