Start-Up Expense Tax Deductions
Which start-up costs are deductible before your first sale, what is capital, incorporation costs, first-year losses against a salary, and GST/HST registration timing.
The short version
- Once your business has started, ordinary costs are deductible even before the first sale. Costs to investigate whether to start a business at all generally aren't.
- Equipment, tools, vehicles and computers bought to start up are capital: claimed through capital cost allowance once they're in use, not all in the first year.
- Incorporation costs: the first $3,000 is deductible right away; the rest is written off slowly at 5% a year.
- A first-year loss from a real business reduces tax on your other income, such as a salary. On a $90,000 Ontario salary, a $4,500 loss saves about $1,330.
- Register for GST/HST before you buy the big things, even under $30,000 of sales, and you can claim back the HST on start-up purchases.
Start-Up Expense Tax Deductions
Every business starts in the red. You buy the tools, build the website, print the signs and pay the lawyer before a customer has heard of you. The good news is that most of that money is deductible. The catch is timing: CRA draws a line between costs of a business that has started and costs of thinking about starting one, and between costs used up this year and things that last for years. Get those two lines right and a first-year loss can put real money back in your pocket.
Deductible Now, Over Time, or Not at All
| Start-up cost | Treatment |
|---|---|
| Advertising, website hosting, business cards, signs | Deductible once the business has started; see advertising |
| Accounting and legal fees for running the business | Deductible; see accounting and legal fees |
| Business insurance, licences, permits | Deductible; see business insurance |
| Tools, equipment, computers, a work vehicle | Capital cost allowance over several years; see tools and equipment |
| Incorporation fees and legal costs to incorporate | First $3,000 deductible; the rest written off at 5% a year |
| Website design or software you own (not a subscription) | Often capital; subscriptions are deductible as you pay |
| Market research, courses and travel to decide whether to start | Generally not deductible if done before a business existed |
| Inventory bought for resale | Deducted as cost of goods sold when sold, not when bought |
Starting a business this year?
Tell the assistant what the business is, when you started, and what you've spent so far. It sorts your costs into deductible now, capital and not deductible, and estimates the tax effect on your other income.
When Did the Business Start?
The start date matters because costs before it are often not deductible. A business usually starts when you begin regular activities to earn income: setting up shop, buying inventory, actively marketing, taking orders. It doesn't need a sale yet. Researching ideas, taking a course to see if you like the work, or shopping for a franchise generally comes before. Keep a dated note of when you opened for business. More on how self-employment tax works.
Example: A Side Business in Its First Year
| Amount | |
|---|---|
| Sales | $1,500 |
| Supplies, advertising, website, insurance, phone share | -$4,800 |
| CCA on $3,000 of equipment (first year, roughly) | -$1,200 |
| Business loss on form T2125 | -$4,500 |
| Tax saved on a $90,000 Ontario salary | about $1,330 |
From our 2026 Ontario rules engine. A real business with a profit plan can claim losses like this; a hobby can't, and several loss years in a row invite questions; see hobby vs business and business losses. Report it all on form T2125.
Registering for GST/HST to get your start-up HST back?
The GST/HST SmartFile works out whether voluntary registration pays, your registration date, and the input tax credits on start-up purchases.
Start-Up Steps That Save Money
- Open a separate bank account on day one. It turns your records into a statement.
- Register for GST/HST before big purchases if your customers are businesses; you can then claim back the HST on equipment and supplies. See input tax credits and the small supplier rule.
- Get a business number when you need one; see CRA business number.
- Keep every receipt, including ones from before the first sale; see recordkeeping.
- Decide on incorporation with numbers, not vibes; see corporation vs sole proprietor. A first-year loss usually helps more as a sole proprietor, against your salary.
Start-Up Expense Questions
Can I deduct business expenses before I make any money?
Yes, once the business has actually started, even if there are no sales yet. Costs incurred while you were only investigating whether to start a business are generally not deductible.
Are incorporation costs deductible?
The first $3,000 of incorporation expenses is deductible in the year incurred. Any excess is added to a capital pool written off at 5% a year.
Can I claim a business loss against my job income?
Yes. A loss from a business carried on with a reasonable expectation of profit reduces your other income, including employment income. An unused loss can be carried back 3 years or forward 20.
Can I deduct equipment I bought to start my business?
Yes, through capital cost allowance, generally over several years, starting when the equipment is available for use in the business.
Should I register for GST/HST before I reach $30,000 in sales?
It often pays if your customers are businesses that can claim the GST/HST back, because you can then recover the HST on your own start-up purchases. If you sell to consumers, registering early adds tax to your prices.
Sources: CRA, Guide T4002, chapter 3: business expenses; Income Tax Act, paragraph 20(1)(b) (incorporation expenses). Checked October 2026. When a business starts is a question of fact. The CCA figure in the example is approximate because first-year rules for equipment have changed several times; check the current rules for your class.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.