Business-Use-of-Home Expenses for Self-Employed Canadians
If you work from home as a self-employed Canadian, you can deduct part of your household expenses on your T2125 form. This reduces your taxable income and the amount of tax you pay. Here's how to do it right.
Who Can Claim Business-Use-of-Home Expenses
You qualify if your home workspace is either:
- Your principal place of business (where you mainly work), or
- Used exclusively for earning business income and used regularly to meet clients or customers
The CRA is strict about the "exclusively" rule. If your dining table doubles as a desk, you can't claim that space. But a spare bedroom used only for your business qualifies.
Which Expenses You Can Claim
You can deduct a portion of expenses you're already paying for your home:
- Rent (if you rent your home)
- Property taxes (if you own)
- Home insurance
- Electricity and heating
- Water
- Maintenance and repairs that affect the whole home
- Internet and phone (the business portion)
You cannot claim mortgage principal payments. You can claim mortgage interest if you own your home, but most self-employed people avoid this because it can trigger capital gains tax when you sell.
Calculating Your Business Percentage
You need to determine what percentage of your home you use for business. The most common method is by area:
Business percentage = (Area of workspace ÷ Total home area) × 100
Alternatively, if all rooms are roughly the same size, you can use the number of rooms:
Business percentage = (Number of business rooms ÷ Total rooms) × 100
Once you have your percentage, apply it to your eligible home expenses.
Worked Example
Sarah is a freelance graphic designer who lives in a rented apartment in Ontario. Here are her details:
- Total apartment size: 800 square feet
- Home office size: 120 square feet
- Annual rent: $18,000
- Annual utilities (heat and electricity): $1,800
- Annual home insurance: $600
- Annual internet: $840
Step 1: Calculate business percentage
120 ÷ 800 = 0.15 or 15%
Step 2: Calculate business portion of shared expenses
- Rent: $18,000 × 15% = $2,700
- Utilities: $1,800 × 15% = $270
- Insurance: $600 × 15% = $90
Step 3: Calculate business portion of internet
Sarah uses internet 80% for business, 20% personal: $840 × 80% = $672
Total business-use-of-home deduction: $2,700 + $270 + $90 + $672 = $3,732
Sarah reports this amount on her T2125 form in the business-use-of-home section. This reduces her net business income by $3,732.
Important Limits
You cannot use business-use-of-home expenses to create or increase a business loss. If your business expenses already exceed your income, you can't claim home expenses. However, you can carry them forward to the next year when you have income to offset.
Record-Keeping
Keep all receipts and records for home expenses, even though you're only claiming a portion. The CRA may ask to see:
- Rent receipts or property tax bills
- Utility bills
- Insurance statements
- A floor plan or measurements showing your workspace
Keep these records for at least six years after you file your tax return.
Where to Report on T2125
Business-use-of-home expenses go in Part 7 of Form T2125. You'll list each type of expense and the business portion separately. The CRA provides detailed lines for rent, insurance, taxes, utilities, and other expenses.
For more details on eligibility and calculation methods, visit the CRA's business-use-of-home expenses page.
You can also use the home office deduction calculator to estimate your eligible deduction quickly.
PlanTaxes.Pro helps you track receipts, calculate your business-use-of-home percentage, and prepare your T2125 without the headache of manual calculations.
This article is general information, not tax or legal advice.