Navigating tax season as a small business owner in Canada can feel overwhelming. With numerous deductions available, understanding which ones apply to your business can save you thousands of dollars and improve your financial health. This cheat sheet outlines essential tax deductions every Canadian small business owner should know in 2025.

1) Small Business Deduction (SBD)

If your business is incorporated, you can benefit from the Small Business Deduction (SBD), which offers a significantly reduced tax rate on the first $500,000 of active business income. A business earning $400,000 would pay $48,000 in taxes at a 12% rate compared to over $200,000 at a 50% personal tax rate.

Tax Rate: Approximately 9-12%, depending on your province.

Bonus Tip: Leave retained earnings in the corporation to reinvest at a lower tax cost, fueling business growth.

2) Home Office Expense Deduction

If you run your business from home, you can deduct a portion of household expenses. Eligible costs include:

• Utilities

• Internet and phone

• Rent or mortgage interest

• Property taxes

If your workspace occupies 15% of your home and your eligible expenses are $20,000 annually, you can deduct $3,000.

Pro Tip: Ensure your workspace is used exclusively for business to meet CRA requirements.

3) Vehicle Expenses

Business use of your vehicle can lead to significant deductions. Track the percentage of kilometers driven for business purposes compared to total kilometers driven.

Deductible Costs:

• Fuel

• Maintenance and repairs

• Insurance

• Leasing or depreciation

If you drive 15,000 km for business out of 20,000 km total and your annual vehicle expenses are $10,000, you can deduct 75% ($7,500).

Pro Tip: Use apps like MileIQ to log business mileage accurately.

4) Capital Cost Allowance (CCA)

Business assets such as machinery, furniture, and vehicles can be written off over time through the Capital Cost Allowance.

Accelerated Write-Off: New equipment may qualify for a 100% deduction in the first year under the Accelerated Investment Incentive.

Purchasing a $20,000 machine could reduce your taxable income by $20,000 in the first year if it qualifies for full write-off.

Pro Tip: Plan large purchases strategically to align with profitable years for maximum benefit.

5) Salaries and Wages

Paying employees, including yourself, is a deductible expense. Employing family members can also provide tax savings if they perform legitimate work for your business. Ensure wages are reasonable and tied to actual work performed to satisfy CRA scrutiny.

Example: Paying your spouse $30,000 for bookkeeping services shifts income to a lower tax bracket, saving thousands in taxes.

6) Professional Fees

Hiring professionals like accountants, lawyers, or consultants is essential for running a business and fully deductible.

Pro Tip: Keep invoices organized and document how these services directly contribute to your business.

7) Marketing and Advertising

Expenses related to promoting your business are deductible, including:

Social media ads

Print and digital campaigns

Website hosting and development

Spending $10,000 on advertising campaigns to attract new clients could translate into a $3,000 tax savings if your marginal rate is 30%.

8) Input Tax Credits (ITCs)

If your business is registered for GST/HST, you can recover the GST/HST paid on eligible business expenses through Input Tax Credits.

Eligible Expenses: Rent, utilities, office supplies, and travel expenses.

Pro Tip: Use accounting software like QuickBooks to track and automate ITC claims.

9) Scientific Research and Experimental Development Credits

If your business engages in R&D, you may qualify for refundable tax credits through the SR&ED program. Spending $50,000 on eligible R&D activities could yield a $17,500 credit.

Federal Credit: Up to 35% for qualifying small businesses.

Pro Tip: Maintain meticulous records of experiments, expenses, and outcomes to ensure compliance.

10) Tax-Advantaged Retirement Plans

As a business owner, using retirement accounts can provide immediate tax deductions and long-term financial security.

Individual Pension Plans (IPPs): Higher contribution limits for incorporated business owners.

RRSPs: Deductible contributions reduce taxable income.

Contributing $25,000 to an RRSP at a 40% tax rate saves $10,000 in taxes.

11) Insurance Premiums

Certain insurance premiums are deductible, including:

Business liability insurance

Professional indemnity insurance

Vehicle insurance (for business use)

Pro Tip: Personal life insurance premiums are generally not deductible, but corporate-owned policies may qualify under specific conditions.

12) Travel and Meals

Business travel expenses and 50% of meal costs are deductible if they are directly related to business activities.

A $1,000 business trip with $300 spent on meals results in a $650 deduction.

Pro Tip: Keep detailed records, including receipts and business purposes, for CRA compliance.

13) Training and Education

Costs related to improving skills or gaining certifications for business purposes are fully deductible.

Eligible Costs: Courses, seminars, and educational materials.

Spending $2,000 on professional development could save $600 in taxes at a 30% tax rate.

14) Interest and Bank Charges

Interest on business loans, credit lines, and bank fees related to business accounts are deductible.

Paying $5,000 in interest on a business loan could result in $1,500 in tax savings at a 30% tax rate.

Pro Tip: Consider refinancing high-interest loans to reduce costs and improve deductions.

15) Bad Debts

If you have provided goods or services and cannot collect payment, you can write off the unpaid amount as a bad debt expense.

Writing off a $5,000 unpaid invoice reduces taxable income by the same amount.

Pro Tip: Keep documentation proving efforts to collect the debt before writing it off.

Small Business Tax Deductions in Canada 2025

Tax deductions are a powerful tool for Canadian small business owners to reduce their tax burden and reinvest in growth. By understanding and leveraging these deductions effectively, you can save thousands of dollars each year.

For personalized advice, consult a tax professional to ensure compliance and maximize your savings. With proactive planning and careful record-keeping, you can turn tax season into an opportunity to strengthen your business’s financial health.