Running a Business from Home: Deductions Your Corporation Can Claim – A Complete Guide by a Montreal CPA Firm Near You

Running a business from home has become increasingly common in Canada,
especially among consultants, contractors, professionals, and owner-managed
corporations. However, many corporate business owners misunderstand how home
office deductions work. Unlike sole proprietors, corporations cannot simply deduct a
percentage of home expenses unless the structure is set up correctly. When properly
arranged, your corporation can either reimburse you for home office expenses or enter
into a rental agreement with you—both of which allow legitimate tax deductions. When
done incorrectly, CRA can deny expenses, reassess prior years, or treat
reimbursements as taxable benefits. Understanding how home office deductions work
for corporations in Canada is essential for reducing taxes while remaining compliant.
Legal and Regulatory Framework
Home office deductions for incorporated business owners are governed by several
provisions of the Income Tax Act.
• Section 18(1)(a): expenses must be incurred for the purpose of earning income.
• Section 67: expenses must be reasonable.
• Section 15(1): prohibits shareholder benefits—meaning the corporation cannot
subsidize personal expenses without proper structure.
• Section 6(1)(b): reimbursements may be taxable unless they are strictly business-
related.
Corporations have two compliant methods for home office deductions:

1. Reimbursement Method
   The corporation reimburses the shareholder for business-use-of-home expenses

such as heat, electricity, internet (reasonable portion), and maintenance.
Receipts and calculations must be documented.
2. Rental Agreement Method
The corporation pays rent to the shareholder for use of the home office. The
agreement must be reasonable, documented, and supported by square-footage
calculations. Rent becomes deductible to the corporation, and rental income is
claimed personally.
Corporations cannot claim mortgage interest, property taxes, or home insurance
directly unless using a rental agreement. GST/QST rules also apply for registrants.
These laws define the framework for running a business from home as a corporation in
Canada.
Key Court Decisions
Several important decisions highlight CRA’s strict stance on home office deductions for
incorporated business owners.
In Kosowan v. Canada, CRA denied home office deductions because the corporation
had no formal rental agreement and expenses lacked documentation.
In Nijjar v. The Queen, a shareholder attempted to deduct home utilities through the
corporation without proper allocation. The court upheld CRA’s denial, emphasizing the
need for reasonableness and clear calculations.
In McKeown v. Canada, the court confirmed that reimbursements must be strictly
business-related, or else they become taxable shareholder benefits.
These rulings demonstrate that corporations must follow strict procedures when
deducting home office expenses in Canada.
Why CRA Targets This Issue
CRA closely scrutinizes home office deductions claimed by corporations because this
area is often abused. CRA targets:
• corporations deducting personal household expenses
• rental agreements with unrealistic rent amounts
• shareholders claiming 100% of home expenses despite partial business use
• reimbursements without receipts or allocation calculations
• missing rental contracts or unclear terms
• GST/QST not applied correctly on rental arrangements
Because running a business from home is common, CRA ensures deductions are
legitimate and not disguised personal benefits. Understanding the rules helps prevent
costly reassessments.
Mackisen Strategy

At Mackisen CPA Montreal, we help corporate clients claim home office deductions
safely and effectively. Our structured approach includes:
• determining whether reimbursement or rental method is more tax-efficient
• calculating business-use-of-home percentages using square-footage and usage tests
• drafting formal rental agreements with correct terms
• documenting all reimbursements with receipts and detailed calculations
• ensuring compliance with GST/QST on rental income when required
• evaluating the impact of rental income on personal taxes and potential capital gains
implications
• integrating home office deductions into the broader corporate tax plan
This ensures that corporations deduct legitimate expenses without creating taxable
shareholder benefits.
Real Client Experience
A consultant operating through a corporation attempted to deduct over $20,000 in home
expenses without documentation. CRA reassessed the corporation, denying nearly all
deductions. We restructured their approach using the reimbursement method, allowing
proper deductions moving forward.
In another case, a business owner charged rent to their corporation at an inflated rate.
CRA flagged the rental agreement. We renegotiated reasonable terms, corrected past
filings, and avoided penalties.
A third client mixed personal renovations with business-use expenses. CRA denied the
entire deduction. We helped categorize future improvements properly and established a
compliant reimbursement process.
These examples show how structured planning is essential when running a business
from home in Canada.
Common Questions
Many business owners ask whether they can deduct mortgage interest through their
corporation. Only if using a rental agreement—and even then, capital gains implications
must be considered.
Others ask whether internet is deductible. Yes, but only the business-use portion.
Some ask if they can avoid rental income personally. Yes, by using the reimbursement
method instead.
Another question: Can a corporation deduct home office furniture? Yes, if the furniture
belongs to the corporation or is reimbursed with documentation.
These questions highlight why understanding home office rules is essential.
Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps
incorporated business owners stay compliant while maximizing home office deductions.
Whether you work from a dedicated office, shared space, or remote home setup, our
expert team ensures precision, transparency, and protection from audit risk.