What to take away
- Your workspace must be your principal place of business, or used only for earning business income and regularly meeting clients, customers or patients.
- Claim a reasonable share of household costs, such as workspace area divided by total home area, and keep the working papers.
- The claim cannot create or increase a business loss, but unused amounts can be carried forward to a later year.
- Claiming capital cost allowance on your home can bring capital gain and recapture rules into play when you sell it.
Who can claim business-use-of-home expenses
The deduction is for people who report business or professional income on Form T2125, such as sole proprietors and many freelancers and contractors. The CRA allows a claim for a workspace in your home if you meet one of two conditions. Either the space is your principal place of business, or you use it only to earn business income and use it on a regular and ongoing basis to meet clients, customers or patients.
Working from the kitchen table now and then will not usually meet the test on its own, and a spare room used mostly for the family but occasionally for invoicing is a weak position. If your business is run mainly from home because you have no other premises, the principal-place-of-business condition is often the relevant one. If you are unsure which condition applies, describe how and how often you use the space before you file.
How the area-based calculation works
The CRA asks for a reasonable basis, and gives the example of the area of the workspace divided by the total area of your home. You then apply that share to the household costs that qualify. Measure both areas, write the figures down with the date, and use the same method each year unless your situation changes.
If a room serves both business and personal living, the CRA’s approach is to work out how many hours a day the room is used for business, divide that by 24, and multiply by the business part of your home expenses. If you operate for only part of the week or part of the year, you reduce the claim accordingly. A dedicated office that nobody else uses is simpler than a shared room, and the records are easier to defend.
An illustrative example
The numbers below are round and for illustration only. Suppose your home is 100 square metres and your dedicated office is 10 square metres, so the workspace is 10 per cent of the home. Your qualifying household costs for the year are $12,000 in total, made up of heat, electricity, home insurance, property tax and similar items. Ten per cent of $12,000 is $1,200.
Now suppose your business net income before this claim is $900. The claim is limited to $900 for the year, and the remaining $300 is carried forward. In the next year, if you incur $1,300 of new business-use-of-home costs and your net income before the claim is $5,000, you can deduct the lesser of $1,600 (the $300 carried forward plus the $1,300) and $5,000, which is $1,600. Your own result depends on your costs, your area and your net income.
Which costs are generally eligible
The CRA names maintenance-type costs such as heat, electricity, home insurance and cleaning supplies. A share of your property taxes and mortgage interest can also be included, along with capital cost allowance if you choose to claim it. If you rent your home, you can deduct the part of the rent and related expenses that relate to the workspace.
Keep bills and statements for each cost you include, and use only the portion that relates to the workspace. Costs you claim on this line cannot also be claimed elsewhere on Form T2125, so list each item once. Other business costs, such as software or equipment, are not part of this pool, and the business expenses page on canada.ca is the place to check where each belongs.
Why claiming CCA on your home is usually avoided
Capital cost allowance lets you deduct part of the cost of a building over time, and the CRA does allow it for the business-use part of your home. The trade-off is on sale. The CRA says the capital gain and recapture rules apply if you deduct CCA on the business-use part and later sell your home.
Many people avoid the claim because it can bring a taxable capital gain or recapture into the sale of the home. Weigh the yearly deduction against that possible cost on sale. This is a decision to make with an accountant, who can compare the numbers for your property and your plans.
The loss restriction and carry-forward
The CRA limits the deduction to your net income from the business before these expenses. In other words, business-use-of-home expenses cannot be used to increase or create a business loss. For the year, you deduct the lesser of two amounts: what you carried forward plus the current year’s expenses, or your net income after adjustments.
Anything you cannot deduct is not lost. In your next fiscal period you can use it, as long as you still meet one of the two conditions, and the same rules apply. Form T2125 has a calculation section for this, so keep a running record of the unused balance from year to year, especially in a year when income is low.
Records to keep and common mistakes
Keep the floor-area measurements or a simple plan, a note of how the space is used and the hours if it is shared, and every bill that feeds the pool. Records should support a reasonable basis if the CRA asks. The business records page on canada.ca explains the general expectations.
Common mistakes include claiming the whole home’s costs, claiming a room that is mostly personal, double-counting an item on another line, forgetting to prorate for part-year or part-week use, and ignoring the loss limit.
If you are an employee instead
Employees who work from home use a different process, which involves a form signed by the employer and different claim rules. It does not run through Form T2125. Our guide on working from home as an employee covers Form T2200 and Form T777.
If you are not sure whether you are an employee or self-employed, resolve that first, since the answer decides which process applies. Our employee or contractor tool and the CRA’s guidance on the topic are a reasonable starting point.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- Business expensesCanada Revenue Agency
- Claiming capital cost allowanceCanada Revenue Agency
- Business recordsCanada Revenue Agency
- Business-use-of-home expensesCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.