Can self-employed Canadians deduct business use of home expenses?

Yes, if you are self-employed and use part of your home for business, you can deduct a portion of your household expenses. This deduction is reported on Form T2125 (Statement of Business or Professional Activities).

Qualifying conditions:

Your home workspace qualifies for the deduction if it is either:

• Your principal place of business, or
• Used exclusively for earning business income and used on a regular and continuous basis for meeting clients, customers, or patients.

How to calculate the deduction:

Determine the business-use percentage of your home using one of these methods:

• Area method: Divide the square footage of your workspace by the total square footage of your home.
• Room method: Divide the number of rooms used for business by the total number of rooms (if rooms are roughly equal in size).

Eligible expenses include:

• Heat, electricity, and water
• Home insurance
• Property taxes
• Rent (if you are a renter)
• Mortgage interest (but not the principal portion of mortgage payments)
• Maintenance and minor repairs
• Internet and phone (business-use portion)

Important limitations:

• You cannot claim capital cost allowance (CCA) on the home and still claim the full principal residence exemption. Most tax professionals advise against claiming CCA on your home.
• The business-use-of-home deduction cannot create or increase a business loss. Any unused amount carries forward to future years.
• If you use the space part-time for business, you must further prorate the expenses based on the hours of business use.

Example: Your home office is 150 sq ft of a 1,500 sq ft home (10%). Your annual household costs are C$24,000. Your deduction is C$24,000 x 10% = C$2,400.