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Self-Employed Tax Deductions You Can Claim In Canada
October 04, 2022 - 2 min read

Self-Employed Tax Deductions You Should Claim In Canada

How would you like to save money, annually, by simply claiming back business-related expenses on your income tax return? We sure think it sounds good!

This article explains common tax deductions for self-employed in Canada that you can take advantage of, regardless of whether you are entirely self-employed or hold down a full-time job while also working a second job to supplement your income from self-employment. Note that it is the obligation of the CRA to decide whether the expense was incurred with the intention of earning income.

Here is a list of 8 self-employed tax deductions in Canada that you may be able to claim that will maximize your tax return.

Business-Use-of-Home-Office

You can write off a percentage of your rent on your taxes if you work from home. The overall square footage of your flat or house must be divided by the square footage of your home office space to arrive at the amount of this deduction. For instance, if your workplace occupies 20% of the space in your rented house or apartment, you can write off 20% of your total monthly rent as a tax deduction. 

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Operating expenses

Expenses incurred to maintain the operations of your business are known as operating expenses. This includes costs such as payroll, insurance, rent, office supplies, utilities, repairs and maintenance, travel expenses and professional fees. Computers and other larger office items can also be written off, but only as capital expenses.

Entertainment and meals

If your self-employed business requires you to pay for meals and entertainment, you can claim these costs. According to the CRA, the most you can deduct for meals and entertainment is 50% of the least of the following amounts: the amount incurred for these expenses, or a reasonable amount under the circumstances.

Vehicle expenses

You can deduct expenses for a business-related vehicle, such as insurance, gas, rental fees, repairs, maintenance, and breakdown coverage. Note that you must maintain a daily travel logbook in which you must record both your business and personal mileage. A simple, yet powerful mileage tracker for this purpose is the Driversnote Mileage Tracker.

Travel expenses

Other travel expenses associated with your self-employed business can be deducted from your tax return. Examples of other travel business expenses that you can claim include:

  • Bus, train and taxi fares
  • Airplane tickets
  • Accommodation and food

Professional development and educational expenses

As a self-employed individual, you can write off professional development and educational expenses that advance your sector knowledge on your tax return.

Bank charges on your business’ bank account, including interest

Interest and bank charges related to business activities can be written off. Interest on loans taken out for business purposes or to fund the purchase of property is also deductible. But there are restrictions on the interest that you can write off when borrowing money to purchase a car or a zero-emission car, the amount of interest that you can write off for undeveloped land, and the interest you pay on any real estate mortgage.

Deductions for bad debts

Bad debt is a sum of money that someone owes you but has been deemed uncollectible and written off as such. If a receivable that won't be paid has already been recorded as income, you can deduct it. 

How to claim self-employed deductions at tax time

The Statement of Business or Professional Activities on Form T2125 from the Canada Revenue Agency should be carefully read. All deductible costs for your own business must be reported on this form. All your business income and expenses, including those related to your home office, motor vehicle and mileage expenses, depreciation on assets and capital expenditures, are reported on Form T2125, whether you use tax software or pen and paper.

FAQ

You can maximize tax deductions by deducting business-related costs from your taxable income. To achieve this, ensure to keep detailed records of all your income and expenses. If you can't support a claimed deduction, you run the risk of having the Canada Revenue Authority (CRA) reject it.
You only pay self-employment tax on net earnings. This means that you can first subtract any deductions, such as business expenses, from your gross earnings.
You can write off the cost of tax preparation services such as those related to the use of tax software or consulting a professional.

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