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Tax loopholes, the grey zone: Maximize your vehicle and home office deductions.
By Wajahat Ajmal
Table of Contents
Write-offs can often be a tricky issue for many people. What can be written off, what can’t, and what actually qualifies? These questions are asked to us by all of our clients. Some people are more generous with their deductions, while others play it safe. So, one may ask what’s the best approach?
The truth is, taxes have their grey zones where people can play in. No one wants an audit, but at the same time, we don’t want clients to miss out on legitimate deductions and leave money on the table. In this blog, we’ll share tips specifically for incorporated small businesses in Ontario.
Our advice is only relevant for Ontario, and in some cases, it may not be allowed, so be sure to research your specific situation thoroughly or reach out to us.
Grey areas in taxes occur when something is neither fully personal nor fully business. As a general rule, if you’re spending money to earn income, it’s a business expense. Many of these grey areas rely on professional judgment about what’s reasonable in the situation.
Two major tax grey areas are home office and vehicle expenses which this blog is going to focus on. However, there are some areas that are clearly off-limits, which we’ll cover at the end of the blog.
Home Office Expenses
If your home serves as your primary workplace and you earn business income, you may be eligible to deduct home office expenses.
A common approach is to calculate the percentage of your home used for business. This is done by dividing your home office’s square footage by your home’s total square footage. You can then claim that percentage of your home expenses as a business deduction. However, if you work from a shared space, such as a dining table, you must calculate the percentage of time you use it for work.
TIP: To avoid drawing attention from the CRA, keep your home office claim below 15%.
The following home expenses are included in your calculation:
- Insurance
- Property taxes
- Utilities
- Mortgage interest (not the full mortgage payment – only the interest portion of it)
For example, if your home office is 100 square feet and your home’s total area is 1,000 square feet, you can deduct only 10% of these expenses.
Grey Areas of the Home Office Expenses
Avoid including general home expenses in your home office deduction. These should be calculated separately:
- Home Internet: Since internet access is essential for business operations, you can reasonably deduct at least 50% of the cost.
- Security System: If your security system is necessary for your business, you may claim a higher portion.
- Client Visits: If clients visit your home regularly, you can also deduct expenses such as coffee, magazines, cleaning, snow removal, and yard maintenance.
For a dedicated home office, you can claim 100% of all supplies and furniture, including headphones, iPads, desks, chairs, and even houseplants. Renovations made to this space also qualify as business expenses.
If your garage or basement is used for business and exceeds 15% of your home’s total square footage, consider renting the space to yourself instead of including it under home office expenses. This allows you to claim home office deductions separately from shop rent on your tax return. However, if you claim rent, it must also be reported as income on your personal tax return. You can still deduct a portion of home operating expenses under the same categories.
Insurance Considerations:
Inform your insurance provider if you run a home-based business. If your home insurance premium increases due to business use, the additional cost should be fully deductible, along with the percentage allocated to home office expenses.
Mobile Phone Expenses
We typically recommend deducting 50% of your mobile phone bill unless you have separate phones for personal and business use.
Ambiguous Cases for Mobile Phone Deductions
If your business demands a more expensive mobile plan—such as when working in remote locations with high data roaming costs or frequently making long-distance calls—you may be able to claim 50% of the base plan and 100% of the additional charges. The same applies to internet expenses.
If your business necessitates a landline or fax line that you wouldn’t otherwise need, you can fully deduct that cost.
Automobile Expenses
The pandemic led to the loss of many mileage logs for business owners, resulting in unnecessary expenses.
If you use a personally owned vehicle for business, your business can reimburse you based on the kilometres driven. The reimbursement follows the CRA’s per-kilometre rates. In 2025, the Canadian mileage rate was $0.76/km for the first 5,000 km and $0.66/km for any additional distance.
To claim mileage on your taxes, you must provide proper documentation. The best way to ensure accuracy is by maintaining a detailed mileage log. Consider using MileIQ to track every trip effortlessly.
Ambiguous Cases for Automobile Expenses
The per-kilometre reimbursement method works best if you drive a high number of business kilometres and your vehicle is inexpensive to operate. For example, logging 50,000 business kilometres in a 2024 Honda CRV would be ideal for this approach.
If your corporation owns your vehicle, consider these strategies:
- Lease through your corporation – At the end of the lease, if there’s a price difference, you can personally buy out the vehicle and sell it for a profit.
- Claim essential expenses – You can deduct costs such as winter tires, fuel, repairs, maintenance, and occasional car washes as business expenses.
If you decide to finance your vehicle under your corporation, please read this article before your do so: Planning to Purchase Vehicle under Business? Read This Before You Do!
Other Ambiguous Expenses
- Business Meetings with Friends – If you meet friends who are also business associates, and you can explain the business purpose to a CRA agent, write it off. Always note the names and purpose on the receipt or in an app.
- Combining Business and Leisure Travel – Align your vacations with business-related conferences or conventions to maximize deductions. We can help allocate expenses between business and personal use.
- Business Purchases with Personal Benefits – If an item is necessary for business but also has some personal use, let the business buy it. Need a hammer, measuring tape, or level for office setup? That’s a business expense.
- Transportation Costs – You can claim expenses for Uber, taxis, Lime scooters, or public transit when attending business-related events. If you can deduct meals and entertainment, you can also write off transportation to and from the event.
- Credit Card Rewards – If you use a personal credit card for business expenses, you may wonder how many points you can keep for personal use. A CPA can help determine a reasonable amount.
- $500 Tax-Free Employee Gift – If you’re an owner drawing a wage, you can also receive this gift. However, it must not be cash or cash equivalents (such as gift cards unless it meets specific criteria).
The Red List; Expenses You Cannot Claim At All!
The CRA explicitly disallows deductions for:
- Golf fees and memberships – The business can pay for them, but they are not tax-deductible.
- Your own labor – You cannot deduct the value of your own work on anything.
- Reimbursed expenses – If you were reimbursed (e.g., through insurance claims), you cannot claim them again.
- Work-related clothing – Unless it is safety gear or a uniform, clothing is not deductible including laundry.
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