T2125 Part 7: eligible expenses, workspace requirements, renter vs owner rules, and a step-by-step calculator
Working from home is one of the biggest tax advantages for self-employed Canadians. Unlike employees who face strict CRA limits on home office claims, self-employed individuals can deduct a broad range of home expenses through Part 7 of Form T2125. Done correctly, this deduction can reduce your taxable income by thousands of dollars annually — it's one of the most valuable write-offs available.
To claim the home office deduction on T2125, your workspace must meet at least one of these two CRA conditions:
Most self-employed Canadians who work from home meet Condition 1 easily. The key word in Condition 2 is "exclusively" — a spare bedroom used as an office but occasionally used as a guest room does not qualify under that condition (though it likely qualifies under Condition 1 if it's your primary work location).
| Expense | Renters | Owners | Notes |
|---|---|---|---|
| Rent | Yes — business % | N/A | Actual rent paid |
| Mortgage interest | N/A | Yes — business % | Interest only, not principal |
| Property tax | N/A | Yes — business % | Municipal property tax |
| Heat / Hydro / Water | Yes | Yes | Business-use percentage |
| Home insurance | Yes (contents) | Yes | Business % of annual premium |
| Maintenance & repairs | Yes (if responsible) | Yes | General maintenance only |
| Internet | Yes | Yes | Business % — internet is typically 100% if needed for work |
| Capital cost allowance (CCA) | No | Allowed but risky | Claiming CCA may trigger capital gain on sale — usually avoided |
| Mortgage principal | N/A | No | Capital repayment — not deductible |
| Home purchase price | N/A | No | Capital expenditure |
The business-use percentage is calculated as: Office area ÷ Total home area = Business %. Most people use square footage, but the CRA also accepts the number of rooms method if your rooms are roughly equal in size.
Example: Your home office is 180 sq ft in a 1,500 sq ft home = 12% business use. If your total annual housing costs are $30,000, your home office deduction is $3,600.
A critical CRA rule: your home office deduction cannot create or increase a business loss. The deduction is limited to your net business income before the home office claim. Any excess carries forward to future years when you have sufficient income to absorb it. This carry-forward has no time limit — it accumulates until you can use it.
Renters claim the business percentage of monthly rent, utilities, insurance, and any maintenance costs they are contractually responsible for. The calculation is typically straightforward. Keep your lease agreement and monthly rent receipts or bank statements as documentation.
Homeowners claim mortgage interest (not principal), property tax, home insurance, utilities, and maintenance. Most tax advisors recommend NOT claiming Capital Cost Allowance (CCA) on the home itself because it may partially eliminate the principal residence exemption when you sell, triggering a capital gain. This is a nuanced area — discuss with your accountant before claiming CCA.
If you rent a separate office space outside your home, those costs go directly into Part 5 of T2125 as "rent" — not Part 7. Only costs related to workspace within your actual home go in Part 7. If you pay for a coworking membership in addition to a home office, the coworking costs are direct business expenses fully deductible in Part 5.
KOHO's business account helps self-employed Canadians separate business spending from personal — making home office documentation clean and audit-ready.