Question 1

What business expenses can I deduct from my income?

Accepted Answer

You can deduct any reasonable expense incurred to earn business income. Common categories include vehicle expenses (business portion), office supplies, advertising, professional fees, insurance, meals (50%), travel, phone/internet (business portion), rent, utilities, and capital cost allowance on equipment. The CRA requires expenses to be reasonable and directly related to earning income.

Question 2

Why are meals and entertainment only 50% deductible?

Accepted Answer

The CRA limits the deduction for meals and entertainment to 50% of the amount spent. This applies whether you take a client to dinner or buy lunch while travelling for business. The logic is that meals have a personal element — you would eat regardless. Some exceptions apply: meals at remote work camps, charity fundraisers, or if the cost is billed directly to clients.

Question 3

How long must I keep receipts and records?

Accepted Answer

CRA requires you to keep business records for at least 6 years from the end of the last tax year they relate to. This includes receipts, invoices, bank statements, contracts, and vehicle logbooks. Digital copies are acceptable if they are clear and legible. Good record-keeping is essential for claiming deductions and surviving a CRA audit.

Question 4

What is the difference between capital and current expenses?

Accepted Answer

Current expenses (fully deductible in the year) include rent, utilities, supplies, and repairs. Capital expenses (assets with lasting value) include equipment, furniture, vehicles, and computers — these are depreciated over time using Capital Cost Allowance (CCA). A repair is a current expense; a renovation that improves the property is a capital expense.

Question 5

Can I deduct home office expenses from business income?

Accepted Answer

Yes, if you use part of your home regularly and exclusively for business, you can deduct a proportional amount of rent/mortgage interest, utilities, insurance, property taxes, and maintenance. Calculate the percentage based on workspace area divided by total home area. Self-employed individuals use Form T2125; employees need Form T2200.

Question 6

What makes a business expense "reasonable"?

Accepted Answer

CRA uses the "reasonable" test: would a sensible businessperson incur this expense to earn income? A $200 dinner with a major client is reasonable; a $5,000 dinner for two is not. Expenses must be proportional to the business activity and directly connected to earning income. If CRA questions an expense, you must be able to justify it.

Question 7

Can I deduct personal expenses that are partly for business?

Accepted Answer

Yes, for mixed-use expenses, you deduct only the business portion. Common examples: if you use your phone 60% for business, deduct 60% of the cost. If you drive 70% for business, deduct 70% of vehicle expenses. Keep a log to substantiate the business-use percentage in case of an audit.

Question 8

What happens if I claim expenses that are disallowed?

Accepted Answer

If CRA disallows expenses during an audit, you will owe additional tax plus interest from the original due date. Penalties may apply if the claim was made knowingly or under negligent circumstances. Gross negligence penalties can be 50% of the additional tax owed. Always keep documentation and claim only legitimate expenses.

Category	Spent	Deductible	Tax Saved
Vehicle	$3,000.00	$3,000.00	$889.50
Office Supplies	$1,500.00	$1,500.00	$444.75
Advertising	$2,000.00	$2,000.00	$593.00
Professional Fees	$3,000.00	$3,000.00	$889.50
Insurance	$1,800.00	$1,800.00	$533.70
Meals & Ent. (50%)	$2,400.00	$1,200.00	$355.80
Travel	$1,500.00	$1,500.00	$444.75
Phone & Internet	$1,800.00	$1,800.00	$533.70
Total	$17,000.00	$15,800.00	$4,684.70

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