Home Office Expenses for Employees and Self-Employed

A desk in the spare room can lower your tax bill, but the rules depend on how you earn the money. Employees and self-employed people fill out different forms and can claim different costs, so the first step is knowing which set applies to you.

Employees: who can claim

Since the 2023 tax year, employees have to use the detailed method, which means claiming a share of what you actually paid. The temporary flat rate of $2 a day only applied to 2020, 2021 and 2022. You need to meet all of these conditions:

• Your employer required you to work from home. It doesn't have to be in your employment contract, but there should be a written or verbal agreement. A formal telework arrangement you signed up for voluntarily counts.
• Either you worked from home more than 50% of the time for at least 4 weeks in a row during the year, or you use the space only for your job and regularly meet clients, customers or others there in person.
• You had to pay the expenses yourself, and they were used directly in your work.
• Your employer has completed and signed Form T2200, Declaration of Conditions of Employment.

You keep the T2200 rather than filing it. Anything your employer reimbursed, or will reimburse, can't be claimed.

Employees: what you can claim

Salaried and commission employees can both claim the work-space share of electricity, heat and water, the utilities part of condo fees, home internet access fees, maintenance and minor repairs, and rent. Commission employees can also claim a share of home insurance and property taxes, plus the lease of a cell phone, computer or similar equipment that reasonably relates to earning commission income.

No employee can claim mortgage interest or principal, furniture, wall decorations, internet connection fees, or capital expenses like new windows, flooring or a furnace. If you and your spouse both qualify, decide who claims which costs. Each expense can only be claimed once.

Employees: working out your share

Start with the size of your work space divided by the size of your home. If it's a room you use only for work, that percentage is your share. If it's a shared space like the kitchen table, you also multiply by the hours you work there out of the 168 hours in a week.

In the CRA's example, a dining room that is 12% of the house and used 40 hours a week works out to about 2.8%. On $1,200 of rent and utilities for the period, that's a $33.60 claim. A shared space doesn't always add up to much.

You report it on Form T777, Statement of Employment Expenses, and the total goes on line 22900 of your return. File the T777 with your return and keep the T2200 and your receipts for six years. Work space costs can't create or increase a loss from employment. If you can't use all of them, you can carry the rest forward to the next year as long as you're reporting income from the same employer.

Self-employed: who can claim

If you run a business, home office costs are business-use-of-home expenses, worked out in Part 7 of Form T2125, Statement of Business or Professional Activities. You qualify if the space is either:

• your principal place of business, or
• used only to earn your business income, and used regularly to meet clients, customers or patients.

Self-employed: what you can claim and the limits

You can deduct part of your heating, electricity, home insurance and cleaning materials, and part of your property taxes, mortgage interest and capital cost allowance (CCA). If you rent, you can deduct part of the rent and any expenses that relate to the workspace.

Split the costs on a reasonable basis, usually the area of the workspace divided by the total area of your home. If the room is also used for personal living, work out the hours per day it's used for business, divide by 24, and apply that to the business share too. If the business only runs part of the week or year, cut the claim down to match.

A few limits apply:

• The deduction can't be more than your business's net income before these expenses, so it can't create or increase a business loss.
• Anything you can't deduct this year carries forward to the next fiscal period, as long as you still meet one of the two conditions.
• Claiming CCA on the business part of your home brings the capital gain and recapture rules into play when you sell. Read up on capital cost allowance before you claim it on a home.
• Costs claimed as business-use-of-home can't also be claimed elsewhere on the T2125.

Our post on self-employed tax returns covers the rest of the T2125.

How we help

Home office claims are part of our personal tax work and are quoted on top of the base return. For sole proprietors, we sort out what counts as a business expense and keep the paperwork behind it tidy enough to defend. Employment expense forms are among the government forms we regularly fill out for clients.