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If you run a business from home, you can deduct a share of your household costs, but only when the space is your main place of business or you use it only for work and meet clients there regularly. The deduction can cut your net business income, but it can’t create a loss.
Which home business tax deductions can you claim?
The CRA calls these business-use-of-home expenses, and you report them in Part 7 of Form T2125. Sole proprietors get a longer list than employees do. You may deduct a part of heating, home insurance, electricity and cleaning materials, plus property tax, mortgage interest and capital cost allowance. Renters claim a share of rent.
| Expense | Employee (T2200) | Self-employed (T2125) |
|---|---|---|
| Electricity, heat, water | Yes | Yes, a business share |
| Home insurance | No | Yes, a business share |
| Property tax | No | Yes, a business share |
| Mortgage interest | No | Yes, a business share |
| Capital cost allowance | No | Yes, with a catch on a later sale |
The catch is the last row, and we’ll come back to it below. If you’re an employee, stop here and read our page on home office expenses instead.
How do you work out your business share?
Use a reasonable basis. The CRA’s examples are the area of the workspace over the total area of the home, or, for a room that does double duty, the hours you use it for business divided by 24. If you only run the business part of the week or year, cut the claim to match.
A 12 square metre office in a 120 square metre home is 10%. Ten percent of $9,000 in yearly household costs is $900. That’s a simple case, and it’s the kind of arithmetic you should be able to show on paper.
Now a room that does double duty. Say a spare room is your workspace for 4 hours a day and a guest room the rest of the time. Four hours over 24 is about 16.7%, and if the room is 20% of the home’s floor area, the business share of the room is roughly 3.3% of the household costs (20% times 16.7%). The numbers are small, which is the point. The hours method keeps a part-time workspace honest.
What is a home business claim worth in tax?
Suppose you net $80,000 from a business in Ontario. The self-employed tax calculator puts income tax at $13,233.57 and CPP at $8,892.90, together $22,126.47.
Now take a $3,500 home office claim, so net income is $76,500. Tax falls to $12,128.84 and CPP to $8,612.90, together $20,741.74. The claim saves $1,384.73.
One thing to watch in that tool: put the home claim into net business income. Its separate deductions box lowers income tax but not CPP, which would understate the saving. The tool also leaves out GST/HST and instalments. The tax instalments calculator is the next stop if your tax bill is large.
What should you keep to back the claim up?
Hold on to the bills the share is based on: utilities, insurance, the property tax notice, rent receipts or mortgage interest statements. Add a simple sketch or note of the floor area and a log of the hours if you use the hours method. If the CRA asks, the question is rarely about the total. It’s how you got to the percentage.
Think of Dana, who edits video from a corner of her Regina apartment. Her rent receipts and a one-page note with the room measurements take ten minutes to pull together at tax time, and they answer most of what a reviewer would ask.
Where home business claims go wrong
The CRA says you can’t use these expenses to create or increase a business loss. If your claim is bigger than your net business income, the unused part carries forward to the next year.
Capital cost allowance is the trap. Claiming it on the business part of your home affects your principal residence exemption when you sell, so part of the gain may become taxable. Many people skip CCA for that reason. It’s a fair choice, and only you can make it after seeing the numbers in the capital gains tax calculator.
The other common slip is claiming a room you also use as a guest bedroom without counting the hours. And a spare corner of the living room doesn’t meet the test unless it really is your main place of business.
We haven’t covered GST/HST input tax credits on home costs, or incorporated businesses, where the rules differ. Check those on the CRA’s own pages.
Where the facts come from
The two eligibility tests, the expense list, the allocation methods, the loss limit, the carry forward and the capital cost allowance warning come from the Canada Revenue Agency‘s business-use-of-home page, read in September 2026. The tax figures are from our self-employed calculator with 2026 data. No government body has reviewed or endorsed what you read here.
Frequently asked questions
What home business tax deductions can I claim?
A business share of heat, electricity, insurance, property tax, mortgage interest and capital cost allowance, or of rent if you rent.
Who qualifies for business-use-of-home expenses?
Your home workspace must be your principal place of business, or used only for business and used regularly to meet clients.
How do I work out the business share?
The CRA suggests workspace area over total area. For a shared room, use business hours divided by 24.
Can the claim create a business loss?
No. The CRA says you can't use these expenses to create or increase a loss. Unused amounts carry forward.
Does claiming capital cost allowance matter when I sell?
Yes. It affects your principal residence exemption, so part of the gain may become taxable.
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