Self-employed Canadians report their business income and expenses on form T2125 as part of their T1 personal return. The expenses you claim on T2125 directly reduce your taxable income — which means a higher refund or a lower tax bill. LevelTax reviews every client’s expense picture before filing to make sure nothing legitimate is left unclaimed. This is the full breakdown of what you can deduct and what supporting records you need.
The deduction advantage of self-employment
An employee pays tax on their full salary with limited deductions available. A self-employed person pays tax on the net of their income minus their legitimate business expenses. Every deductible dollar of expense reduces your taxable income by one dollar — which, at a 33% marginal rate, means 33 cents of actual tax savings per dollar claimed.
This advantage is only realized if the expenses are properly documented and claimed. LevelTax has found unclaimed deductions on the majority of self-employed returns we review from clients who were previously filing on their own.
The general rule for deductibility
An expense is deductible if it was incurred for the purpose of earning business income. It must be reasonable in the context of your business and supported by documentation. The CRA applies a reasonableness test — extravagant expenses attract scrutiny even when they meet the basic criteria.
Home office expenses
- A portion of rent or mortgage interest based on the percentage of your home used for work
- Heat, electricity and water — the same business-use percentage applies
- Internet service (the portion used for business)
- Office supplies used exclusively in the workspace
- Minor repairs and maintenance to the home office area
Self-employed individuals claim home office expenses using the detailed method on Form T2125: actual expenses multiplied by the percentage of your home used exclusively for work. The temporary flat-rate method available during COVID years ended after 2022 and no longer applies.
Vehicle expenses
- Fuel for business travel
- Insurance on a vehicle used for business
- Maintenance and repairs, in proportion to business use
- Lease payments or depreciation on a purchased vehicle, up to CRA limits
- Parking fees for business appointments
You must maintain a mileage log tracking business trips throughout the year. The CRA is strict about vehicle claims without supporting records. LevelTax provides clients with a mileage tracking template to make this straightforward.
Technology and equipment
- Computers, monitors and peripherals purchased for business use
- Software subscriptions (accounting tools, design software, project management)
- Phone plans — the business-use portion
- Cameras, audio equipment or other tools specific to your work
Equipment above a certain cost threshold is typically depreciated over multiple years through the Capital Cost Allowance (CCA) system rather than fully deducted in the year of purchase.
Professional and business services
- Accounting and bookkeeping fees (including the LevelTax fee for your return)
- Legal fees related to your business
- Industry memberships and professional association dues
- Business insurance premiums
- Bank fees and interest on a business loan or line of credit
These deductions are straightforward and well-supported as long as they relate directly to earning business income.
Training and development
- Courses directly related to your current business or field
- Conference fees and registration costs
- Books, publications and subscriptions to professional resources
Training that develops skills for a new career or unrelated field is generally not deductible. The link to your existing self-employment must be clear.
Meals and entertainment
Business meals and entertainment expenses are deductible at 50% of the actual cost. The CRA requires that you document the business purpose, the names of the people present and how the expense relates to your income. A receipt alone is not sufficient without this context.
This is one of the areas LevelTax reviews carefully. Claims that are well-documented are defensible. Claims that consist of a pile of restaurant receipts with no notes are not.
Want to make sure your deductions are CRA-ready?
LevelTax reviews your expense categories, identifies missing documentation and tells you exactly what to collect before we file. Book a call and we will walk through your situation.
What the CRA commonly rejects
- Personal clothing (even if worn only for work — unless it is a uniform or protective gear)
- Gym memberships and personal fitness expenses in most cases
- Meals with family members claimed as business entertainment without a clear business purpose
- Renovation costs on a home office that improve the value of the property rather than maintain it
- Expenses that were paid personally but not tracked or supported with receipts
LevelTax flags potential CRA exposure before we file. If a claim is aggressive or unsupported, we tell you that directly so you can decide how to proceed with full information.
Maximize your deductions
LevelTax makes sure every legitimate deduction on your return is claimed
We review your full expense picture before filing, identify what is missing and prepare a return that is accurate, defensible and optimized. Book a free consultation today.
Bottom line
The deductions that reduce your tax bill are only valuable if they are properly claimed and properly supported.
Self-employed Canadians have access to more deductions than most people realize — but accessing them requires good records, correct categorization and an accountant who reviews your file rather than just processing what you submit. LevelTax does both. Our review process catches missed deductions and flags exposure before your return is filed.
Talk to LevelTax about your self-employment deductions