Are Commercial Insurance Premiums Tax Deductible in Canada?

What Business Insurance Premiums Are Tax Deductible in Canada?

The rule is the general one in the Income Tax Act – you can deduct any reasonable current expense you incur to earn business income. 

According to the Canada Revenue Agency (CRA), small business owners can write off commercial insurance premiums that protect your operations, assets, and income, including: 

• Commercial Property Insurance protecting buildings, offices, or retail spaces.
• Tools and Equipment Insurance your business uses in its daily operations.
• Commercial General Liability (CGL) Insurance that protects owners against third-party bodily injury or property damage claims.
• Professional Liability Insurance (E&O Insurance) that covers consultants, accountants, and other professional service providers.
• Business Interruption Insurance to cover lost income and operating expenses following an insurable business property loss.
• Cyber Liability Insurance to cover losses and damages resulting from a cyberattack or data breach. 
• Product Liability Insurance to cover third-party bodily injury or property damage claims caused by any product you manufacture, distribute, or sell.

The general rule of thumb is any money you spend running your business is considered a business expense that you can deduct on your annual tax return. The key to doing so successfully requires keeping accurate records and receipts of your expenses and income throughout the year.

Where Do You Claim Business Insurance Premiums on Your Tax Return?

Sole proprietors and self-employed professionals claim most commercial premiums on line 8690 of Form T2125.

Two policies go elsewhere: commercial auto insurance is claimed under motor vehicle expenses on line 9281, and the business portion of your home insurance goes on line 9945 with your other business-use-of-home costs. Incorporated businesses simply book the premium as an operating expense on the T2. 

Are Home-Based Business Insurance Premiums Tax Deductible in Canada?

If you have a home-based business that is your principal place of business, and you buy commercial general liability insurance, professional liability insurance (E&O insurance), business contents, business interruption, or cyber liability coverage, it’s considered a business expense, and is deductible.

Running your business out of a spare bedroom doesn’t dilute the deduction at all. The policy exists solely to protect the business, so it’s fully attributable to earning business income.

Regardless of tax deductions, be aware a standard home policy isn’t built for a business. If you‘re operating a small business from home, consider getting a home-based business insurance policy to ensure you‘re adequately covered. 

Are Commercial Insurance Premiums on Business Vehicles Tax Deductible?

Yes. Commercial auto insurance is deductible in proportion to how much you use the vehicle for business. If you drive 30,000 kilometres in a year and 21,000 of them are business-related, 70% of your premium is deductible. A vehicle used exclusively for business, like a plumber’s cube van that never runs personal errands, is 100% deductible. 

The key to claiming these deductions successfully is to maintain comprehensive records for every business-related journey, noting the date, location, purpose, and total distance travelled. Keep a log of your vehicle’s odometer reading at the start and end of each fiscal year. Also, ensure you retain all receipts for additional costs, such as fuel and maintenance, as the CRA requires proof of these expenditures in the event of an audit. 

Of note: Driving or commuting from home to a regular place of work is personal, not business-related. But for contractors and tradespeople whose home is the base of their operations, the trip to a job site generally counts as a tax deductible expense.

Common Business Expenses That Are Tax Deductible in Canada

The CRA states a self-employed business owner can deduct any reasonable expense they incur to earn income or run their businesses. Some of the most common expenses owners can deduct include:

• Commercial Insurance: You can deduct annual commercial insurance premiums paid for any buildings, machinery, and equipment you regularly use in your business. 

• Business Supplies: Items the business uses to provide goods or services, like medication used by a veterinarian or cleaning supplies used by a janitor or custodian. 

• Delivery or Freight Expenses: Costs incurred in the year of delivery, freight, and express that relates to your business. 

• General Office Expenses: You can deduct the cost of office expenses that are generally not related to your workspace, such as pens, pencils, paper clips, stationery, and stamps. 

• Commercial Rent Expenses: Rent incurred for property used in your business. For example, you can deduct rent for the land and building where your business is located. 

• Telephone, Internet, and Utilities Costs: A portion of your business telephone and internet expenses, and utilities such as gas, oil, electricity, water, and cable, if incurred to earn business income may be tax deductible.

