Running a small business means sometimes living in the grey. Not ethically grey — tax grey.
Many business write-offs aren’t 100% business or 100% personal, and the Canadian tax system reflects that reality. The CRA knows it. Accountants know it. And if you’re a business owner, you’ve probably asked yourself more than once, “Can I claim this?”
The goal with tax planning isn’t to be aggressive or overly conservative. It’s to make defensible expense claims — claims that are reasonable, consistent and easy to explain if the CRA ever asks.
We’ll walk through two of the most common tax grey areas for incorporated small businesses in Alberta — home office and vehicle expenses — and show you how to approach them in a way that holds up under scrutiny.
This information applies to incorporated small businesses in Alberta. Tax rules change, and defensibility always depends on your specific facts. When in doubt, get advice before filing.
What makes an expense “defensible”?
Grey areas arise when an expense serves both your business and your personal life. The CRA doesn’t expect perfection in these cases. What they’re looking for is reasonable allocation, supported by logic and documentation.
A good way to think about defensibility is to ask one simple question: Could I clearly explain this expense to someone who doesn’t know me or my business?
If the answer is yes — and your numbers are consistent with how you actually operate — you’re usually on solid ground.
Home office expenses: allocating space, not stretching rules
If your home is your primary place of business and you earn business income, you’re generally entitled to claim home office expenses. The most common and most defensible approach is to allocate expenses based on square footage and, sometimes, time.
The standard method
Start by dividing the square footage of your workspace by the total square footage of your home. That percentage can then be applied to certain home expenses, including:
- Property taxes
- Utilities
- Home insurance
- Mortgage interest (not principal)
For example, if your home office is 120 square feet and your home is 1,200 square feet, claiming 10% of these expenses is straightforward and easy to support. If your workspace isn’t dedicated (such as working from a dining table), you’ll also need to factor in how often that space is used for work.
From the CRA’s perspective, this method is defensible because it’s logical, consistent and repeatable.
A note on percentages
As a general rule, home office claims under 15% tend to attract less scrutiny — not because they’re automatically correct, but because they usually align with how homes are realistically used. Higher percentages aren’t wrong, but they should clearly reflect your actual setup.
Home office grey areas: where judgment matters
Some home-related expenses don’t fit neatly into a square-footage calculation. This is where professional judgment and defensibility really matters.
Internet
Internet is essential for most businesses. Even if it’s also used personally, claiming around 50% is often reasonable. If your business requires higher speeds, more data or additional services, a higher allocation may be defensible.
Security systems
If your business increases your security needs or leads to higher home insurance premiums, the business-related portion of those costs is generally deductible. The key is being able to tie the expense directly to your business activities.
Client-facing homes
If clients regularly visit your home, it strengthens the business case for expenses such as:
- Coffee and refreshments
- Cleaning services
- Snow removal or yard maintenance
- Magazines or client-facing materials
These expenses should still be reasonable, but the business purpose is much easier to explain if you have at least two clients visiting per week.
Office supplies, furniture and renovations
Items used exclusively in a dedicated home office — desks, chairs, monitors, headphones, even plants — are typically 100% business expenses.
The more clearly an item is tied to your workspace, the easier it is to defend.
Garages and basements
If your business uses a garage or basement and that pushes your workspace well beyond typical home-office proportions, another option is to rent the space to your corporation. This allows you to claim home office expenses and shop rent separately.
In this case, the rental income must be reported on your personal tax return, but you can also deduct a portion of your home operating costs. When structured properly, this approach can be both reasonable and defensible.
Insurance increases
If your insurer charges more because you operate a home-based business, that increase is generally a 100% business expense, in addition to your regular home office allocation.
Cell phones: consistency is defensibility
Cell phones are one of the most common grey areas we see. For many business owners, claiming 50% of the monthly bill is a reasonable and defensible approach (unless you have two phones, one strictly for business and one for personal use).
If your business requires a more expensive plan due to travel, roaming or data usage, it may make sense to claim 50% of a baseline plan and 100% of the additional cost.
The CRA isn’t expecting minute-by-minute tracking. They’re looking for a consistent method that reflects reality.
Vehicle expenses: think in patterns, not just kilometres
Vehicle claims often attract attention because they’re easy to overstate. That’s why defensibility depends heavily on documentation.
Using a personal vehicle
If you use a personally owned vehicle for business, your corporation can reimburse you using the CRA’s per-kilometre rates. To support this, you’ll need a clean mileage log that distinguishes business trips from personal ones.
Mileage-tracking apps like MileIQ or a simple log template can make this much easier.
From an auditor’s perspective, modest claims with strong records tend to raise fewer questions than aggressive claims with weak support.
When the per-kilometre method makes sense
This method often works best when:
- Business kilometres are high
- Operating costs are low
- The vehicle isn’t particularly expensive
In other words, the math should reflect the vehicle you actually drive — not an idealized version of it.
When the corporation owns the vehicle
If your corporation owns the vehicle, leasing is often the cleanest approach. In some cases, buying out the vehicle personally at the end of the lease and reselling it can create an arbitrage opportunity.
It’s also reasonable for the corporation to cover necessary vehicle-related costs, such as:
- Fuel
- Repairs and maintenance
- Winter tires
- Occasional car washes
As always, the test is whether the expense aligns with actual business use.
Other common tax grey areas
A few other situations where defensibility matters:
- Transportation: Uber, taxis, ride shares or transit to business events are generally deductible, especially when meals or entertainment are also claimed.
- Credit card points: When personal cards are used for business, how many points can reasonably be used personally? I advise you to always use credit card points for personal benefits.
- Employee gifts: Up to $500 per year in non-cash gifts can be tax-free. Owners on payroll may also qualify.
- Meals with friends: If there’s a clear business purpose and you can explain it, the expense may be defensible.
- Conferences and travel: When trips combine business and personal time, a reasonable allocation is required.
- Tools with mixed use: If an item is purchased primarily for a business purpose — even if it has some personal benefit — the business may be the appropriate buyer.
In all cases, notes matter. Writing down who you met, where you went and why strengthens your position.
No-fly zones: where there is no grey
Some expenses are clearly non-deductible, regardless of context:
- Golf green fees and memberships
- The value of your own labour
- Expenses you were reimbursed for (including insurance claims)
- Regular clothing (unless it’s safety gear or a uniform)
Knowing these boundaries helps you focus on the areas that actually require judgment.
The bottom line
Defensible expense claims aren’t about pushing limits. They’re about making thoughtful decisions that reflect how you actually run your business, and about supporting those decisions with logic and documentation.
If an expense makes sense to a reasonable third party, you’re usually on solid ground. And if you’re unsure, it’s far easier to get clarity before filing than to explain things later.
If you have questions about your specific situation, we’re happy to help.
Read more about Corporate Tax topics that may be helpful to you and your small business.
