This page is for self-employed people (sole proprietors and partners) who work from a space in their own home and report business income on Form T2125. It covers the CRA’s two workspace tests, how to work out the business part, which costs owners and renters include, the income limit, and what claiming capital cost allowance (CCA) on your home means when you sell. Employees who work from home use a different set of rules and Form T2200: see the work-from-home deduction for employees. It is part of the self-employed taxes hub, and the full list of other deductible expenses is on self-employed tax deductions.
The rule
The CRA’s business-use-of-home expenses page and chapter 3 of Guide T4002 set it out:
A self-employed person can deduct business-use-of-home expenses only if the workspace is their principal place of business, or they use it only to earn business income and on a regular and ongoing basis to meet clients, customers or patients. Only the business part of costs such as heat, electricity, insurance, property taxes, mortgage interest and capital cost allowance is deductible, worked out on a reasonable basis such as the workspace's share of the home's area. The deduction can't be more than the business's net income before it, so it can't create or increase a business loss; any amount not deducted carries forward to the next fiscal period.In full, the conditions are:
- The workspace is your principal place of business, or
- you use it only to earn business income and on a regular and ongoing basis to meet clients, customers or patients.
- Only the business part of costs such as heat, electricity, home insurance, cleaning, property taxes, mortgage interest and capital cost allowance is deductible; a renter deducts the part of the rent and expenses that relates to the workspace.
- The business part is worked out on a reasonable basis, such as the workspace's area divided by the home's total area.
- For rooms used for both business and personal living, the business part is also reduced by the hours a day used for business divided by 24, and by the part of the week or year the business runs.
- The deduction can't be more than the business's net income before it, so it can't create or increase a business loss.
- Amounts you couldn't deduct carry forward to the next fiscal period, as long as one of the workspace conditions is still met.
- If you claim capital cost allowance on the business part of your home, the capital gain and recapture rules apply to that part when you sell.
The two workspace tests are alternatives: you need to meet one, not both. The “only to earn business income” condition is part of the second test, for a space where you regularly meet clients, customers or patients; the first test, as the CRA words it, asks only whether the workspace is your principal place of business.
Working out the business part
The CRA asks for a reasonable basis and gives the area of the workspace divided by the total area of the home as its example. Measure both the same way (square feet or square metres) and keep the measurements.
Owned home. A freelance designer works from a 200 sq ft room in a 1,600 sq ft house that is their principal place of business. The room is used only for the business, so the area share is the business part: 12.5%.
| Home expense for the year | Total cost | Business part |
|---|---|---|
| Heat | $1,800 | $225.00 |
| Electricity | $1,400 | $175.00 |
| Home insurance | $2,000 | $250.00 |
| Maintenance and cleaning | $1,500 | $187.50 |
| Mortgage interest | $18,000 | $2,250.00 |
| Property taxes | $5,500 | $687.50 |
| Total | $30,200 | $3,775.00 |
Rented apartment. A writer rents a 900 sq ft apartment for $24,000 a year with utilities included, and works from a 120 sq ft room used only for the business: 13.3% of the area.
| Home expense for the year | Total cost | Business part |
|---|---|---|
| Rent (utilities included) | $24,000 | $3,200 |
| Tenant insurance | $400 | $53 |
| Total | $24,400 | $3,253 |
Rooms you also live in. If the space is used for both business and personal living, the CRA has you work out the hours a day you use it for the business and divide by 24, then multiply the business part of your home expenses by that fraction. If the business runs only part of the week or year, you reduce the claim again.
A home daycare uses rooms making up 20% of the home’s area, 8 hours a day, 5 days a week, and the home’s eligible expenses are $10,000 for the year: $10,000 × 20% × 8 ÷ 24 × 5 ÷ 7 = $476.Which costs owners and renters can include
| Cost | Homeowner | Renter |
|---|---|---|
| Heating, electricity, home insurance, cleaning materials and other maintenance | Business part | Business part of any you pay |
| Rent | Not applicable | Business part |
| Mortgage interest | Business part | Not applicable |
| Property taxes | Business part | Not applicable |
| Capital cost allowance on the home | Business part, with the consequences below | Not applicable |
These all go on line 9945, using the “Calculation of business-use-of-home expenses” chart in Part 7 of Form T2125, and can’t be claimed again elsewhere on the form. Business phone and internet costs are not home expenses: they go on the utilities line and have their own rules, set out on self-employed tax deductions. Renovations that extend the useful life of the home or improve it beyond its original condition are usually capital expenses, not current ones.
The income limit and carry-forward
The deduction can’t be more than the business’s net income before you deduct it, so business-use-of-home expenses can’t create or increase a business loss. What you can’t deduct carries forward to the next fiscal period, as long as the workspace still meets one of the two tests, and the same limit applies there.
The designer above has net business income of $2,000 before home expenses, and $3,775 of business-use-of-home expenses.
| Item | Amount |
|---|---|
| Net income before business-use-of-home expenses | $2,000 |
| Business-use-of-home expenses for the year | $3,775 |
| Deductible this year (the lesser of the two) | $2,000 |
| Carried forward to next year | $1,775 |
CCA on your home and the principal residence exemption
Owners can include capital cost allowance on the business part of the home, but the CRA warns that the capital gain and recapture rules then apply to that part when you sell. Its principal residence folio (S1-F3-C2, paragraphs 2.59 and 2.60) says the CRA treats the whole property as keeping its nature as a principal residence, with no deemed disposition of the business part, only when all of these hold:
- the income-producing use is ancillary to the main use of the property as a residence;
- there is no structural change to the property; and
- no CCA is claimed on the property.
It names an office or other work space in the home used for a business as an example that can meet these conditions, and says that if you start claiming CCA on that part, the deemed disposition rule applies from the time the business use began. In practice, the choice is between a larger deduction now and part of the eventual gain on the home becoming taxable. The principal residence exemption guide explains how the exemption is calculated.
Records to keep
Keep the bills and statements behind each cost (utility bills, insurance, property tax notices, mortgage interest statements or your lease) and your measurements of the workspace and the whole home. If you rely on the client-meeting test, a record of those meetings supports it. The CRA’s general record-keeping rules are summarized on self-employed tax deductions.
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them on October 1, 2026. How we check facts.
- Canada Revenue Agency: Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 3
- Canada Revenue Agency: Business-use-of-home expenses