Small business tax deductions in Canada: the full list, by T2125 line

You can deduct any reasonable expense you pay to earn business income. That's the CRA's rule, in its guide to business expenses: "You can deduct any reasonable current expense you incur to earn income." Personal spending, your own pay, fines and the cost of things that last for years (which you write off slowly instead) are the main things you can't.

If you're a sole proprietor, the deductions go on Form T2125, and each one has its own line number. This guide lists them in the order they appear on the form, with the limits that catch people out. Corporations deduct the same kinds of expenses on the T2 using different codes, so the list still applies. Only the line numbers change.

The deductions, line by line

Line	Expense	What to know
8518	Cost of goods sold	Stock you buy to resell, plus freight in. Opening inventory plus purchases (line 8320), minus closing inventory.
8521	Advertising	Online ads, flyers, signs, sponsorships. Ads aimed at Canadians in foreign media have limits.
8523	Meals and entertainment	Usually only 50% is deductible.
8590	Bad debts	Only for invoices you already counted as income and now can't collect.
8690	Insurance	Business property and liability insurance. Not most life insurance.
8710	Interest and bank charges	Interest on money borrowed for the business, plus bank fees. Car loan interest has a monthly cap.
8760	Business taxes, licences and memberships	Business licences, permits, trade association dues. Not clubs for dining or sport.
8810	Office expenses	Pens, paper, postage, toner. Not furniture or computers.
8811	Office stationery and supplies	Supplies you use up to provide your service: a cleaner's products, a dentist's disposables.
8860	Professional fees	Accountant, bookkeeper, lawyer, consultants. Not legal fees for buying a building or equipment.
8871	Management and administration fees	Fees for running the business, including some bank charges.
8910	Rent	Rent for a shop, office, storage unit or equipment. Rent for space in your home goes on line 9945.
8960	Repairs and maintenance	Fixing things back to how they were. An improvement that makes something better is a capital cost.
9060	Salaries, wages and benefits	Employees' gross pay and your share of their payroll costs. Never your own pay or draws.
9180	Property taxes	On business property. The home portion goes on line 9945.
9200	Travel	Flights, hotels, taxis for business trips. Meals while travelling are still 50%.
9220	Telephone and utilities	Business phone and internet, and utilities for business premises. Not your basic home phone line.
9224	Fuel costs (except motor vehicles)	Heating fuel, propane for equipment. Vehicle fuel goes on line 9281.
9270	Other expenses	Anything that fits nowhere else, such as software subscriptions, convention fees, and private health plan premiums.
9275	Delivery, freight and express	Shipping to customers, couriers.
9281	Motor vehicle expenses	Fuel, insurance, repairs, licence, lease. Business-use share only, backed by a logbook.
9936	Capital cost allowance (CCA)	The yearly write-off on equipment, vehicles, computers and buildings.
9945	Business-use-of-home expenses	The business share of rent or mortgage interest, utilities, insurance and property tax. It can't create a loss.

The line descriptions come from the CRA's T4002 expenses chapter, and the cost of goods sold lines from chapter 2. If your bookkeeping categories match these lines, year-end is a matter of copying totals across. The chart of accounts guide shows how to set that up.

The limits that catch people out

Meals and entertainment: 50%

You can usually deduct only half of what you spend on meals and entertainment, including meals while travelling. There are exceptions, such as meals you bill back to a client or up to six staff parties a year. Long-haul truck drivers can claim 80%. Meals and entertainment expenses covers the rule and the GST/HST side.

Vehicles: the business share only

If you use one vehicle for work and personal driving, you deduct the business share of its costs, worked out from a logbook of kilometres. For passenger vehicles there are also dollar caps. For 2026, Finance Canada set them at:

• $39,000 before tax as the most you can depreciate for a passenger vehicle bought on or after January 1, 2026 (class 10.1)
• $1,100 a month before tax in lease payments, for new leases
• $350 a month in interest, for new car loans

Claiming vehicle expenses walks through the logbook and the arithmetic.

