Any reasonable expense incurred to earn business income can generally be deducted. The following are some expenses that are not deductible:

• investments
• capital expenditures and losses
• reserves (also called "contingent accounts" or "sinking funds"), unless their deduction is expressly permitted under the Taxation Act
• expenses incurred to establish a business, before operations actually begin

See the guide Business and Professional Income (IN-155-V) for more information about deductible expenses. The guide provides information about:

• the cost of goods sold
• business taxes and licences
• the premium paid for professional liability insurance required to maintain professional status
• the cost of labour and equipment required for the maintenance and repair of property used to earn business income
• eligible renovation or alteration expenditures to improve access to a building
• salary or wages paid to a child or a spouse
• meal and entertainment expenses
• motor and zero-emission vehicle expenses (travel expenses, interest on a loan for the purchase of a motor vehicle, capital cost allowance, leasing expenses, etc.)
• the principal classes of property and their depreciation rates
• expenses related to the business use of your home

You can deduct expenses relating to the business use of a workspace in your home if:

• the workspace is your principal place of business
• you use the space only to earn business income, and you use it on a regular and ongoing basis to meet your clients or customers

Business-use-of-home expenses are divided into general expenses, which apply to the entire home, and expenses related only to the workspace used for business purposes (referred to as the “office” in the sections below).

General expenses

General expenses, which apply to both the office and the other portion of your home, include:

• heating
• lighting
• insurance premiums
• maintenance and repairs
• mortgage interest, property taxes and capital cost allowance related to the home, if you own or co-own the home
• rent, if you rent the home

Only the portion of general expenses that relates to the office is deductible. 

Percentage of your home used as an office

To determine the deductible portion of an expense, you must first determine the portion of the expense that is for the office portion of your home and the portion of the expense that is for the personal-use portion of your home. This must be done using a reasonable basis, such as the percentage of the total surface area occupied by the office.

If you are a co-owner or co-tenant, only the personal portion of these expenses can be deducted.

For information on how to calculate your general deductible expenses, refer to the guide Business and Professional Income (IN-155-V).

Expenses related to the office only

Current expenses pertaining only to the office portion of your home are fully deductible. For example, you can deduct 100% of the cost of having your office walls painted, if that room is used exclusively for work.

You can deduct meal and entertainment expenses that you incurred to earn business income.

Meal expenses include costs incurred for food and beverages.

Entertainment expenses include:

• the cost of tickets or admission for a show or sporting event
• gratuities
• the cost of rooms rented for entertainment purposes (such as private boxes at sports facilities or hospitality suites in a hotel)

Deductible amount

In general, the deduction you can claim for meal and entertainment expenses is limited to the lesser of the following amounts:

• 50% of the amount actually incurred and reasonable under the circumstances
• the ceiling based on the business's sales

These limits also apply to the cost of meals taken while travelling to attend a convention, seminar or other similar meeting.

However, these limits may not apply in certain cases.

For more information about meal and entertainment expenses, deduction ceilings and special cases, refer to the guide Business and Professional Income (IN-155-V).

You can deduct certain expenses related to a vehicle used for business purposes, including:

• registration fees
• the cost of a driver's licence
• insurance premiums
• interest
• fuel costs
• charging costs
• the cost of upkeep (for example, car wash, lubrication or tune-ups)
• repair costs
• parking fees
• supplementary insurance premiums
• leasing expenses
• capital cost allowance

However, if the vehicle you use is classed as an automobile, a limit may apply to the amounts you can deduct as interest, leasing expenses and capital cost allowance.

Deductible amount

To calculate the deductible amount of vehicle expenses, you must determine the percentage of business use for the vehicle by establishing the ratio between the number of kilometres travelled for business purposes in your fiscal period and the total kilometres travelled in that fiscal period.

You can keep a logbook to support your calculations.

For more information about keeping a logbook and vehicle expenses, refer to guide IN-155 or watch the YouTube video Self-employed. If you use your vehicle for work, can you claim expenses for it?

You can deduct a salary or wages paid to your spouse or child, provided:

• the work carried out was necessary to the business (that is, if you had not hired your spouse or child to do it, you would have had to hire someone else)
• the salary or wages were reasonable, and were equivalent to the amount you would have paid to a person who was not your spouse or child
• you actually paid the salary or wages

You must keep all documents substantiating the salary or wages paid.

If, in lieu of monetary remuneration, your spouse or child is paid with a product from your business, you can deduct the value of the product as an operating expense.

Your spouse or child must include the remuneration (or the value of the product given in lieu of remuneration) in their income. In the case of a product given in lieu of remuneration, you must include the value of the product in your gross sales.

A spouse or child who receives a salary or wages is considered to be your employee, which means you must make source deductions and employer contributions as you would for any other employee.