A self-employed tradesperson can deduct any reasonable expense incurred to earn business income. That is the general rule under section 9 of the Income Tax Act: profit is revenue minus the costs of earning it. In practice this covers materials, subcontractors, tools, vehicle costs, a home office, insurance, phone, accounting fees and more, each claimed on Form T2125. Big-ticket items that last more than a year are not deducted all at once; they are written off over time through capital cost allowance (CCA).
The general rule: reasonable and business-related
To be deductible, an expense must be incurred to earn business income, be reasonable in the circumstances, and not be personal or a capital outlay (capital items go through CCA instead). Keep the receipt and, where an expense is part personal, claim only the business-use share. The CRA expects you to keep records for six years.
What a tradesperson can claim
Common deductible costs on the T2125 include:
- Materials and supplies consumed on jobs
- Subcontractor payments (and file a T5018 information slip for construction subcontractors)
- Small tools and consumables
- Vehicle running costs for business use (see Vehicle and Mileage Claims)
- Business insurance and liability cover
- The business-use share of your mobile phone bill
- Accounting, bookkeeping and tax-preparation fees
- Advertising, signage and your website
- Bank charges and interest on a business loan or line of credit
- Trade licences, dues and professional memberships
- Work clothing and safety gear required for the job
- Client and job-related meals, deductible at 50 percent of the cost, with the business purpose noted
Home office
You can deduct the business-use portion of your home costs if your home is your principal place of business, or you use a space there exclusively and regularly to meet clients. Eligible costs include a share of rent or mortgage interest, utilities, property taxes, home insurance and maintenance, allocated by the workspace's square footage over the home's total. Claim it in Part 10 of the T2125. Home-office costs cannot create or increase a business loss, but any unused amount carries forward to a future year.
Tools: the self-employed advantage
There is a big difference between an employed tradesperson and a self-employed one.
- An employed tradesperson (a T4 earner) can claim the Tradesperson's Tool Deduction on Form T777: the lesser of $1,000 and (trade employment income plus apprenticeship grants) minus the Canada Employment Amount of $1,471 for 2026. It needs a signed Form T2200 from the employer, and it is capped at $1,000.
- A self-employed tradesperson has no cap. Tools used in the business are a deductible business expense. Small tools and consumables can be written off in full in the year you buy them; durable equipment costing more is capitalised and written off through CCA. A $5,000 tool purchase gives a self-employed person a full $5,000 deduction over time, against a maximum of $1,000 for an employee.
If you do some work as an employee and some as a sole proprietor, keep the two streams separate so the right rule applies to each tool.
Capital cost allowance, the short version
You cannot deduct the full cost of long-lived assets like vehicles, major machinery or a building in one year. Instead you claim CCA, a percentage of the asset's remaining value each year. Common classes for trades:
- Class 8 (20 percent): durable tools, equipment and machinery costing $500 or more
- Class 10 (30 percent): most motor vehicles, and passenger vehicles costing $39,000 or less
- Class 10.1 (30 percent): passenger vehicles costing more than $39,000, with the cost capped at $39,000 for 2026
- Class 50 (55 percent): computers and laptops
The half-year rule means you can usually claim only half the normal CCA in the year you buy an asset. Vehicle CCA and the $39,000 cap are covered in detail in Vehicle and Mileage Claims.
Common mistakes
- Claiming personal costs as business. Home renovations, the family vehicle and personal meals are classic audit triggers. Claim only the genuine business share.
- No logbook for the vehicle. A large vehicle claim without a mileage log is a red flag and is often denied.
- Deducting a capital asset in full. Big assets go through CCA, not a one-year write-off (small tools aside).
- Forgetting T5018 slips. If you pay construction subcontractors, you must report those payments. Missing slips draw CRA attention.
- Binning the receipts. Keep records six years. No record, no deduction if you are reviewed.
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