Home Office Expenses: Maximizing Your Deductions
- Rylan Kaliel
- May 7
- 8 min read
With the rise of remote work and self-employment, home office deductions have become an increasingly important area of tax savings for many Canadians. Understanding which home office expenses you can deduct, how to calculate them correctly, and reporting requirements can significantly reduce your taxable income. This comprehensive blog explores home office deductions, eligibility criteria, allowable expenses, and essential record-keeping practices.
Who Can Claim Home Office Expenses as an Employee?
To claim home office deductions as an employee, you must meet all of the below conditions:
Your employer required you to work from home, this should be part of a written or verbal agreement
You were required to pay expenses related to the workspace in your home
Your expenses are used directly in your work
One of the following applies:
o You worked more than 50% of the time from the workspace in your home for a period of at least 4 consecutive weeks in the year; or
o You only use your workspace to earn employment income and you use it regularly and continuously for in-person meetings with clients, customers, or other persons while doing your work
You have a completed and signed copy of the Form T2200 Declaration of Conditions of Employment from your employer
The CRA has a clickable checklist for the above that can be used to ensure you meet all of the above conditions, see the CRA’s website here to use this tool.
Let’s do a quick dive into each of these conditions to give more background.
Your employer required you to work from home, this should be part of a written or verbal agreement
Generally speaking, this would mean that your employer requires that as part of your duties you work from home. This could include situations such as have a three day in office, two day work from home, Friday’s are work from home days, where you work purely remotely and need to work from home, and more.
You were required to pay expenses related to the workspace in your home
Many people think of this as office supplies or other expenses that directly relate to their work, however, this can include expenses such as rent, internet, or other services and costs that are inherently incurred to use your workspace effectively.
Your expenses are used directly in your work
The expenses you incur must be used directly in your work, for example, working from a laptop that uses the internet to access company files and perform your work would make the internet an expense that is used directly in your work. Further, rent for your home and thus your workspace would generally be used directly in your work.
You worked more than 50% of the time from the workspace in your home for a period of at least 4 consecutive weeks in the year
This condition would require that you work more than half of the time from your workspace in your home for at least 4 weeks straight. To illustrate, consider two employees: Aaron and Natalie. The two work from home under the following schedules.
In the above situation, Aaron never crosses the 50% threshold, whereas in weeks 3 to 6 Natalie works from home more than 50% and did this for at least 4 consecutive weeks. If this is the only data we have then Aaron would not meet this condition but Natalie would.
You only use your workspace to earn employment income and you use it regularly and continuously for in-person meetings with clients, customers, or other persons while doing your work
This condition requires that you have a dedicated workspace to employment income. Further, this workspace must be used regularly and continuously, which generally means that there are not any significant gaps. Consider the following illustration.
In the above situation, Mark uses the space regularly 2 days a week, whereas Susan is much more sporadic, with 5 days in week 1, nothing till week 5, and again nothing until week 8. Provided for both Mark and Susan they have this as a dedicated workspace for employment income, it is more likely Mark would be able to meet this condition, whereas it may be difficult for Susan.
The final condition is that it needs to be used for in-person meetings with clients, customers, or other persons. Take for example two situations:
Oliver: Uses the workspace to work and have online meetings with their team.
Kathryn: Uses the workspace to work and meet with clients in-person.
As Oliver is not meeting anyone in person it is unlikely that this condition would be met, whereas Kathryn meets clients in-person and would likely meet this condition.
You have a completed and signed copy of the Form T2200 Declaration of Conditions of Employment from your employer
The Form T2200 is a form completed by your employer that outlines the expenses that an employee was required to incur. This form is highly valuable to have as it can support the type of deductions you may be entitled to claim. While this form is not required to be submitted with your return, you are required to have a copy available in the case the CRA ever asks for this. At the time of writing, a blank T2200 for your review can be assessed from the CRA here.
Who Can Claim Home Office Expenses as a Self-Employed Person?
To claim home office deductions as an self-employed person, you must meet at least one of the below conditions:
Your home workspace is your principal place of business; or
You use your home workspace only to earn business income and on a regularly and ongoing basis for meeting clients or customers.
Similar to the above, let’s break down these terms a bit.
Your home workspace is your principal place of business
Principal place of business means that this is the main place you carry on your business. Consider for example two potential situations:
Tara: Works as a realtor, they have an office downtown that they primarily work from but also use their kitchen at home to work.
Sebastian: Operates an online IT business from a room in their home, they only carry on business activities from this room.
In this case, Tara would likely have their office downtown as a principal place of business and not their home office, so it is unlikely this condition would be met. Sebastian, on the other hand, uses the room only for their business and it is not indicated if they carry on their business from another location.
You use your home workspace only to earn business income and on a regularly and ongoing basis for meeting clients or customers
This is similar to the above discussion for employment, however, you’ll notice that it does not require an “in-person” component. Essentially, provided that the workspace is used only to earn business income and is regularly and an ongoing basis is used to meet clients, virtually or in-person, you could meet this condition.
