What expenses are deductible for a Corporate Owner on the Personal Tax Return

If you are an owner of a corporation in Canada, it is important to understand which expenses you can deduct from your personal tax return according to the Canada Revenue Agency (CRA). Generally, as a corporate owner, your business expenses are claimed within the corporation itself, not on your personal tax return. However, there are specific circumstances where you may be allowed to claim certain expenses personally, particularly if you are also an employee of your corporation and are paid a salary. 

Eligible Personal Deductions for Corporate Owners 

Most business-related expenses—such as office supplies, employee wages, and rent—are deducted on the corporation’s tax return. For your personal tax return, the CRA allows deductions only for expenses directly related to earning your employment income, not corporate income. If you are an owner-manager drawing a salary and you personally pay for expenses required as part of your employment (and have a valid T2200), these expenses may be deductible. Common examples include: 

• Home office expenses: If you work from home as an employee of your corporation and meet CRA’s requirements, you may claim a portion of utilities, rent, and maintenance. 

• Automobile expenses: If you use your personal vehicle for employment purposes, are not reimbursed by the corporation, you may claim a portion of fuel, insurance, and maintenance costs. 

• Telephone expenses: If your employment duties require you to use your personal telephone, you may be able to deduct a reasonable portion of your cell phone or landline costs. 

• Office rent: If you personally rent office space to perform your employment duties, you may claim the employment-related portion of your rent. This may include rent for a dedicated office outside your home, or a portion of your home rent, provided the space is used regularly and exclusively for work. 

• Accounting and legal fees: Accounting fees paid for record keeping and preparing your personal tax return or for advice on personal investments may be deductible. Legal fees paid to file an objection or appeal prepared against an assessment for income tax is deductible. Further, legal fees incurred to establish right to employment income or fees related to disputes on employment income are deductible. Note that not all legal fees are deductible, for example, fees related to personal matters like divorce or custody disputes are not deductible. 

• Professional dues and memberships: If you pay annual dues to maintain professional status required for your employment, these may be claimed. 

The Role of Form T2200 

For employees, including an owner who is drawing a salary and acting as an employee—who incur expenses on behalf of the business, the CRA requires the employer to complete and sign Form T2200, Declaration of Conditions of Employment. This form certifies that, as a condition of employment, the employee was required to pay certain work-related expenses personally. Without this completed form, the employee (or owner-manager) generally cannot claim these deductions on their personal tax return. 

Interest Deductibility When Using a Line of Credit 

If you withdraw dividends from your corporation and use a line of credit to invest in the business, the interest incurred on that line of credit may be deductible on your personal tax return. CRA permits the deduction of interest paid on money borrowed for the purpose of earning income from a business or property. To qualify, you must be able to demonstrate that the borrowed funds were used directly to invest in your corporation and not for personal use. Proper documentation and tracking are essential to substantiate the deduction. 

Restrictions and Considerations 

It is crucial to note that expenses related to corporate operations, such as travel, meals, entertainment, and salaries, cannot be deducted from your personal tax return unless they are incurred to earn personal employment income and you meet CRA’s criteria, including obtaining a T2200 from your corporation. Double-dipping—claiming the same expense on both corporate and personal returns—is strictly prohibited. Always retain proper documentation and consult with a tax professional to ensure compliance with CRA rules. 

Vector Advisors Tax Specialists 

The information provided above is intended for general guidance only and may not apply to your specific situation. Do not rely solely on this advice; always consult with a qualified tax professional before making any decisions or filing your tax return.