Recent announcements are pointing toward the 2026 tax season, offering small businesses exciting opportunities. It’s believed there will be changes to CPP/EI rates, updated mileage allowances, and continued home office deduction options. However, to capitalize on these positive changes, you need to first get a handle on your small business tax deductions in Canada.
If you don’t, you’re leaving money on the table, and this is something you don’t want to do. With this in mind, our team at Bizund has put together a guide detailing the business expenses you can claim in Canada. But it’s not enough to only know about the deductions. We’ve also gone into detail on how to stay fully compliant with the Canada Revenue Agency (CRA).
Home Office Deductions
If you use a portion of your home for a home office, you may be able to deduct certain household costs. However, this is only applicable if you can prove that you use the workspace regularly and exclusively for business activities. Usually, freelance graphic designers, writers, and other creatives take this route when establishing tax deductions.
The types of home office deductions you can claim include prorated deductions for property taxes, heating, utilities, rent, mortgage interest, home insurance, and internet service. These are allowable under CRA rules, and the percentage you can claim depends on the square footage you use for your business.
Vehicle and Travel Expenses
Vehicle and travel expenses are among the best small-business tax deductions in Canada. You can deduct automobile expenses when you use your car for business purposes. Usually, eligible deductions include repairs, fuel, licensing, insurance, parking, and capital cost allowance for vehicle depreciation.
However, you will need to provide comprehensive mileage logs that show destination, date, business purpose, and kilometers driven. If you don’t have proper records, you could be denied this deduction during an audit.
Then, for travel expenses, you may deduct accommodations, flights, meals (limited to 50%), and event costs, as applicable. Yet, as with travel deductions, you need to prove that these costs were for business purposes, such as site visits, client meetings, or conferences.
Technology and Equipment
There are many technological items and pieces of equipment that small businesses use that can be deducted at tax time. This is known as capital cost allowance, and it allows you to deduct a portion of the value of your assets over time.
Assets commonly approved under CCA categories include laptops, computers, office furniture, machinery, tools, and specialized equipment. You might also be able to deduct cloud-based systems, software subscriptions, digital services, and cybersecurity tools if they fall in the tax year.
In addition, remember that certain CCA classes, including computers and software, are eligible for accelerated depreciation. With accelerated depreciation, you can claim faster write-offs and see immediate tax savings.
Professional Services
Professional services are among the business expenses you can claim in Canada. Often, fees paid to legal advisors, tax accountants, consultants, and other service providers in this realm are fully deductible as current expenses.
This is because the CRA recognizes these costs as a necessity for companies in Canada to operate and maintain a successful business. If this is an area you would like to explore for deductions, it’s usually a good idea to speak with a professional tax consultant, especially if you have multiple entities, more complex corporate structures, or passive investments.
Marketing and Advertising
In Canada, small businesses spend about $30,000 annually on marketing and advertising. This is quite the chunk of change, but even if your marketing spend is less than this, it’s still worth exploring deductions for it.
The cost of running ads in newspapers, on television stations, and on Canadian radio is tax-deductible. You can also claim digital advertising costs and expenses related to running your company’s website, such as hosting and domain fees.
Often Overlooked Deductions
Besides the main deduction categories, there are quite a few overlooked tax deductions you should know more about. If you want to learn about the business expenses you can claim in Canada, have a look below. We’ve put together three often overlooked options:
Bank Fees and Interest
We know no one likes paying interest on business loans, mortgages, or bank fees. However, knowing you can reduce your taxable income by deducting these interests or fees helps lessen the financial sting. As long as you meet the CRA’s criteria, you can claim a calculable portion of these fees, including service fees and the interest you paid.
Professional Development
Most small businesses want to get better to do better and be more successful. The best way to achieve this is through professional development. In most situations, investing in your team’s expertise and skills is tax-deductible.
For example, certifications, workshops, courses, seminars, and industry training for your business development can be claimed as a business expense. They count because the CRA views these costs as necessary to maintain and improve your business’s ability to earn income.
However, it’s not only large professional development expenses that are deductible; smaller expenses are deductible as well. For instance, training materials, online learning platforms, and professional memberships, which add up over the year, can also be deducted.
Business Insurance
One of the most overlooked deductible expenses is small business insurance premiums. Typically, commercial vehicle insurance, property insurance, liability insurance, and errors and omissions insurance are fully deductible. These are deductible because the insurance protects your income-generating activities.
It’s also worth knowing that if you work from home, you could also claim a portion of your home’s insurance. The amount you can claim depends on the space you use for your company’s operations.
How to Stay CRA-Compliant
It should be a priority to remain CRA-compliant. If you allow your compliance to slip, you could face penalties, steep fines, audits, interest charges, and even legal action. Legal action typically arises from nonpayment of taxes, late filing, employee misclassification, incorrect remittances of earnings, and inaccurate expense claims and CRA business deductions.
Below, we share how to stay CRA compliant:
- Learn more about what CRA compliance covers: If you know what rules apply to your company, you can better avoid penalties, legal issues, and audits. So, make sure you understand how the CRA regulates GST/HST, income tax, corporate filings, and payroll deductions.
- Create and maintain good recordkeeping habits: The CRA will want to see how you arrived at the amounts you claimed as deductions. That’s why it’s important to keep comprehensive records of all receipts, payroll, banking activity, income, and expenses. These documents can help support every return you file and every deduction you claim.
- Always file on time: Deadlines can creep up on you faster than you expect, and for businesses in particular, this can be incredibly stressful. That’s why it’s best to keep a running reminder of approaching deadlines. Then you can file T1 or T2 returns on time, submit CPP, EI, and payroll deductions correctly, and register for and remit GST/HST as needed.
- Report all income and claim deductions correctly: It’s important to declare all income you earn in a tax period…yes, even money from side earnings or cash. You also should only claim deductions that are reasonable and that you can support with documentation.
- Monitor CRA accounts and stay informed: You must regularly watch for notices and changes to your CRA accounts by using ‘Check My Account’ or ‘My Business Account.’You should also stay up to date on CRA rules.
Using Tax Savings to Fuel Growth
With tax savings, you have access to an opportunity to reinvest in areas that move your business forward. You can use tax savings to expand inventory, upgrade equipment, cover short-term operating costs, and increase marketing spend. You can also use tax savings to strengthen your cash flow by securing fast funding options such as merchant cash advances.
If you pair tax savings with a merchant cash advance from a business like Bizfund in Canada, you can reduce how much working capital you need to borrow. You can usually do this while still accessing quick capital for time-sensitive opportunities. With this dual approach, your business can grow faster, and you don’t have as much worry that you’re overextending your finances or disrupting daily operations.
The Key Takeaways for Small Business Tax Deductions in Canada
For your long-term business stability and cash flow, understanding and using small-business tax deductions properly can make a significant difference. Fortunately, you now know the different types of small business tax deductions in Canada and can explore often-forgotten ones. You should also have a better grasp of how to stay CRA-compliant and avoid penalties, interest charges, and legal action.
Armed with this information and the opportunity to combine your tax savings with a merchant cash advance, you’re well on your way to surviving the tax season. If you want to learn more about MCAs or apply, please contact us here. Our team at Bizfund would be happy to help you secure funding quickly.
