Every deductible expense lowers your taxable income, and therefore the tax you pay. But you need to know which expenses qualify, and how much of each. Here are the essentials for self-employed people in Québec.
The basic rule
An expense is deductible if it was incurred to earn business income, if the amount is reasonable and if you have proof (invoice, receipt). Keep your records for at least 6 years: the CRA and Revenu Québec can ask for them.
Everyday expenses, fully deductible
- Office supplies and small equipment
- Advertising, your website and business cards
- Accounting and legal fees, including the preparation of your income tax and sales tax returns
- Business insurance
- Bank charges and interest on a business loan
- Licences, professional dues and trade associations
- Software and subscriptions used for the business (accounting, invoicing, cloud storage)
- Subcontractors and employee wages
Mixed-use expenses: only the business part
When something is used both for your business and your personal life, only the business portion is deductible.
- Cell phone and Internet: the share used for work.
- Vehicle: gas, insurance, maintenance, registration, interest or lease payments, in proportion to the kilometres driven for business. Keep a logbook (date, destination, purpose, kilometres): it's the first thing auditors ask for.
Working from home
You can deduct part of your housing costs (electricity, heating, insurance, property taxes, mortgage interest or rent, maintenance) if your workspace is either:
- your principal place of business; or
- used only for your business and on a regular basis to meet clients.
The deductible share is usually based on floor space (for example, a 10 m² office in a 100 m² home gives 10%).
Meals and entertainment: two limits in Québec
Business meals and entertainment are 50% deductible. In Québec, a second limit applies, based on your revenue:
| Revenue | Québec cap on entertainment expenses |
|---|---|
| $32,500 or less | 2% of revenue |
| $32,501 to $51,999 | $650 |
| $52,000 or more | 1.25% of revenue |
For example, with $40,000 in revenue, your deductible entertainment expenses in Québec can't exceed $650.
Large purchases: capital cost allowance
A computer, office furniture or a vehicle isn't fully deducted in the year you buy it. It's deducted over several years through capital cost allowance (CCA), at a rate set for each class of property.
What isn't deductible
- Personal expenses (groceries, everyday clothing, vacations)
- Fines and penalties
- The value of your own work
- Dues for clubs whose main purpose is dining, recreation or sports
What about the sales tax on your purchases?
If you're registered for the GST and QST, you recover the tax paid on business purchases (input tax credits and refunds). In that case, you deduct your expenses before tax. If you're not registered, the tax is part of the expense.
Three habits that make all the difference
- Use a separate bank account for your business.
- Take a photo of every receipt right away and sort them by month.
- Log your business kilometres as you go.