You can deduct any reasonable expenses you incur to earn rental income. The two basic types of expenses are current expenses and capital expenses.

For more information on what we consider a current or capital expense, see Current expenses or capital expenses.

Some expenses your incur are not deductible. For more information see Expenses you cannot deduct.

If you are modifying a building to accommodate persons with disabilities, buying an older building, or encounter other situations, see Capital expenses - Special situations.

The following is a list of expenses that are deductible:

• Prepaid expenses
• Line 8521 - Advertising
• Line 8690 - Insurance
• Line 8710 - Interest
• Line 8860 - Legal, accounting, and other professional fees
• Line 8960 - Maintenance and repairs
• Line 8871 - Management and administration fees
• Line 9281 - Motor vehicle expenses
• Line 8810 - Office expenses
• Line 9180 - Property taxes
• Line 9060 - Salaries, wages, and benefits (including employer's contributions)
• Line 9200 - Travel
• Line 9220 - Utilities
• Line 9270 - Other expenses

Abraham Lincoln once asked an adversary in court, “How many legs does a sheep have?” The man replied, “Four, of course,” Lincoln went on to ask “And if you were to call a tail a leg, how many legs then?” The man replied, “Well I suppose then you’d have to say five.” Lincoln smiled and responded, “No. The answer is still four. Calling a tail a leg does not make it so.”

Accountants are often asked by their clients what constitutes a deductible business expense? The answer the Canada Revenue Agency has provided is quite simple: a deductible business expense is any reasonable current expense (cost) you paid or will have to pay to earn business income (revenue).

Personal expenses are specifically excluded, which brings us back to President Lincoln’s parable: calling a personal expense a business expense does not make it so. The CRA has an army of auditors who exist for the sole purpose of disallowing bogus business expenses.

The following discusses the more common expenses you incur to earn income from your business (including self-employed commission sales) or professional activities. Incur means that you paid or will have to pay the expense.

Generally, you can deduct any reasonable current expense you incur to earn business income. The expenses you can deduct include any GST/HST you incur on these expenses minus the amount of any input tax credit claimed. However, since you cannot deduct personal expenses, enter only the business part of expenses on the Form T2125 Statement of Business or Professional Activities.

In addition, you cannot claim expenses you incur to buy capital property.
List of deductible expenses under part 5 of form T2125:

• Advertising
• Allowance on eligible capital property
• Meals and entertainment (allowable part only)
• Bad debts
• Insurance
• Interest
• Business tax, fees, licences, dues, memberships, and subscriptions
• Office expenses
• Supplies
• Legal, accounting, and other professional fees
• Management and administration fees
• Rent
• Maintenance and repairs
• Salaries, wages, and benefits (including employer's contributions)
• Property taxes
• Travel
• Telephone and utilities
• Fuel costs (except motor vehicles)
• Delivery, freight, and express
• Motor vehicle expenses (not including CAA)
• Allowance on eligible capital property
• Capital cost allowance
• Other expenses
• Business-use-of-home expenses
• Business start-up costs
• Current or capital expenses
• Prepaid expenses
• Net income (loss) before adjustment