If you are self-employed, you are taxed on your net business income: revenue minus reasonable business expenses. Claiming everything you are entitled to matters. Claiming things you are not entitled to is what draws CRA attention.
The basic test
An expense generally has to be incurred to earn business income and be reasonable in the circumstances. Personal expenses are not deductible, and mixed-use expenses must be split so that only the business portion is claimed.
Common deductions
- Home office: if you work from home, you may claim a reasonable portion of household costs such as utilities, rent or mortgage interest, insurance and maintenance. Your home generally has to be your principal place of business, or you must use the space only for business and regularly meet clients there.
- Vehicle expenses: fuel, insurance, maintenance, lease payments and capital cost allowance, but only for the business-use share, supported by a mileage log.
- Meals and entertainment: generally only 50% deductible.
- Software, subscriptions, phone and internet: the business-use portion.
- Advertising, website and marketing.
- Professional fees: accounting, legal and bookkeeping.
- Insurance, licences and memberships relating to the business.
- Equipment and tools: claimed over time through capital cost allowance, or faster where special measures apply. See our article on the proposed 100% investment deduction.
CPP: you pay both halves
Self-employed people pay both the employee and employer portions of CPP on their net self-employment income. Part of this is deductible and part is a credit. Our CPP guide has the current rates.
HST
If you are a registered HST filer you can generally claim input tax credits on business purchases. Sales over $30,000 across four consecutive quarters require registration. Details are in our HST myths article.
Deadlines
Self-employed individuals generally have until June 15 to file their return, but any tax owing is still due April 30. Interest starts on April 30, so a June filing with a balance due still costs you.
Mistakes to avoid
- Mixing personal and business spending in one account.
- Not keeping receipts, mileage logs or invoices. The CRA generally expects you to keep records for six years.
- Claiming 100% of a vehicle or home that is also used personally.
- Forgetting instalments if you regularly owe tax.
Our self-employed tax accountants can review what you are claiming and set up simple bookkeeping. When your income grows, you may also want to read about whether to incorporate.
This article is general information, not tax advice for your situation.
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