Business Use of Home Expenses: CRA Rules for the Self-Employed

Short answer: If you are self-employed, you can deduct part of your home costs when your workspace is your principal place of business, or when you use it only for the business and regularly meet clients there. You claim a reasonable share, usually the office’s floor area divided by your home’s total area, of costs such as rent, heat, electricity, home insurance, maintenance, property taxes and mortgage interest. The claim cannot create or increase a business loss, but anything you cannot use carries forward to next year. Employees follow a different, narrower route with Form T2200 and Form T777.

These are the Canada Revenue Agency (CRA) rules for sole proprietors, freelancers and contractors claiming on Form T2125 for the 2026 tax year. They are set out on the CRA’s business-use-of-home expenses page. Where the claim sits on the form is covered in Form T2125 explained, and the rest of your deductions in self-employed expenses and receipts.

Who can claim business-use-of-home expenses?

You can claim if your home workspace meets at least one of two conditions: it is your principal place of business, or you use it only to earn business income and use it on a regular and continuous basis to meet clients, customers or patients.

• Principal place of business. This is the usual route for freelancers who work from home: a designer, bookkeeper or developer whose business is run from a spare room or a corner of the living room. The space does not have to be used only for work under this test, but a shared space reduces the claim, as the next section shows.
• Exclusive use plus regular client meetings. This test is for people with another place of business who also see clients at home, such as a therapist who meets patients in a dedicated room. Occasional meetings are not enough. The room must be used for nothing else.

Where a business is mostly carried on away from home, as for a tradesperson who works at client sites, whether the home office is the principal place of business depends on the facts. The CRA’s Income Tax Folio S4-F2-C2 discusses how it looks at those cases. If you are not sure you count as self-employed at all, contractor vs employee in Canada comes first.

How do you calculate the business-use-of-home percentage?

Divide the workspace’s area by the total finished area of your home; if the space is also used personally, multiply that by the hours of business use divided by 24.

The CRA asks for a reasonable basis, and area is the standard one. If you work in a shared space only on some days of the week, or ran the business for only part of the year, scale the claim down again.

Situation	Calculation	Business share
120 sq ft office used only for work, in a 900 sq ft apartment	120 ÷ 900	13.33%
150 sq ft dining room used 8 hours a day, 5 days a week, in a 1,500 sq ft house	150 ÷ 1,500 × 8 ÷ 24 × 5 ÷ 7	2.38%

The second line shows why a dedicated room is worth having: sharing the space cut the claim to under a quarter of the 10% the same room would give as a full-time office.

Which home expenses can you claim?

You can claim the business share of the costs of running the home, and, if you own it, the business share of property taxes, mortgage interest and capital cost allowance (CCA).

Expense	Renter	Owner
Rent	Yes	–
Heat, electricity and water	Yes, if you pay them	Yes
Home or tenant insurance	Yes	Yes
Maintenance and cleaning materials	Yes	Yes
Property taxes	–	Yes
Mortgage interest	–	Yes (interest only, never principal)
CCA on the building	–	Possible, but usually unwise (see below)

Rent for a workspace in your home always goes through this calculation rather than on the T2125’s rent line, and utilities that relate to the home workspace belong here too, not on line 9220. That same line also rules out the basic monthly rate of a home landline; a cell phone plan used for work is claimed separately, for its business share.

Two things never qualify: the principal part of mortgage payments, and the personal share of any cost. Furniture and equipment you buy for the office are capital purchases, claimed through CCA on their own class, not as home expenses.

Worked example: how much can a renter and an owner claim?

Here are two 2026 claims, one for a renter and one for a homeowner.

Aisha, freelance designer, renting in Toronto. Her second bedroom is a 120 sq ft office used only for work, in a 900 sq ft apartment, so her share is 13.33%.

Cost for 2026	Amount	Business share (13.33%)
Rent ($2,600 a month)	$31,200	$4,160
Electricity	$1,200	$160
Tenant insurance	$300	$40
Total	$32,700	$4,360

Daniel, bookkeeper, owning a house in Ottawa. He has a 200 sq ft basement office used only for work, in a 2,000 sq ft house, so 10%.

Cost for 2026	Amount	Business share (10%)
Heat	$1,800	$180
Electricity and water	$1,600	$160
Home insurance	$1,400	$140
Property taxes	$4,800	$480
Mortgage interest (not principal)	$9,000	$900
Maintenance and minor repairs	$1,000	$100
Total	$19,600	$1,960

Both deductions lower income tax and CPP, because both are calculated on net self-employment income. Below the 2026 CPP ceiling of $74,600, each dollar of home office claim saves 11.9% in CPP on top of the income tax at your marginal rate, as CPP for the self-employed explains.

