T2125 Updated July 2026

Can I Deduct My Home Office in Canada? Yes, But the Rules Depend on Who Is Asking

The short answer: yes, home office costs are deductible in Canada, but there are three completely different sets of rules depending on whether you are self-employed, an employee, or paid through your own corporation, and people constantly apply the wrong set. Self-employed people get the most generous version through the business-use-of-home rules. Employees get a narrower version and only with a signed form from their employer. Incorporated owners are technically employees of their own company, which surprises almost everyone and changes the strategy. Here is each one in plain English.

If you are self-employed (sole proprietor or partner)

You claim business-use-of-home expenses on your T2125. To qualify, your home workspace must either be your principal place of business, or be used exclusively for the business and on a regular, ongoing basis to meet clients or customers. Most home-based freelancers and consultants qualify under the first test. You then deduct the business share of your home costs, prorated by the space you use: if your office is 150 square feet of a 1,500 square foot home, you claim 10 percent. Eligible costs include rent, utilities, home insurance, property tax, maintenance, and mortgage interest, though never the mortgage principal. Two cautions from real files: the claim cannot be used to create or increase a business loss (the excess carries forward instead), and think very carefully before claiming depreciation on the home itself, because it can put a slice of your principal residence exemption at risk when you sell. Most practitioners avoid it.

If you are an employee

The pandemic-era flat rate shortcut is gone; it ended after the 2022 tax year. Today you need your employer to sign form T2200 confirming you are required to work from home, and you claim actual expenses under the detailed method, prorated the same way. The list is narrower than for the self-employed: salaried employees can claim things like the workspace share of rent, utilities, and internet, but not property tax, home insurance, or mortgage interest. Commission employees get a slightly longer list. If your employer will not sign the T2200, there is no claim, full stop.

If you are incorporated

Here is the one that trips up owners: your corporation owns the business, and you are its employee, so you personally do not file a T2125 for it. The clean approaches are either having the corporation reimburse a reasonable business share of your home costs, which is deductible to the corporation and not income to you when done properly, or having your corporation issue you a T2200 and claiming as an employee. Some owners instead charge their corporation rent for the space, but that makes the rent taxable rental income in your hands and needs to be reasonable, so it is rarely the winning move. The key word the CRA cares about throughout is reasonable: a defensible percentage, applied to real documented costs.

What gets people in trouble

The audit patterns are predictable: claiming a workspace percentage that does not survive a tape measure, counting spaces that are not genuinely work spaces, claiming 100 percent of internet or utilities, employees claiming without a T2200 on file, and incorporated owners deducting home costs as if they were sole proprietors. None of these are exotic; they are the same five mistakes over and over, and they are all avoidable with fifteen minutes of setup: measure the space, keep the bills, document the percentage, and use the rule set that matches how you are actually paid.

Not sure which category you are in, or whether your current claim would survive a second look? Book a free consultation and we will sort it out, or join the free weekly newsletter for more plain-English answers like this one.

This article is general education, not advice for your specific situation. Confirm current rules and thresholds before acting.