The CRA Rules You Actually Need to Know

You’ve heard it before — “Just write it off!” But in real life, business expenses in Canada aren’t a free-for-all. The CRA has clear (and sometimes strict) rules about what you can claim. If you're a sole proprietor or incorporated small business owner, understanding those rules is the difference between a smooth tax season… and a stressful audit.

Here’s what you need to know — no jargon, no nonsense.

🧾 First, What Is a Business Expense?

A business expense is a cost you incur to earn income. That’s it. If you can prove that something was necessary and directly related to running your business, you can likely claim it — fully or partially — on your tax return.

Things like:

• Tools and equipment
• Advertising
• Software and subscriptions
• Home office costs
• Vehicle expenses
• Meals & entertainment (sometimes)
• Professional fees (bookkeepers, lawyers, etc.)
• Wages, contractors, and more

📏 The Golden Rules (Yes, You Need to Follow These)

Before you dive into receipts, here are the four big principles the CRA expects you to follow:

1. It has to be reasonable

The CRA doesn’t give a dollar cap for most categories — but they will raise an eyebrow if your “marketing” budget is $30K for a business with $40K revenue.

2. It has to be supported by documentation

Receipts, invoices, mileage logs, bank statements — you need to show your work. And yes, they want digital or physical proof that shows:

• The date
• The amount
• The vendor
• What was purchased
• Who it was for (in some cases)

3. It has to be directly related to earning income

That’s the CRA’s favourite phrase. If you’re expensing something personal and calling it business, don’t be surprised if it gets denied.

4. You must split personal vs business use

If you use your phone 70% for business and 30% for personal, you can only claim 70%. Same with your car, your home office, your laptop — if it’s mixed-use, only the business portion is deductible.

📉 Capital vs Current Expenses: What’s the Difference?

Not every expense gets written off the same way.

• Current expenses: Short-term — like office supplies, repairs, or monthly software fees. These are fully deducted in the year you pay them.
• Capital expenses: Long-term — like laptops, vehicles, or machinery. These are depreciated (claimed a bit at a time) using Capital Cost Allowance (CCA) rules.

‍🧠 One Last Thing: Stay Consistent

Your claims should match your records, your income, and your story. If you’re a freelance writer who claims $9,000 in travel, but no advertising or software expenses… something’s off. The CRA looks for patterns — and so should you.

✅ TL;DR: Business Expense Rules in Canada

• An expense must be reasonable, business-related, and backed up by receipts.
• You can only claim the business-use portion.
• Know the difference between current and capital expenses.
• Keep your records clean, consistent, and clear.

Up Next: Part 2 — Home Office Expenses, Simplified
We’ll break down how to calculate your home office write-off (without confusing formulas or overclaiming).

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