• Advertising Fees: Advertising costs are deductible, including digital advertising and ads in Canadian newspapers and on Canadian TV and radio stations. Ads placed with a foreign broadcaster and directed mainly at a Canadian market aren’t deductible. 

• Professional Fees: Costs a business owner incurs for external professional advice, services and consulting. That includes accounting and legal fees for advice, and expenses related to preparing and filing income tax and GST/HST returns.
• Hired Contractors: A business owner can deduct the cost of hiring an independent contractor for a business-related purpose, such as a freelance writer or web designer. 

• Meals and Entertainment: You can claim 50% of the lesser of what you actually paid and an amount that’s reasonable in the circumstances. That includes meals while travelling or attending a business convention. 

• Home Offices: You can deduct a prorated share of heat, electricity, insurance, maintenance, property taxes, and mortgage interest if your home workspace is your principal place of business, or is used exclusively for business and regularly to meet clients. 
• Vehicle Expenses: You can deduct the business-use portion of fuel, insurance, maintenance, licence and registration fees, lease costs, and loan interest. The percentage is based on business kilometres divided by total kilometres, supported by a logbook. 

What Business Expenses Are Not Tax Deductible in Canada?

Not all business-related expenses are considered tax deductible by the CRA, including:

• Fines and penalties – parking tickets, bylaw violations, regulatory penalties, and interest charged on late tax payments
• Club membership dues where the club’s main purpose is dining, recreation, or sporting activities
• The personal portion of anything mixed-use: your cell phone, internet, and vehicle
• Capital purchases like laptops, machinery, and furniture – these are recovered over time through capital cost allowance instead of deducted in one year
• The value of your own labour for repairs and maintenance
• Commuting between home and a regular workplace
• Personal expenses – clothing you’d wear anyway, haircuts, groceries, gym memberships
• Life insurance premiums, with a narrow exception when a policy is assigned as collateral for a business loan

If you can’t document it with a receipt, or it isn’t clearly connected to earning business income, it likely isn’t deductible. 

Do You Pay GST/HST on Commercial Insurance Premiums?

No. Insurance premiums are an exempt financial service, so there’s no GST/HST charged on your policy and no input tax credit to claim. What you may see instead is a provincial insurance premium tax. For example, Ontario applies 8% retail sales tax to certain policies, including group benefits, and that forms part of your deductible cost.

This one causes real bookkeeping confusion. Don’t go looking for HST on your insurance invoice, and don’t back an amount out of the premium when you record it.

Does Commercial Insurance Cover CRA Tax Audits or Disputes?

The CRA may audit a small business based on its risk assessments that look at a range of factors, like the likelihood of errors in a tax return, signs of non-compliance, or unusual patterns in reported income.   

There is no commercial insurance that shields an owner from an assessment or audit. But some legal expense insurance policies include coverage for professional fees to respond to a CRA audit or dispute an assessment. Coverage varies by policy, so check the wording or speak to an insurance broker before you assume you’re protected.

Frequently Asked Questions About Tax Deductible Insurance Premiums in Canada

Are commercial insurance premiums tax deductible in Canada?

Yes. Commercial insurance premiums are a deductible business expense because they’re a reasonable cost incurred to earn business income. That covers commercial general liability, professional liability and errors and omissions, commercial property, business interruption, cyber liability, product liability, and tools and equipment coverage. If the policy exists to protect the business, the premium comes off your taxable income.

Is commercial auto insurance tax deductible?

Yes, but only in proportion to your business use of the vehicle. For instance, if you drive 30,000 kilometres in a year and 21,000 of them are for business, then 70% of the premium is deductible. A vehicle used exclusively for business is fully deductible. 

What insurance premiums are not tax deductible?

Life insurance premiums generally aren’t deductible, with a narrow exception when the policy is assigned as collateral for a business loan. Key person life insurance premiums aren’t deductible either, though the death benefit is typically received tax-free. 

Can I deduct commercial insurance premiums if my business lost money this year?

Yes. Commercial insurance premiums are an ordinary business expense, so they reduce your income even when that pushes you into a loss. Consult a tax expert or accountant to ensure you are claiming tax deductions accurately.

Note: We recommend all business owners and self-employed professionals consult with a tax expert or accountant to ensure they maximize their returns while meeting their tax requirements.

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