Home Office Deductions for Employees (Form T2200 & T777)
Employees can deduct home office expenses if their employer requires them to maintain a home workspace and provides a signed Form T2200 (Declaration of Conditions of Employment). Eligible expenses include:
Utilities (electricity, heat, water)
Maintenance and minor repairs
Home internet and cell phone expenses (pro-rated for business use)
Rent
If you are a commission employee, additional expenses may be included, additional eligible expenses for commission employees include:
Home insurance
Property taxes
Lease of a cell phone, computer, laptop, tablet, fax, etc. (provided they are reasonably related to earning commission income)
See our blog on employment expenses for more details on what constitutes a commission employee.
Employees calculate these deductions on Form T777 Statement of Employment Expenses, applying expenses proportionally based on workspace size relative to home size. More on what proportionally means below.
Home Office Deductions for Self-Employed Individuals (Form T2125)
Self-employed individuals have broader eligibility for home office deductions. They can deduct expenses related to a workspace regularly used for business purposes using Form T2125 Statement of Business or Professional Activities. Common deductible expenses include:
Mortgage interest or rent
Property taxes
Home insurance
Utilities (electricity, heat, water)
Maintenance and repairs
Similar to employees, self-employed individuals apply these expenses proportionally based on the workspace area relative to the total home space. More on what proportionally means below.
Expenses You Cannot Deduct
Certain expenses are not deductible, including:
Mortgage principal payments
Capital improvements or renovations (these are capital costs that affect the home's adjusted cost base)
Personal use items or spaces (e.g., kitchen, living room)
Calculating Home Office Deductions
To accurately calculate your home office deductions, follow these steps:
Determine Workspace Percentage: Divide the workspace area by your home’s total square footage.
Example: 200 sq. ft. office in a 2,000 sq. ft. home equals a 10% workspace.
Apply Percentage to Eligible Expenses: Multiply allowable expenses (utilities, property taxes, rent, etc.) by the workspace percentage to determine your deductible amount.
For example, if your workspace occupies 10% of your home and your annual home expenses total $20,000, your deductible home office expense is $2,000 ($20,000 x 10%).
Where the workspace is a shared space, such as a kitchen, you would have to calculate the hours that the space is used for work and determine the proportion of total hours the space is available to further reduce the expenses.
For example, let’s assume you use your kitchen for 40 hours a week for work related activities only and this is consistent week-over-week. There are 168 hours in a week, so the proportion would be 23.8%. Using the figures above, we determined our deduction was $2,000, so we would reduce this to $476 ($2,000 * 23.8%).
As a note, generally the goal would be to determine the hours used in a year. So if we worked 40 hours a week and took 3 weeks of vacation, this would be 1,960 hours (40 hours * (52 weeks – 3 weeks)). The total hours in a year are, other than in leap years, 8,736. This would give us a proportion of 22.4% (1,960 worked hours / 8,736 total hours). Not too far off from our average.
There can also be some expenses that are not subject to the proportion, such as maintenance and repairs. For example, let’s say you have two situations:
Scenario 1: $1,000 of maintenance and repairs on a workspace that is dedicated entirely for work.
Scenario 2: $1,000 of maintenance and repairs on a workspace that is a shared space, of which you work an average of 40 hours per week from this space.
In Scenario 1, the full $1,000 would be deductible, as it was a direct expense to the workspace. In Scenario 2, we would have to prorate this for the hours that related to work, so we would only deduct $238 ($1,000 * 23.8% (see above)).
It is important to understand that when it comes to proportion, the idea is that we want to separate out those costs that are shared costs for the home, such as heat and electricity that impact the entire home, versus those that are costs related specifically to your workspace. This can help you maximize your deductions.
Record-Keeping Requirements
CRA requires detailed records to substantiate home office claims, including:
Receipts for all home expenses claimed
Documentation clearly calculating workspace percentage
Form T2200 from your employer (for employees)
Accurate tracking of time spent working from home
Proper documentation is essential, especially during CRA reviews or audits.
Strategic Considerations for Home Office Deductions
Effectively managing home office expenses involves:
Ensuring accuracy in calculating proportional usage.
Keeping thorough documentation to support claims.
It is highly recommended that you discuss your workspace with a tax professional to ensure you are getting the most out of this deduction. As noted above, properly identifying if an expenses is a shared cost or not can provide some significant deductions.
Common Pitfalls and How to Avoid Them
Common mistakes related to home office deductions include:
Overestimating workspace size.
Claiming personal or non-deductible expenses.
Poor record-keeping or missing receipts.
To avoid these issues:
Precisely measure and document workspace usage.
Clearly separate personal and business expenses.
Maintain organized and detailed records.
Summary
Properly claiming home office deductions can significantly reduce your taxable income and improve your financial outcomes. Understanding eligibility, accurate calculations, and diligent record-keeping are essential to maximizing these deductions and ensuring compliance.
Stay tuned for our next blog post, where we'll explore deductions related to childcare expenses. KLV Accounting is here to help. Contact us today to enhance your financial strategy and drive business success!
For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.
Next blog - Upcoming! |
Comments