Home Office Deduction Canada: What You Can Claim

If you run your business from home — whether you're self-employed, a sole proprietor, or a consultant working out of a dedicated room — the CRA allows you to deduct a portion of your home expenses against your business income. Many business owners either miss this deduction entirely or calculate it incorrectly. Here's exactly how it works.

The Basic Eligibility Rule

To claim home office expenses on your T1 personal return (Form T2125), your home must be your principal place of business OR you must use it exclusively and on a regular and continuous basis for meeting clients, customers, or patients. You don't need a room that is used 100% for business — "exclusively" applies to the meeting-clients test, not the principal place of business test.

In plain terms: if you work from your home the majority of the time (more than 50% of your work hours), you qualify as the principal place of business even if your workspace also doubles as a guest room or general area.

How to Calculate the Business Use Percentage

The deductible portion of your home expenses is based on the business use percentage of your home. The CRA accepts two calculation methods:

Method 1 — Area (Most Common)

Divide the square footage of your workspace by the total square footage of your home.

Example: Your home is 1,200 sq ft. Your dedicated office is 120 sq ft. Business use percentage = 10%.

Method 2 — Number of Rooms

Divide the number of rooms used for business by the total number of rooms in the home.

Example: You use 1 out of 8 rooms. Business use percentage = 12.5%.

If the workspace is also used for personal purposes part of the time, you must further reduce the percentage to reflect actual business use. The CRA expects you to be reasonable and consistent year over year.

What Expenses Can You Deduct?

Once you have your business use percentage, apply it to your eligible home expenses. What's deductible depends on whether you rent or own your home.

If You Rent

• Rent payments
• Heat, electricity, and water (utilities)
• Internet (if not already claimed as a direct business expense)
• Home insurance (the portion applicable to the workspace)
• Maintenance and minor repairs

If You Own

• Heat, electricity, and water
• Internet
• Home insurance
• Maintenance and minor repairs
• Property taxes
• Mortgage interest is NOT deductible for sole proprietors (unlike corporations)
• Mortgage principal is NOT deductible
• Capital Cost Allowance (CCA/depreciation) on the home is technically allowed but strongly discouraged — it can trigger a capital gain on the principal residence exemption when you sell

Expenses You Cannot Deduct

• Mortgage principal payments
• Home renovations or capital improvements (these are capital expenditures, not current expenses)
• Landscaping or lawn care (not related to the workspace)
• Cable TV subscriptions

What Records Do You Need?

Keep all receipts and invoices for the home expenses you're claiming, including utility bills, property tax notices, insurance premiums, and rent receipts. You should also document the size of your home and workspace — a sketch or floor plan with measurements is helpful if the CRA ever questions your calculation.

The CRA can request this documentation as part of a review or audit, and the burden of proof is on you to demonstrate that the deduction is reasonable and correctly calculated.

Comparison: Sole Proprietor vs. Incorporated Business