Updated Checked by the Tax-Services.ca editorial team How we check
If you run a business from home, you can deduct the business share of costs like heat, electricity, insurance, property tax and mortgage interest. The CRA lets you claim business use of home expenses in one of two cases: the space is your main place of business, or you use it only for work and meet clients there regularly.
Which of the two tests do you meet?
Most people who claim a home office pass the first one. The space is where you actually do the work and you have no other office. A freelance designer at a spare-room desk is the classic case.
The second test is narrower. The room has to be used only to earn business income, and clients, customers or patients have to come there on a regular, ongoing basis. A kitchen table that doubles as your desk won’t pass it, and a room where the kids do homework won’t either.
Not sure which side of the line you’re on? Picture the spare room gone: would you have to rent an office? If so, you’re probably fine on the first test.
How do you work out the business share?
The usual method is by area. Divide the square footage of the workspace by the square footage of the whole home. An office of 180 square feet in a 1,800 square foot home is 10%.
The CRA also describes a time method for a room that has a mixed use. You count the hours a day the room serves the business, divide by 24, and apply that fraction to the business part of your home costs. Pick one method that fits the facts and keep the same one from year to year, so your records don’t argue with each other.
Which home costs can go on the claim?
The table below follows what the CRA lists for the home-business part of your costs.
| Cost | Business share allowed? |
|---|---|
| Heat, electricity, home insurance, cleaning supplies | Yes |
| Property tax | Yes |
| Mortgage interest | Yes |
| Capital cost allowance on the home | Allowed, but risky (see below) |
| Mortgage principal | Not listed as deductible |
Keep the bills. You don’t send them in with your return, but if the CRA asks, you need to show the total and how you split it.
What is a business claim worth?
Take a sole proprietor in Ontario with $60,000 of net business income before home costs. Say the home costs come to $12,000 a year and the office is 10% of the space. The claim is $1,200.
Put those numbers in the self-employed tax calculator. With no deduction, income tax comes to $7,879.42. With the $1,200 deduction it drops to $7,601.62, so the claim saves $277.80. That’s about 23 cents for every dollar you claim at this income.
It’s a modest saving. It’s still real money, and it repeats every year. Note that the calculator treats deductions as lowering income tax, so we can’t say from it what happens to your CPP. Check the CPP figure on your own return.
What are the limits and mistakes?
The biggest limit is that home costs can’t create or increase a loss. The CRA says the claim can’t be more than your net business income before these expenses. Anything you can’t use carries forward to the next year, as long as you still meet the conditions.
The costly mistake is claiming capital cost allowance. The CRA warns that if you deduct it on the business part of your home, the capital gain and recapture rules apply when you later sell. That can put tax on a house that would otherwise be sheltered as your main home. For most people the extra deduction isn’t worth it. You can leave it out and still claim everything else.
Other slips are easy to avoid. Don’t claim the whole home. Don’t claim mortgage principal. Don’t claim a room that also serves as a bedroom. And keep your area measurements written down, since a claim with no working looks like a guess.
If you collect GST/HST, the tax on business costs is a separate matter. The GST/HST calculator splits a price into tax and net amount. Expect to pay in instalments if your tax bill is high, and the tax instalments calculator shows what that could look like. For your whole picture with other income, use the income tax calculator.
Where the numbers come from
The rules above come from the Canada Revenue Agency page on business-use-of-home expenses for form T2125, checked in September 2026. Tax figures in the example come from our own 2026 Ontario and federal tax tables. We didn’t cover employees who work from home, since they follow a different set of rules.
Frequently asked questions
Can I claim a home office if I have a job?
This page covers self-employed people filing form T2125. Employees follow different rules that we did not check here.
Do I use area or time to split costs?
Area is the usual way: workspace divided by total home. The CRA also describes a time method for rooms with mixed use.
Can I claim mortgage payments?
Mortgage interest is allowed in the business share. Mortgage principal is not listed as deductible.
What if my home costs are bigger than my profit?
The claim can't exceed net business income before these costs. The unused part carries forward to next year.
Should I claim capital cost allowance?
Often not. Claiming it can bring capital gain and recapture rules into play when you sell the home.
- Property and tax in Canada: buying, owning and selling
How property tax and transfer tax apply when you buy, own, rent out or sell a home in Canada, with the calculators for each step
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.