As a business owner, you’re likely already familiar with the sting of tax season. But what if we told you that you might be leaving money on the table? Many Canadian service-based businesses miss out on thousands of dollars in tax deductions simply because they’re unaware of what qualifies as a deductible business expense.
Our team here at Apex Online Bookkeeping will walk you through everything you need to know about tax-deductible expenses in Canada—from obvious costs like office rent and software to lesser-known write-offs like meals, travel, and even your phone bill.
Whether you’re a contractor, agency, freelancer, or consultant, this article is built to help you keep more of what you earn. Let’s explore the topic together and equip you with the knowledge you deserve to know.
What Are Tax-Deductible Business Expenses?
A tax-deductible expense (also called a write-off) is any cost that’s reasonable and necessary for earning business income. These expenses reduce your taxable income, which means you’ll owe less in taxes.
Example: If your business earns $100,000 and you deduct $30,000 in eligible expenses, you’re only taxed on the remaining $70,000.
But what’s considered “reasonable”? According to the Canada Revenue Agency (CRA), an expense must be:
- Incurred to earn income, and
- Not capital in nature (i.e., not for buying fixed assets unless depreciated properly)
Common Tax-Deductible Expenses for Canadian Service-Based Businesses
Let’s break down the most common categories of deductible expenses, complete with real-life examples that are relevant to people just like you: Contractors, consultants, agencies, freelancers, and other hard-working Canadians.
1. Office and Workspace Costs
Whether you rent an office or work from home, workspace costs are some of the biggest and most important deductions you can take advantage of.
Deductible:
- Rent or lease payments for an office
- Utilities (heat, water, electricity)
- Internet and phone bills
- Office cleaning
- Office supplies (paper, ink, pens)
Work-from-home?
You can deduct a portion of your home expenses, based on the percentage of your home used for business. This includes:
- Mortgage interest or rent
- Utilities
- Home insurance
- Property taxes
- Maintenance and repairs
Example: If your home office is 10% of your living space, you can deduct 10% of those home-related costs.
2. Business Use of Your Vehicle
If you use your personal vehicle for work (client meetings, site visits, deliveries), you can claim business-related driving expenses.
Deductible:
- Fuel
- Maintenance and repairs
- Insurance
- Lease payments or depreciation
- Licensing and registration
But here’s the catch:
You need to keep a mileage log to calculate the business-use portion of your vehicle expenses.
Example: If you drive 20,000 km in a year, and 5,000 km were for business, you can deduct 25% of your total vehicle expenses.
Apex Online Bookkeeping can help you keep everything in check. Book a FREE online consultation with us today.
3. Meals and Entertainment
Client lunches and business networking events can qualify as deductions, but only a portion of these expenses are actually eligible.
Deductible at 50%:
- Meals with clients
- Tickets to events where business is discussed
- Food at conferences or trade shows
Important: Keep receipts and note the purpose of the meal and who attended.
4. Travel Expenses
Travelling out of town for business? Many of these costs will be deductible for you and your enterprise.
Deductible:
- Flights, buses, or car rentals
- Hotel stays
- Meals (again, usually 50%)
- Conference and seminar fees
- Local transportation (taxis, ride-shares)
Example: A marketing consultant who travels to Toronto for a 3-day business conference can write off the flight, hotel, local transport, and half of the meal costs.
5. Professional Services
Anything you pay to professionals who help run or grow your business may be deductible.
Deductible:
- Bookkeepers and accountants
- Lawyers and legal consultants
- Business coaches
- Graphic designers
- Virtual assistants
Tip: If you’re paying contractors or freelancers, make sure you issue T4A or T5018 slips when required.
6. Advertising and Marketing
Promoting your business? Most of those costs are deductible, too.
Deductible:
- Google or Meta ads
- SEO and copywriting services
- Website design and hosting
- Social media management tools
- Print advertising
Example: A home-reno business that hires a local videographer for Instagram content can deduct the cost of the shoot and editing.
7. Software and Subscriptions
Monthly or yearly subscription fees for things like business software are deductible expenses.
