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Home Office Deduction Canada: What You Can Actually Claim on T2125

2026-05-08 · 6 min read

The Home Office Deduction on Your T2125


Line 9945 of the T2125 — Home office expenses — is one of the most valuable deductions available to Canadian sole proprietors who work from home. Yet it is consistently under-claimed. Here is exactly what you can deduct and how to calculate it correctly.


Who Can Claim It?


The CRA requires that your home be either:


  • Your principal place of business — you conduct the majority of your business activity there, or
  • Used exclusively and regularly to meet clients or customers

    • A dedicated home office used only for work is the clearest case. A kitchen table used for both work and personal life is harder to defend, though not impossible with good documentation.


    The Two Calculation Methods


    Method 1: Square Footage


    Divide the area of your office by the total area of your home:


    > Business-use % = Office sq ft ÷ Total home sq ft


    Example: 180 sq ft office in a 1,500 sq ft home = 12% business use.


    Method 2: Number of Rooms


    Divide the number of rooms used for business by total rooms in the home. This is simpler but often less favourable than square footage.


    Use whichever method gives you an accurate and defensible percentage. Stick to the same method year over year.


    What Expenses Go on Line 9945


    Apply your business-use percentage to the following costs:


  • Rent — your annual rent payments
  • Mortgage interest — the interest portion only (not the principal)
  • Property taxes — your annual property tax bill
  • Home insurance — the annual premium
  • Heat and electricity — combined utility costs
  • Water — if billed separately
  • Minor repairs and maintenance — general upkeep of the home
  • Internet — the business-use portion (if not already claimed on Line 9220)

    • If you had a repair done exclusively to the office space (e.g., repainting only the office), you can claim 100% of that cost rather than the proportional share.


    The Loss Restriction Rule


    Home office expenses cannot create or increase a business loss. If your net business income before the home office deduction is $5,000, you can only deduct up to $5,000 of home office costs in that tax year.


    The unused amount carries forward. It does not disappear — it rolls to next year's T2125. Always check if you have a carry-forward amount from a prior year.


    Renting vs. Owning: Key Differences


    Renters can deduct a proportional share of rent plus utilities and insurance.


    Owners cannot deduct mortgage principal repayment. You can deduct mortgage interest, property taxes, utilities, insurance, and maintenance — but not the principal. This distinction surprises many homeowners.


    Documentation to Keep


    In case of a CRA audit, have ready:


  • A floor plan or sketch showing office dimensions and total home dimensions
  • Receipts or statements for all expenses (rent, utilities, insurance, property taxes)
  • Mortgage statement showing the interest vs. principal breakdown
  • A brief written explanation of your business-use claim

    • Common Mistakes


    Claiming too high a percentage. Claiming 30% of a home when a small room is used is a red flag. Be accurate and conservative.


    Forgetting to carry forward. If you had unused home office expenses last year, they should reduce this year's income.


    Claiming mortgage principal. Only the interest qualifies — pull your annual mortgage statement for the exact figure.


    Skipping the deduction entirely. It is legitimate, it reduces your tax bill meaningfully, and the CRA expects it from home-based sole proprietors.


    Make It Easy with ClaimHero


    ClaimHero lets you log your home office costs under Line 9945 throughout the year, track your business-use percentage, and export a ready-to-use T2125 summary at tax time. Free to start.


    Track your T2125 expenses year-round with ClaimHero — free to start.