What happens if your home office expenses are more than your business income?

You can only deduct business-use-of-home expenses up to your net business income before them; the rest carries forward to the next year.

The rule stops the home office from creating or increasing a loss. The CRA’s calculating business-use-of-home expenses page walks through Part 7 of the T2125, which works out the amount you can deduct this year and the amount available to carry forward.

Example: Aisha starts freelancing in 2026 and earns only $1,500 of net income before her home office claim. She deducts $1,500, bringing her business income to zero, and carries the other $2,860 forward. In 2027, she adds that $2,860 to her 2027 home office expenses and can deduct the total, again up to that year’s business income. Keep a note of the carry-forward with your return, because next year’s software only knows about it if you enter it.

Should you claim CCA on your home?

Usually not: CCA on the business part of your home is allowed, but it can cost you when you sell.

If you claim CCA on the building, the business part may stop being treated purely as your principal residence, and recapture and capital gains rules can apply on sale. The CCA saved each year is often small next to that. Most sole proprietors leave it unclaimed and stick to running costs, property taxes and mortgage interest. If you are thinking about it, ask an accountant before you file.

How is this different from the employee home office (T2200) claim?

Employees claim through a separate set of rules: they need a signed Form T2200 from their employer, must meet their own test, and can claim fewer kinds of costs.

	Self-employed	Salaried employee
Form	T2125, Part 7, line 9945	T777, with a T2200 signed by the employer
Eligibility test	Principal place of business, or exclusive use plus regular client meetings	Worked from home more than 50% of the time for at least four consecutive weeks (or the client-meeting test)
Rent, utilities, maintenance	Yes	Yes
Home insurance and property taxes	Yes	No (commission employees: yes)
Mortgage interest	Yes	No
CCA on the home	Possible	No

The employee rules are on the CRA’s pages for the detailed method and the expenses employees can claim. If you have a job and a side business, you cannot claim the same room and the same costs twice: split them on a reasonable basis between the two claims.

What records do you need for a home office claim?

Keep the measurements, the year’s bills, and a short note on how and when the space is used, for six years.

That means a floor plan or measurements of the office and of the whole home, the lease or mortgage interest statement, utility and insurance bills, the property tax bill, maintenance receipts, and, for a shared room, a record of the hours you work there. The home office is calculated rather than receipted, so these documents are the only proof the percentage is reasonable. The general rules are in self-employed expenses and receipts, and the rest of the series is on the Canada guides hub.

…and where does Keel fit?

Keel does not work out your business-use-of-home percentage, fill in Part 7 of the T2125 or connect to the CRA. Keel: Invoice Maker & Receipts, an iPhone app by Ilura Technology, keeps the records around it: your invoices, receipts and expenses, such as the monthly hydro bill or a repair to the office, each kept with the job or business it belongs to, plus business mileage. Records stay on your iPhone with no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected.”

Keel is free with no invoice limit; free invoices carry a small “Made with Keel” footer. Keel Lifetime is a one-time purchase ($249.99 USD; the App Store shows your local price) that adds custom branding, a signature, premium templates and accountant-ready exports and advanced reports. Keel: Invoice Maker & Receipts on the App Store.

Frequently asked questions

Can I claim home office expenses if I rent? Yes. If your workspace meets one of the two CRA conditions, you claim the business share of your rent, plus utilities you pay, tenant insurance and maintenance. Rent for a home workspace goes through the business-use-of-home calculation in Part 7 of the T2125, not on the rent line. You cannot claim property taxes or mortgage interest, because you do not pay them.

What percentage of my home can I claim as a home office? Whatever share is reasonable for your space, usually its floor area divided by the home’s total finished area. A dedicated 120 sq ft room in a 900 sq ft apartment is 13.33%. If the room is also used personally, multiply by the hours of business use divided by 24, and scale down again for days or months you did not work there.

Is there a flat rate for home office expenses if I’m self-employed? No. The temporary flat rate method was only for employees, and it ended after the 2022 tax year. Self-employed people have always worked out the claim from actual costs and a reasonable percentage, and they keep the bills to support it.

Can I deduct my mortgage payments? Only the interest part, and only the business share of it. The principal you repay is never deductible. Property taxes and home insurance are also claimable by owners, in the same proportion.

Can I claim business use of home if my business made a loss? Not this year. Business-use-of-home expenses cannot create or increase a loss, so if your business income before them is zero or negative, you claim nothing now. The full amount carries forward and can be deducted in a later year against income from the same business.

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This article is general information, not tax advice. Consult a qualified accountant or tax professional.