Canadian Contractor Business Expenses: What You Can Deduct in 2024

As a Canadian contractor, properly tracking and claiming business expenses can save you thousands of dollars on your tax bill. The Canada Revenue Agency (CRA) allows contractors to deduct legitimate business expenses, but you need to know what qualifies and how to document everything properly.

CRA Rules for Contractor Business Expenses

The Three-Part CRA Test

To be deductible, an expense must meet all three criteria:

Top Contractor Business Expense Categories

1. Vehicle and Transportation Expenses

Transportation is often the largest expense category for contractors. You can deduct vehicle expenses using two methods:

Method 1: Detailed Method (Recommended)

• Fuel and oil
• Maintenance and repairs
• Insurance premiums
• License and registration fees
• Depreciation (capital cost allowance)
• Lease payments or loan interest

Method 2: Simplified Method

• $0.68 per kilometer for first 5,000 km
• $0.62 per kilometer after 5,000 km
• Plus parking and tolls

2. Tools and Equipment

• Small Tools (under $500): Fully deductible in the year purchased
• Large Equipment (over $500): Depreciated using Capital Cost Allowance (CCA)
• Tool Repairs: Fully deductible as maintenance expense
• Tool Replacement: Deductible if replacing worn-out tools

3. Home Office Expenses

If you use part of your home exclusively for business, you can deduct:

• Portion of mortgage interest or rent
• Property taxes (homeowners only)
• Home insurance
• Utilities (heat, electricity, water)
• Maintenance and repairs to office area

4. Professional Services and Fees

• Accounting and bookkeeping fees
• Legal fees (business-related)
• Professional association memberships
• Licensing and permit fees
• Bank service charges (business accounts)
• Credit card merchant fees

5. Materials and Supplies

• Construction materials for projects
• Office supplies (paper, pens, etc.)
• Safety equipment and clothing
• Cleaning and maintenance supplies
• Small consumable items

6. Communications and Technology

• Business phone line and internet
• Cell phone (business portion)
• Computer and software
• Website hosting and domain costs
• Fax and long-distance charges

7. Insurance Premiums

• General liability insurance
• Professional liability insurance
• Commercial vehicle insurance (business portion)
• Equipment and tool insurance
• Business interruption insurance

8. Training and Education

• Trade-related courses and certifications
• Safety training programs
• Business skills workshops
• Industry conference attendance
• Professional development books and materials

Commonly Missed Deductions

Hidden Expenses That Add Up

• Storage Unit Rentals: For storing tools and equipment
• Business Meal Expenses: 50% of client meals and entertainment
• Parking and Tolls: Often forgotten but fully deductible
• Business Magazines and Subscriptions: Industry publications
• Laundry and Dry Cleaning: For work clothes and uniforms
• First Aid Supplies: Required for many job sites
• Business Cards and Marketing: Promotional materials

What You CANNOT Deduct

Common Mistakes to Avoid

• Personal Living Expenses: Personal groceries, clothing, entertainment
• Income Tax Payments: Personal or corporate income taxes
• Personal Portion of Mixed-Use Items: Personal use of business phone
• Fines and Penalties: Traffic tickets, CRA penalties
• Personal Life Insurance: Unless required by contract
• Club Memberships: Social clubs (golf, dining) are not deductible

Essential Record-Keeping Requirements

What Documents to Keep

• Original Receipts: Keep all original receipts over $30
• Credit Card Statements: Monthly statements showing business purchases
• Bank Records: Business account statements and cancelled cheques
• Invoices and Contracts: All business income documentation
• Mileage Logs: Detailed vehicle usage records
• Home Office Records: Measurement and expense documentation

How Long to Keep Records

CRA requirements for record retention:

• 6 years minimum: All business records and supporting documents
• Indefinitely: Records for depreciable property until 6 years after disposal
• Digital Records: Acceptable if they're readable and backed up

Tax Planning Strategies for Contractors

Year-End Tax Planning

• Accelerate Deductions: Purchase needed supplies before year-end
• Defer Income: Delay invoicing to the following year if beneficial
• Equipment Purchases: Buy equipment before year-end for immediate deduction
• Prepay Expenses: Pay next year's insurance premiums early

Quarterly Tax Planning

• Review expense categories quarterly
• Make estimated tax payments to avoid penalties
• Update mileage logs and expense tracking
• Plan major equipment purchases

Digital Expense Tracking Tools

Benefits of Digital Tracking

• Automatic Categorization: Smart categorization of expenses
• Receipt Storage: Digital receipt capture and storage
• Mileage Tracking: GPS-based automatic mileage logging
• Tax Report Generation: Instant tax-ready reports
• CRA Audit Support: Organized records for audit defense

Sample Expense Tracking Worksheet

Working with a Tax Professional

When to Hire a CPA or Tax Accountant

• Annual business income over $100,000
• Complex business structure (corporation, partnership)
• Multiple business locations or activities
• Significant equipment purchases or disposals
• CRA audit or review notice

Questions to Ask Your Tax Professional

1. What expenses am I missing that I could deduct?
2. Should I incorporate my contracting business?
3. How can I optimize my tax situation for next year?
4. What records should I keep for CRA compliance?
5. Are there any industry-specific deductions I'm missing?