Deductible:
- CRM software (e.g., Hubspot)
- Project management tools (e.g., Trello, Asana)
- Accounting software (e.g., QuickBooks, Xero)
- Design tools (e.g., Canva, Adobe)
- Cloud storage (e.g., Dropbox, Google Drive)
8. Salaries, Wages, and Contractor Payments
When it comes to having employees or paying contractors, you can deduct:
Deductible:
- Employee salaries
- Contractor payments
- Employer CPP and EI contributions
- Benefits and bonuses
- Payroll service fees (e.g., ADP, Payworks)
9. Business Insurance
Protecting your business is a legitimate cost, and the good news is you can deduct these costs from your taxable income (or gross income) when calculating your taxes.
Deductible:
- General liability insurance
- Commercial property insurance
- Errors & omissions (E&O)
- Cybersecurity or data breach coverage
10. Education and Training
You and your team work hard to stay at the top of your field through continuing education and training. Ongoing learning is an investment—and it’s deductible.
Deductible:
- Courses related to your business
- Industry certifications
- Training seminars and workshops
- Business books and subscriptions
Example: A fitness coach who takes a mobility course to better serve clients can deduct the course fee.
11. Bank Fees and Interest
Financial services and borrowing costs are often overlooked, but fully deductible.
Deductible:
- Bank account fees
- Credit card interest (on business purchases)
- Loan interest for business debt
- Merchant account fees (e.g., Stripe, Square)
What’s NOT Deductible?
Some expenses are partially deductible or not allowed at all. Knowing the difference up front can save you hours of work and thousands of dollars when tax season rolls around.
Not Deductible:
- Personal expenses (unless clearly split)
- Life insurance premiums (unless required for a loan)
- Club memberships (golf, gyms)
- Fines or penalties (e.g., parking tickets)
Pro Tips to Maximize Your Deductions
1. Keep Receipts
Use apps like Dext or Hubdoc to scan and store receipts in real-time. CRA accepts digital versions.
2. Separate Business and Personal Accounts
This simplifies your records and makes it easier to spot deductions.
3. Work with a Bookkeeper or Fractional CFO
Apex Online Bookkeeping can help you categorize properly, stay compliant, and uncover deductions you might miss.
Real-World Example: A Freelancer’s Deductions in Action
Let’s say you’re a freelance graphic designer earning $85,000/year. Here’s a rough look at your deductible expenses:
| Category | Annual Amount |
|---|---|
| Home office (10%) | $3,000 |
| Software & subscriptions | $1,200 |
| Internet & phone (50%) | $1,000 |
| Travel & meals | $1,500 |
| Education & training | $700 |
| Professional services | $2,500 |
| Marketing | $3,000 |
| Total Deductions | $12,900 |
You’d only be taxed on $72,100 of your income—saving $3,000–$5,000 depending on your tax bracket.
Final Thoughts: Know Your Numbers, Pay Less Tax
Every dollar you can legally deduct from your taxes is a dollar that stays in your pocket or gets reinvested into your business. That’s why knowing your numbers isn’t just smart—it’s essential.
Whether you’re just starting out or running a six-figure service-based business, understanding your eligible deductions is one of the easiest ways to improve your bottom line.
Still not sure where to start? Hire our team of experienced professionals to be in your corner.
Next Steps: Let’s Help You Get Your Financials on Track
At Apex Online Bookkeeping, we specialize in helping Canadian service-based businesses clean up their books, set budgets, organize dashboards, create quoting systems, and provide CFO-level reporting. Our goal is to grow your business with clarity, purpose, and profit.
Book your free consultation today to get started.
FAQs About Tax Deductions in Canada
Q: Can I deduct meals with my team or employees?
A: Yes, but typically only 50% is deductible unless it’s a staff party (up to 6 per year).
Q: Do I need receipts for everything?
A: Yes, or a digital copy. CRA requires documentation for all claimed deductions.
Q: What if I use something for both business and personal use (like a phone)?
A: You can deduct the business-use portion—keep track with a reasonable estimate or usage log.