Claiming Business-Use-of-Home Expenses

Introduction
Understanding claiming business-use-of-home expenses is essential for self-employed individuals, freelancers, consultants and incorporated professionals who operate part of their business from home. Working from home has become more common, and many taxpayers are unsure which expenses qualify, how much they can deduct, and what CRA and Revenu Québec require for compliance. Home office tax rules differ depending on whether you are self-employed, incorporated or an employee. Because claiming business-use-of-home expenses reduces taxable income, these deductions are frequently reviewed during CRA audits. Incorrect claims, vague calculations or missing documentation can lead to reassessments. This guide provides a full explanation of the home office deduction Canada rules, eligibility criteria and best practices for accurate and compliant reporting.

Legal and Regulatory Framework
Claiming business-use-of-home expenses falls under the Income Tax Act and Québec’s Taxation Act. To qualify for business-use-of-home expenses as a self-employed individual, at least one of the following must apply:

• the workspace is your principal place of business, or
• the workspace is used exclusively to earn business income and regularly used to meet clients, customers or patients

Eligible expenses for claiming business-use-of-home expenses include:

• electricity, heat, water, and utilities
• maintenance and minor repairs
• home insurance (portion)
• mortgage interest (self-employed only, not employees)
• property taxes
• rent (if renting)
• internet (portion)
• condo fees (portion)

Expenses such as mortgage principal, capital improvements and personal-use costs are not deductible.

Home office deductions are calculated based on a reasonable allocation, usually by dividing the workspace area by the home’s total finished square footage. Québec applies parallel rules through RL-1 business statement calculations for provincial returns. Claiming business-use-of-home expenses is allowed only up to business income; any unused amounts carry forward.

Key Court Decisions
Courts have issued important rulings on claiming business-use-of-home expenses. Key themes include:

• taxpayers must prove exclusive business use if claiming the exclusive-use rule
• living rooms or kitchens rarely qualify due to mixed use
• mortgage interest is deductible only for self-employed business use—not for employees
• square-footage calculations must be reasonable and supported by documentation
• expenses must be incurred to earn income—not for personal convenience

Several rulings confirmed that if a workspace is used only occasionally or casually, it does not meet CRA’s definition of regular or exclusive business use. Québec courts have similarly ruled against vague or unsupported home office claims. These interpretations reinforce the importance of solid documentation when claiming business-use-of-home expenses.

Why CRA Targets This Issue
The CRA frequently examines claiming business-use-of-home expenses because:

• many taxpayers claim ineligible space
• some claim unrealistic square footage
• mortgage interest is often incorrectly included
• personal-use rooms are claimed as business space
• receipts and documentation are often missing
• home office deductions are used to create artificial losses

CRA auditors may request floor plans, utility bills, photographs, lease agreements, and proof of client meetings at home. Revenu Québec applies similar scrutiny through home office allocation rules on RL-1 filings. Claiming business-use-of-home expenses requires precise and defensible calculations.

Mackisen Strategy
Mackisen CPA provides a structured and accurate approach to claiming business-use-of-home expenses. Our methodology includes:

• verifying eligibility rules based on CRA criteria
• calculating square-footage allocations that withstand CRA review
• separating personal and business-use areas
• determining allowable percentages for utilities, property taxes, insurance and rent
• reviewing mortgage interest to ensure proper claims
• building year-end summaries of home office expenses
• ensuring unused expenses are carried forward correctly
• integrating home office deductions with GST/QST filings, when applicable
• reviewing incorporated businesses for employee-home-office compliance

Our goal is to ensure claiming business-use-of-home expenses is done correctly, defensibly and tax-efficiently.

Real Client Experience
Many taxpayers come to Mackisen after CRA reviews related to claiming business-use-of-home expenses. One self-employed consultant claimed 60% of their home as office space, which CRA flagged as unreasonable. Mackisen recalculated the correct 18% allocation, corrected filings and prevented penalties.

Another Québec freelancer improperly deducted mortgage principal instead of interest. We fixed the return and avoided reassessment. A professional using their dining room table as an “office” failed the exclusive-use test. Mackisen helped restructure the workspace and implemented proper documentation going forward.

One incorporated business attempted to deduct home office expenses for an employee without a valid T2200 or TP-64.3 form. We corrected filings and ensured compliance for future years. These cases show why expert guidance is essential for claiming business-use-of-home expenses.

Common Questions
Taxpayers often ask whether they can deduct rent if they work from home. Yes, the business-use portion is deductible for self-employed individuals. They also ask whether mortgage payments qualify. Only mortgage interest—not principal—is deductible.

Another question concerns internet expenses. A reasonable portion related to business use can be deducted. Many ask whether they can deduct home office expenses if they occasionally work at home. Occasional use does not qualify under CRA rules.

Québec residents ask whether the provincial calculation differs. Québec generally mirrors federal rules but requires separate RL-1 calculations. Understanding these questions helps clarify the rules for claiming business-use-of-home expenses.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When claiming business-use-of-home expenses, Mackisen provides exact calculations, full documentation support and long-term planning strategies that ensure full compliance with CRA and Revenu Québec.