How to claim home-office expenses when you rent

When I worked as a bookkeeper, the home-office claim was the deduction my clients were most excited about and most likely to get wrong. Renters, in particular, often did not realize they could include part of their rent. Others assumed they could deduct a share of everything in the apartment because they answered emails from the couch.

The Canada Revenue Agency does allow renters to claim a portion of their rent and certain other costs, but only if they meet specific conditions, and the rules depend on whether you are self-employed or an employee. Here is how it works, step by step.

Step one: figure out which rules apply to you

There are two separate sets of rules. If you are self-employed, such as a freelancer, contractor or sole proprietor, you claim business-use-of-home expenses as part of your business income and expenses, usually on form T2125. If you are an employee who works from home, you claim employment expenses, and you generally need your employer to complete and sign form T2200, which confirms the conditions of your employment.

Some people are both, for example someone with a salaried job and a freelance side business. In that case, be careful not to claim the same space or the same costs twice.

Step two: check that your workspace qualifies

For both groups, the workspace generally has to meet one of two tests. Either it is where you mainly do your work, or you use it only to earn your income and you use it on a regular and continuous basis to meet clients, customers or others in the course of your work.

For employees, the CRA’s wording is slightly different. The workspace must be where you mainly do your work, which is usually understood as more than 50 per cent of the time for a period of at least four consecutive weeks, or it must be used only for work and regularly for meeting people in the course of your job. Check the current conditions on the CRA’s guidance before you claim.

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A home office is a space you can point to, not a laptop you carry from room to room.

Step three: work out your business-use percentage

1. Measure your workspace

   Measure the area of the room or space you use for work. A dedicated room is easiest. If you use part of a room, measure that part.

2. Measure your whole home

   Use the total finished living area of your apartment. Many leases or listings include this, or you can measure it yourself.

3. Divide one by the other

   Your workspace area divided by the total area gives you the percentage of eligible home costs you can generally claim.

4. Adjust if the space is shared

   If the space is also used for personal purposes, such as a spare room that doubles as a guest room, you may need to reduce the claim further to reflect the hours it is used for work. Be reasonable and keep notes on how you calculated it.

Step four: add up the costs you can claim

For renters, the main eligible costs are generally rent, utilities such as electricity and heat if you pay them separately, and minor maintenance and repairs. Self-employed people can usually also include a share of tenant insurance and home internet. The rules for employees are narrower: salaried employees can generally claim rent, utilities and maintenance, but not insurance, while commission employees can claim some additional costs. Office supplies and part of a cell phone plan used for work are handled separately from the home-office calculation.

Here is an illustrative example for a self-employed graphic designer. Their apartment is 800 square feet, and their office is a 100-square-foot room used only for work. That is 12.5 per cent.

One important limit: for self-employed people, business-use-of-home expenses generally cannot be used to create or increase a business loss. If your business income is low in a given year, the unused portion can usually be carried forward and claimed in a later year when you have enough income. For employees, home-office expenses generally cannot exceed the employment income they relate to, and unused amounts can also typically be carried forward.

Step five: keep the right records

You do not usually send receipts with your return, but you need to keep them in case the CRA asks. For renters, that means rent receipts or a record of rent payments, your lease, utility bills, insurance statements and a simple note showing how you measured the space and calculated the percentage. If you are an employee, keep the signed T2200 from your employer. The CRA generally expects records to be kept for six years from the end of the tax year they relate to.

It also helps to take a photo of the workspace each year. If you ever need to show that the space was used for work, a dated photo of a desk, files and equipment is far more convincing than a description written years later.

Claiming home-office expenses as a renter is not complicated once you know which rules apply. The mistakes usually come from claiming too broadly or from not keeping records. Do the measurement properly, keep the paperwork, and if you are unsure whether your space qualifies, a short conversation with an accountant is cheaper than a reassessment.