What are the rules for claiming a home office deduction as self-employed in Ontario?

Self-employed individuals can deduct home office expenses if the workspace is used exclusively or principally for business. There are two tests: the workspace must be where you mainly do your work, or it must be used exclusively for business and for meeting clients or customers on a regular and continuous basis.

Unlike employees claiming home office expenses, self-employed individuals use Form T2125 (not T2200) and there is no separate flat-rate option. You calculate actual expenses — a prorated share of your rent or mortgage-related costs, utilities, property taxes, insurance, and maintenance — based on the percentage of your home's floor area used for the office.

The deduction cannot create or increase a business loss — if your business is already at a loss, unused home office expenses can be carried forward to a future profitable year. For renters, rent allocated to the workspace is deductible. For homeowners, mortgage interest and property taxes (proportionate to office space) are deductible, but the principal portion of mortgage payments is not. Mortgage interest for business use does not affect your principal residence exemption.