Tax Deductions for Canadian Small Businesses: Keep More of What You Earn

Chosen theme: Tax Deductions for Canadian Small Businesses. Welcome to your practical, plain‑English guide to legally reducing taxable income in Canada, with real stories, concrete steps, and easy wins you can act on today.

Understand What Counts as a Deduction in Canada

To be deductible, an expense must be reasonable and incurred to earn business income—never purely personal. This deceptively simple rule is powerful. A Saskatoon bakery owner once trimmed costs simply by asking, “Does this truly earn income?” That filter alone clarified dozens of borderline purchases.

Understand What Counts as a Deduction in Canada

Supplies and small repairs are current expenses; big-ticket items like vehicles or equipment are capital and usually claimed through Capital Cost Allowance. Mixing them up can distort results. Label invoices right away so your future self, or your bookkeeper, can classify cleanly without guesswork.

Vehicle and Travel: Mileage, Logs, and Reasonableness

Choose a tracking method and stick with it

Track total and business kilometres, purpose for each trip, and dates. Many owners use a full-year logbook the first year, then maintain shorter samples. Whether paper or app, consistency wins. One Calgary contractor reclaimed missed deductions by capturing odometer readings at every oil change and month-end.

Actual expenses, not guesswork

Deduct the business-use percentage of gas, insurance, repairs, parking, leasing or CCA if you own the vehicle. Keep every receipt. If you juggle multiple vehicles, record which vehicle each expense relates to. Precision prevents over- or under-claiming and helps if the CRA asks how you calculated the amounts.

Meals and entertainment: remember the 50% rule

Business meals are generally 50% deductible, with limited exceptions like certain remote worksite situations. Write who you met and why on the receipt. A Vancouver agency started annotating receipts immediately after each meeting; that tiny note routinely turns vague coffee runs into clearly business-related deductions.

Capital Cost Allowance (CCA): Depreciation the Canadian Way

Equipment, vehicles, and computers fall into different classes with specific declining-balance rates. Knowing the class informs timing and budgeting. A Winnipeg fabricator checked the class of their CNC upgrade before purchase, then planned installation dates to match year-end for the most helpful first-year deduction.

Payroll, Owner Pay, and Deductible Compensation

Reasonable salaries, bonuses, and many employee benefits are deductible to the business. Issue T4s on time, maintain signed employment agreements, and document bonus policies. A Regina café formalized staff bonuses tied to quarterly targets, making the deduction defensible and motivating the team with transparent criteria.

Payroll, Owner Pay, and Deductible Compensation

Employer portions of CPP and EI are deductible, and remittance deadlines matter. Many owner-managers are not EI-insurable, but verify your situation. A missed remittance can erase tax savings with penalties. Automate payments, reconcile payroll monthly, and file summaries early to avoid nail-biting rushes.

GST/HST: Not a Deduction, Still a Big Deal

You charge GST/HST when required, then claim Input Tax Credits on eligible business purchases. The net is what you remit. Separating tax from income and expenses in your records makes financial statements clearer and supports both ITCs and your income tax deductions with clean evidence.

GST/HST: Not a Deduction, Still a Big Deal

Invoices that clearly show vendor details, dates, tax amounts, and descriptions make it easy to confirm business purpose for deductions. A Kitchener contractor standardized vendor invoice requirements and saw audit questions drop dramatically because every file told a coherent, verifiable story without extra detective work.

Year-End Moves and Audit-Ready Documentation

Buying needed equipment before year-end may accelerate CCA, but remember half-year rules. Prepay only when it makes sense and is deductible. Align inventory counts, finalize contracts, and confirm delivery dates. A little planning avoids last-minute scrambling and preserves the integrity of your deduction claims.

Year-End Moves and Audit-Ready Documentation

Store digital copies of receipts, contracts, mileage logs, and bank statements in organized folders. Keep records for at least six years. Add short explanations to ambiguous items. A neat folder labeled “Deductions—2025” with summaries saved monthly can turn an audit from stressful to straightforward.

Tax Deductions for Canadian Small Businesses: Keep More of What You Earn

Understand What Counts as a Deduction in Canada

Understand What Counts as a Deduction in Canada

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This is the heading

Vehicle and Travel: Mileage, Logs, and Reasonableness

Choose a tracking method and stick with it

Actual expenses, not guesswork

Meals and entertainment: remember the 50% rule

Capital Cost Allowance (CCA): Depreciation the Canadian Way

Payroll, Owner Pay, and Deductible Compensation

Payroll, Owner Pay, and Deductible Compensation

GST/HST: Not a Deduction, Still a Big Deal

GST/HST: Not a Deduction, Still a Big Deal

Year-End Moves and Audit-Ready Documentation

Year-End Moves and Audit-Ready Documentation