Home Office Deduction for Self-Employed Individuals – A Complete Guide by a Montreal CPA Firm Near You

The home office deduction for self-employed Canadians is one of the most valuable tax
deductions available under self-employment rules—but also one of the most
misunderstood. Many freelancers, consultants, contractors, and gig workers operate out
of their homes, yet fail to claim the full business-use-of-home expenses they are entitled
to. Others accidentally over-claim expenses, triggering CRA reviews. Understanding the
home office deduction is essential for anyone reporting business income on Form
T2125. This deduction can significantly reduce taxable income by allowing you to claim
a reasonable portion of rent, utilities, mortgage interest, property taxes, home
insurance, condo fees, repairs, and maintenance—but only if the strict CRA criteria are
met. This guide explains the rules, calculations, documentation requirements, and CRA
compliance issues related to the home office deduction for self-employed individuals in
Canada.
Legal and Regulatory Framework
The home office deduction is governed by section 18(12) of the Income Tax Act and
the CRA’s “business-use-of-home” rules. Under these rules, self-employed individuals
may claim business-use-of-home expenses only if:

1. The workspace is your principal place of business, or

2. The workspace is used exclusively for business and used regularly and
   continuously to meet clients, customers, or patients.
   Expenses that may be deductible include:
   • a percentage of rent or mortgage interest
   • property taxes
   • utilities (heat, electricity, water)
   • home insurance
   • maintenance and minor repairs
   • internet (reasonable business portion)

• condo fees
Expenses must be prorated using a reasonable method, typically square footage or
number of rooms used for business purposes. Importantly, home office expenses
cannot create or increase a business loss—unused amounts may be carried forward
to future years as long as the business continues to operate. These statutory rules form
the legal foundation for claiming the home office deduction for self-employed individuals
in Canada.
Key Court Decisions
Several court decisions illustrate how strictly CRA enforces workspace-in-home rules.
In Sasson v. The Queen, CRA denied home office expenses because the taxpayer
failed to prove that the office was the principal place of business, and the court upheld
the denial.
In Carter v. Canada, a taxpayer attempted to claim expenses for a room used partly for
business and partly for personal activities. The court confirmed that mixed-use
workspaces only qualify under the “principal place of business” test—not the exclusive-
use test.
In McCrimmon v. Canada, the court disallowed home office deductions where
documentation was insufficient to support the allocation percentages.
These cases emphasize that detailed calculations, clear usage patterns, and proper
documentation are mandatory to support home office claims.
Why CRA Targets This Issue
CRA pays special attention to home office claims by self-employed individuals because:
• many claim excessive percentages of home expenses
• some deduct their entire rent or utilities without proper justification
• personal space is often incorrectly counted as business space
• documentation (floor plans, calculations, receipts) is frequently missing
• internet and cellphone expenses are often over-claimed
• taxpayers sometimes claim expenses even though they have another workplace
CRA audits T2125 filings regularly, especially when home office expenses appear
disproportionately high relative to business income. Understanding CRA review patterns
is essential for compliance.
Mackisen Strategy
At Mackisen CPA Montreal, we help self-employed individuals maximize their home
office deduction safely and accurately. Our strategy includes:
• determining whether your workspace qualifies under CRA rules
• calculating the exact business-use percentage using acceptable CRA methods

• preparing a home office calculation sheet for T2125 filing
• reviewing rent, mortgage interest, utilities, and insurance to determine eligible amounts
• allocating internet and phone expenses properly
• documenting the workspace with diagrams, photographs, and measurements
• carrying forward unused expenses correctly
• integrating GST/HST ITCs when applicable
• preparing audit-ready documentation in case CRA requests proof
This process ensures every valid expense is captured while keeping your tax return fully
compliant.
Real Client Experience
A freelance editor converted part of her living room into a workspace and claimed 40%
of her rent. CRA questioned the percentage. We measured the area, recalculated a
reasonable 22% allocation, and supported it with documents—CRA accepted the
revised claim.
Another client, a contractor, claimed 100% of utilities as business expenses. CRA
denied the claim. We rebuilt the calculation using square footage (18%) and recovered
allowable amounts.
A consultant with a dedicated home office failed to claim home insurance and property
taxes for years. We amended prior returns, adding significant deductions that increased
refunds.
Common Questions
Self-employed individuals often ask whether they can deduct mortgage principal.
No—only mortgage interest is deductible.
Others ask whether a kitchen table counts as a home office. Only if your home is your
principal place of business; otherwise, shared-use spaces do not qualify for
exclusive-use rules.
Some ask whether internet can be deducted. Yes—the business-use portion only.
Another question: Can home office expenses create a loss? No—they can be carried
forward until future income allows them to be deducted.
Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps
self-employed Canadians claim home office deductions accurately and confidently.
Whether you need help calculating your workspace-in-home percentage, preparing
Form T2125, or defending your deductions during a CRA review, our expert team
provides precision, transparency, and full audit protection.