CRA business expenses list: each T2125 line, meals at 50%, no drawings

Which expense lines does the T2125 list, and what limit applies to each?

The rule behind every line is the same: your client can deduct any reasonable current expense incurred to earn income, but not the cost of capital property, and only the business part of a mixed use cost canada.ca. The 2025 T2125 is still the newest version the CRA posts as of October 2026 canada.ca.

Two more lines sit outside that list. CCA on capital property goes on line 9936, and home office costs go on line 9945 in Part 5 after net income is worked out canada.ca. The 50% meal limit and its exceptions are on the meals and entertainment page, and the form itself, part by part, is on the T2125 page.

What can a sole proprietor never deduct?

The T4002 guide lists seven things that never go into expenses: salary or drawings paid to your client or a partner; saleable goods or services the owner, partners or their families used; donations and political contributions; interest and penalties on income tax; most life insurance premiums; the personal part of costs for business property; and most fines and penalties imposed under Canadian, provincial or foreign law canada.ca.

Those come from the Income Tax Act. Paragraph 18(1)(a) allows an expense only to the extent it was made to earn income from the business, 18(1)(b) denies capital outlays except as the Act allows, 18(1)(h) denies personal or living expenses other than travel while away from home on business, and 18(1)(t) denies amounts paid under the Act itself, which is why instalment interest is never deductible laws-lois.justice.gc.ca. Section 67 then caps any deductible expense at what is reasonable in the circumstances laws-lois.justice.gc.ca.

Club dues are the classic surprise. Membership dues and initiation fees for a club whose main purpose is dining, recreation or sport are not deductible at all, even if your client brings clients there canada.ca. That is 0%, not the 50% that applies to the meal itself.

The owner's pay is the other. A sole proprietor cannot pay themselves a deductible salary, but they can deduct a salary paid to a spouse, common law partner or child if it is actually paid, the work is necessary for the business and the amount is what your client would pay someone else. Those salaries go on T4 slips like any other employee's canada.ca.

Is the cost a current expense or a capital purchase?

Renovations that extend a property's useful life or improve it beyond its original condition are usually capital, and a rise in market value is not a major factor. The CRA asks these questions, in this order canada.ca:

In practice the line 8810 trap catches the most clients: calculators, filing cabinets, chairs and desks are capital items, not office expenses canada.ca. The same goes for a purchased computer or cellphone, where only CCA and the interest on money borrowed to buy it are deductible, while lease payments on that equipment are deductible in the business proportion canada.ca. Which class each item goes in, and the first year rate, is on the CCA classes table.

Disability related modifications to a building, like ramps, hand activated door openers and modified doorways, are a capital style cost the guide lets your client deduct in the year paid instead of adding it to the building's cost canada.ca.

How does $46,135 of spending become $10,620 on Part 4?

Your client is a sole proprietor consultant with no employees other than a spouse who keeps the books. The amounts are net of any input tax credits claimed, as the guide requires for a GST/HST registrant.

The meal line is $800 × 50% = $400, and the phone is $1,200 × 60% = $720 canada.ca. The laptop isn't lost: it goes in Area A of the CCA schedule and the claim lands on line 9936. The spouse's salary only works because it was paid, the work was needed and $8,000 is a reasonable rate for the hours; keep the cancelled cheques or bank transfers canada.ca.

Which costs have to be split between business and personal use?

Any cost of property used both ways, mainly the vehicle, the phone and the home. The business part is the only part your client enters on the T2125 canada.ca.

Vehicle. Business kilometres over total kilometres, times running costs, on line 9281. Parking for business and supplementary business insurance are deductible in full, and the CRA expects a log of each business trip with date, destination, purpose and distance, plus the odometer at the start and end of the fiscal period canada.ca. Interest on a passenger vehicle loan entered into on or after January 1, 2026 is capped at $350 a month, and a new lease at $1,100 a month before tax canada.ca. The log rules are on the vehicle logbook page, and the 2026 ceilings on the class 10.1 limit page.

Phone. The basic monthly rate of a home landline is never deductible, but long distance business calls on it are, and so is the basic rate of a separate business line. For a cellphone, your client deducts the business percentage of airtime canada.ca.

Home. Rent, utilities, insurance, maintenance, mortgage interest and property taxes for a home workspace don't go on lines 8690, 8910, 9180 or 9220. They go through Part 7 to line 9945, only if the space is the principal place of business or is used only for the business and regularly to meet clients, and the claim can't exceed the business's net income before it canada.ca. The full calculation is on the business use of home page.

When can your client deduct it, and what proof do they need?

Timing depends on the accounting method. On the accrual method, a prepaid expense is deducted in the year the benefit is received: a year of rent prepaid on June 30, 2025 is half 2025 and half 2026. On the cash method, nothing can be deducted for a year two or more years after the year paid, so a $600 three year service contract paid in 2025 gives $400 in 2025 and $200 in 2027 canada.ca.

Loan fees run on their own clock. Application, appraisal, guarantee, brokerage and financing legal fees on a loan to buy or improve business property are deducted at 20% a year over five years, whatever the loan's term, and the balance comes off when the loan is repaid early canada.ca.

Costs from before the business started don't qualify. To deduct an expense, your client must have carried on the business in the fiscal period the expense was incurred, so the start date matters canada.ca.

Every deduction needs paper behind it. Section 230 requires a business to keep records and books that let the tax be determined, with every account and voucher that supports them, for six years from the end of the last tax year they relate to, the same clock covered in how long to keep tax records laws-lois.justice.gc.ca. For vehicles, the guide says expenses are deductible only when they are reasonable and supported by receipts canada.ca.