Home office: the business share, and no losses

If you work from home, you can deduct a share of rent or mortgage interest, heat, power, insurance and property tax, based on the floor space you use. The deduction can bring your business income down to zero, but not below it. Anything left carries forward to next year. Business-use-of-home expenses has the conditions and a worked example.

Equipment: written off over years, not all at once

A laptop, a truck, a table saw or a building isn't deducted in the year you buy it. You claim capital cost allowance (CCA) each year at a rate set for its class: 55% a year for a computer, 20% for most equipment, 30% for most vehicles. In the first year you usually get half the normal claim. The exception is a tool, medical instrument or kitchen utensil under $500, which goes in class 12 and can be written off at 100%. Capital cost allowance explained has the classes and an example.

Expenses reduced by the GST/HST you get back

If you're registered for GST/HST and claim input tax credits, the expense on T2125 is the amount before the tax you recover. A $1,130 invoice with $130 HST that you claim back is a $1,000 expense.

What you can't deduct

From the same CRA chapter:

• Your own pay. "Do not deduct salaries or drawings paid or payable to yourself or to a partner." Money you take out of the business is a draw. See how to pay yourself as a sole proprietor.
• Personal expenses, including the personal share of anything you use both ways. See business vs personal expenses.
• Most fines and penalties, including traffic tickets and CRA penalties.
• Club dues where the club's main purpose is dining, recreation or sport, including the initiation fee.
• Income tax and CPP. Your own income tax isn't a business expense. Your CPP on self-employment income is dealt with on your personal return, not on T2125. See CPP for the self-employed.
• Capital purchases as a one-time expense. They go through CCA.

You can deduct a salary you pay to your spouse or your child, if they really do the work, the pay is reasonable for that work, and you actually pay it. The CRA's rule is in the line 9060 section of the same chapter.

A worked example

A self-employed home renovator in Nova Scotia, registered for HST, has $118,000 of revenue for 2026 before tax. Here are the year's expenses, all before the HST she claims back as input tax credits:

• Materials bought for jobs: $31,000 (line 8518)
• Liability insurance: $2,400 (line 8690)
• Accountant: $1,800 (line 8860)
• Phone and internet, business share: $1,100 (line 9220)
• Meals with clients and subcontractors: $1,400, so $700 deductible at 50% (line 8523)
• Website and online ads: $1,500 (line 8521)
• Truck costs: fuel, insurance and repairs total $9,000, and her logbook shows 75% business use, so $6,750 (line 9281)
• CCA on the truck and tools, worked out by her accountant: $5,200 (line 9936)
• Bank fees and line-of-credit interest: $900 (line 8710)

Total expenses: $31,000 + $2,400 + $1,800 + $1,100 + $700 + $1,500 + $6,750 + $5,200 + $900 = $51,350.

Net business income: $118,000 − $51,350 = $66,650. That's the figure that goes on her personal return, and it's what her income tax and CPP are worked out on.

Three things she did not put in: the $36,000 she transferred to her personal account during the year (draws), a $150 parking ticket, and her family's share of the truck's running costs.

Keep the paper

Every deduction needs a record behind it: a receipt or invoice, and for vehicles a logbook. If you're registered for GST/HST, a receipt of $100 or more also needs the supplier's GST/HST number for you to claim the tax back. GST/HST invoice requirements lists what each receipt has to show. Records generally have to be kept for six years. How long to keep business records has the details.

The common reason people miss deductions isn't that they don't know the rules. It's that the receipts are in a glovebox and the bank statement only says "POS PURCHASE 4471". Sorting expenses every month, while you still remember what they were, catches far more than a scramble in April.

Where Spark Books helps

Spark Books sorts each transaction on your uploaded bank and card statements into a Canadian chart of accounts, with meals kept in their own account and the GST/HST split out. When it can't tell whether a purchase was business or personal, it asks you. Receipts you photograph are matched to the transaction they paid for. At year-end you get one download, mapped to the CRA's forms, for your accountant. Spark doesn't file your return. It's free, with no card.