Tax rules, thresholds and administrative procedures can change. Confirm current official requirements and obtain advice for material transactions or unusual facts.
The workspace must meet a business-use condition
A self-employed person may claim workspace-in-the-home expenses where the space is the principal place of business or is used exclusively to earn business income and regularly and continuously to meet clients, customers or patients. The exact facts matter, including how work is performed and how the space is used.
Allocate by area and, where appropriate, time
A dedicated 120-square-foot office in a 1,500-square-foot home represents 8% of floor area. Shared costs such as utilities, insurance and certain maintenance may begin with that ratio.
If the room is also used personally, a time allocation may be needed. A dining room used for business 30 hours per week and personally at other times cannot normally be treated as 100% business use.
Direct versus shared expenses
Painting only the office may be a direct workspace cost. Replacing the home's entire furnace is a shared or capital item requiring separate analysis. Mortgage principal is not an expense. Interest, rent, utilities, minor repairs, insurance and property taxes may have different treatment depending on whether the person owns or rents and on the applicable rules.
Example
Leo rents an apartment for $2,400 per month. A dedicated room is 10% of the apartment's area. Annual rent is $28,800 and eligible utilities are $2,400. Before other adjustments, a 10% allocation produces $3,120 of workspace costs.
Leo also buys a desk and computer. Those are not added to rent and utilities automatically; they are reviewed as separate equipment or supplies.
The deduction cannot create an unlimited loss
Workspace expenses are generally limited by business income before the workspace claim. Unused eligible amounts may be carried forward for use against income from the same business, subject to the rules. This prevents the workspace claim from creating or enlarging a business loss.
Documentation
Keep a sketch or measurement of the home, photographs of the workspace, rent or interest documents, utility bills and a written explanation of the allocation. Recalculate after moving or changing how the room is used.
This article provides general Canadian tax information and is not a substitute for tax, legal, financial or investment advice based on complete circumstances.