Last updated: Feb. 28, 2024
As an independent contractor, you’re in control of when you work, who you work for, and how much you charge for your goods or services. But, when you’re your own boss, you’re also in charge of paying your own taxes.
Although the Canada Revenue Agency (CRA) clearly defines what it means to be a self-employed contractor versus an employee, understanding what your employment status means with regard to your income taxes can be tricky.
To help ensure you aren’t paying more taxes than you are required to, we put together a list of common—and commonly overlooked—tax deductions independent contractors can claim to reduce their tax responsibility.
7 Tax Write-Offs for Independent Contractors
In Canada, if you’re fully self-employed or earn self-employed income on the side, you can deduct certain business-related expenses when you file your tax return that will help you keep more of your hard-earned money.
1. Business Operating Costs
Business operating costs are expenses that are directly associated with operating as an independent contractor. These costs may include:
- Business rental space
- Office supplies
- Repairs and maintenance to office space and equipment
- Inventory
- Payroll
- Utilities
- Professional fees
- Commercial insurance premiums
Investments such as real estate or equipment are considered capital expenses, and you can’t deduct them as business operating expenses.
2. Home Office and Supplies
If you run the majority of your business activities from out of your home, you can deduct a percentage of your rent or mortgage and other home office expenses, such as:
- Office supplies
- Cleaning supplies
- Utilities
3. Advertising and Marketing
Although a portion of your sales and marketing expenses are tax-deductible, you must meet specific criteria, according to the CRA website:
- You can deduct all the expenses if your advertising in a periodical is directed at a Canadian market and the original editorial content in the issue is 80 percent or more of the issue’s total nonadvertising content.
- You can deduct 50 percent of the expense if your advertising in a periodical is directed at a Canadian market and the original editorial content in the issue is less than 80 percent of the issue’s total nonadvertising content.
- You can’t deduct expenses for advertising directed mainly at a Canadian market when you advertise with a foreign broadcaster.
4. Technology
Technology is an integral part of running today’s businesses. The CRA allows independent contractors to deduct the costs of some business tech, including:
- Website design and monthly hosting fees
- Business software for accounting, inventory, and other essential business functions
However, software that you can use for both business and personal reasons, such as Zoom, Microsoft 365, and other productivity and collaboration tools, is only partially deductible.
5. Necessary Tools and Equipment
Self-employed tradespeople who require specific tools to conduct business can deduct the purchase price of the tools provided they only use these tools for business purposes. Jobsite safety equipment, such as steel-toed boots, tool belts, and hard hats, are also eligible deductions.
Tool and equipment costs should be listed as expenses on the business’s income statement—with some exceptions. Individual tools or equipment valued at more than $500 are considered capital expenses and must be written off in accordance with capital cost allowance rules.
6. Personal Vehicle Use
Claiming deductions for vehicle use is less straightforward than other write-offs. Expenses related to a vehicle that is used exclusively for your business are fully deductible, including:
- Gas
- Insurance
- Repair costs
- Parking fees
If you use your vehicle for both personal and business activities, you can deduct a percentage of the costs.
It’s important to note that vehicle deductions are frequently claimed fraudulently, so the CRA requires independent contractors to keep detailed vehicle usage logs.
7. Travel and Entertainment
Most business-related travel and entertainment expenses are deductible to some degree.
For example, if you’re traveling to a trade show, meeting, or other business-related event, transportation, hotel, and conference fees are 100 percent deductible, and you can deduct 50 percent of your meal and entertainment costs.
When you’re making a living as an independent contractor, every dollar counts. Tax write-offs are a great way to reduce your taxable income, but it’s important to understand which expenses you can and cannot write off to avoid being audited or incurring tax penalties.
Commonly Overlooked Tax Deductions
The seven tax deductions listed above are fairly well known; however, there are several other deductions you may not know you are entitled to claim on your tax return, such as:
- Bad debt
- Private health plan premiums
- Annual trade, industry, or professional certification or membership fees
- Professional development and educational expenses
- Trade-specific magazine subscriptions
- Interest and bank charges
- Accounting and legal fees
Many independent contractors who work in the construction industry miss out on deductions related to their trade. Here are a few trade-specific write-offs construction contractors are eligible to claim:
- Kilometres driven: This deduction can include driving to and from worksites, trips to acquire materials and equipment, and travel to meet current and potential customers.
- Tools of the trade: These expenses include vehicle maintenance, fuel, subcontractor or employee salaries, supplies and materials, and small tools that are expected to last a year or less
- Large equipment: The purchase cost of heavy machinery or construction equipment that is expected to last for several years can be deducted but at a depreciated rate over the life of the product.
- Construction gear and clothing: Construction work often requires specialized safety gear clothing, so don’t forget to deduct your steel-toed boots, hard hats, safety goggles, gloves, and construction vests.
Every independent contractor’s business is different. Working with a knowledgeable tax specialist can help you uncover even more deductions you may not know about.
Tax Deductions Let You Keep More of Your Money
Understanding which tax write-offs Canadian independent contractors are entitled to will help you maximize your savings throughout the year while reducing how much your business owes at tax time.
Download our tax planning guide for tips on how to create a tax strategy that maximizes benefits for independent contractors.
Want to learn more about creating a tax strategy that’s tailored to the needs of independent contractors? Click the link below to connect with the FBC team. We would be happy to help!
