Home office: the conditions and how to calculate the deduction

For a self-employed worker, the home office is often one of the largest deductions, and one of the most often miscalculated. This article is about self-employed workers: employees working remotely follow different rules.

Two conditions, and one is enough

The workspace must meet one of these two conditions:

1. It is your principal place of business: you do most of your work there.
2. You use it only to earn your business income, and you use it to meet clients on a regular and continuous basis.

A graphic designer who works from home almost every day meets the first condition. A consultant who works mostly at client sites, but regularly receives clients in a room set aside for that purpose, meets the second.

Eligible expenses

Depending on whether you rent or own:

Repayment of your mortgage principal is not deductible.

Owners can also claim capital cost allowance (CCA) on the office portion of their home, but it is rarely a good idea: when the home is sold, that portion can trigger a taxable capital gain and recaptured depreciation.

Expenses that relate only to the office, such as painting the room, are fully deductible. Internet and phone are calculated based on their business use, not on floor area.

The calculation

You apply a reasonable proportion to your household expenses, usually the floor area:

Office area ÷ total area of the home

If the room is also used for something else, such as a guest room, you also take into account the number of hours it is used for the business.

An example

Camille rents a 100 m² apartment and uses a 12 m² office set aside for her work. The deductible share is 12%.

Limits to know

No loss created. The home office deduction cannot create or increase a business loss. If your income is too low to absorb it, the unused portion is carried forward to the next year, as long as the conditions are still met.

A rule specific to Quebec. Revenu Québec limits the deduction of certain home-related expenses. Your deduction on the TP-80 may therefore be smaller than on the T2125. Revenu Québec's guide IN-155 details the expenses concerned. If your deduction is significant, have it reviewed by a professional.

Where to report it

Federally, the deduction is calculated in the business-use-of-home section of form T2125, then carried to line 9945. In Quebec, it is reported on the TP-80.

In MKronos

The Home office module asks whether you rent or own, the area of the office and of the home, and calculates the deductible share. That percentage then applies to every expense classified as "home office". Settings are kept by year: moving does not change your past reports.

Official sources

• Canada Revenue Agency: business-use-of-home expenses
• Revenu Québec: expenses related to the business use of your home
• Revenu Québec: guide IN-155-V, Business and Professional Income

This article provides general information, current as of its publication date. It does not replace advice from a professional who knows your situation.