Can my corporation deduct my home office? Four routes, and the combination we'd pick

Summary

Once you incorporate, the law treats your corporation as a person separate from you, and that person doesn’t own or rent the home you work in. A company can only deduct what it actually pays for, so the question isn’t really whether your corporation can deduct your home office. The question is how money moves from your corporation to you for that space, and there are four main routes.

1. Your corporation buys the equipment, in its own name, and keeps the desk, chair, monitor and computer on its own books. It writes the cost off through capital cost allowance, the tax version of depreciation, and a computer bought after April 15 2024 and available for use before 2027 comes off in full in year one. Available for use generally means delivered and ready to perform its function.¹ The equipment belongs to the company rather than to you, and buying the chair yourself, keeping it, and having your corporation repay you puts its market value on your T4 as extra salary.
2. Your corporation reimburses you on receipts for the work share of your home internet and your cell phone plan. The Canada Revenue Agency (CRA) has published that neither is a taxable benefit, so nothing is added to your personal income and you pay no personal tax on it. A flat monthly amount paid without receipts is different: all of it is taxed like salary, including the part you really did spend on work.
3. You claim the space on your own personal return. Your corporation signs Form T2200, certifying that your job requires a work space at home, and you claim a share of your household running costs on Form T777.
4. Your corporation rents the space from you under a lease, deducts the rent, and you report the rent as rental income on Form T776.

Routes 2 and 3 assume you’re on your corporation’s payroll, so that your corporation is legally your employer and you’re legally its employee. If you pay yourself only dividends (a share of company profit, paid with no payroll and no T4 slip), route 3 is worth nothing to you.

Run 1, 2 and either 3 or 4, but never 3 and 4 at once, because you can’t charge your corporation rent for a room and also claim that same room’s running costs as its employee. For most incorporated owners we’d recommend 1, 2 and 3, and leaving rent alone. Two things flip that: paying yourself only dividends, and owning a home with a large mortgage plus a room used only as an office. Whichever route you take, never write off part of the house itself over the years, because doing so can cost you the tax-free treatment of your home when you sell.

What your corporation can pay for directly

Two of the four routes let your corporation pay the cost outright, and they’re the two owners most often skip. When your corporation pays a bill directly, the whole amount leaves the company and none of it is added to your personal income. A deduction on your own return is worth much less, because it only reduces the income you’re taxed on: $1,000 of electricity claimed at a 40% personal tax rate saves you $400, not $1,000.

Beyond the equipment in route 1, that means the work share of your home internet and cell phone plan. The CRA’s published position is that the business-use portion of employer-paid home internet isn’t a taxable benefit to you. A phone plan isn’t one either, on three conditions: your corporation requires it for the job, it costs a reasonable fixed amount, and your personal use adds no charges beyond that amount.² The middle condition is the one an owner is most likely to fail, since you choose your own plan and then approve your own reimbursement. Split work and personal use honestly, and a bill your corporation has already repaid you for can’t be claimed again under route 3. The list stops there: owners often ask about reimbursing a share of household electricity and heat as well, and no published CRA policy supports that one.

Claiming the space on your own return

Three things have to be true before you can claim work-space costs on your personal return. Your corporation has to require you to work from home, and a written telework arrangement you sign with your own company counts. You have to pay the costs yourself. And one of two tests has to be met. Either the work space is where you principally perform your duties, which the CRA reads as more than half your working time over at least four consecutive weeks. Or the space is used only for work and you meet clients or patients there in person on a regular and continuing basis (e.g. a home consulting room).³

During COVID the CRA offered a flat-rate shortcut of a few dollars a day with no receipts, and the shortcut is gone, so for 2026 you add up your actual bills and keep them.⁴ You then work out an employment-use percentage: the floor area of your work space (e.g. a spare bedroom) divided by the total finished area of your home, meaning its finished living space, counting hallways, bathrooms and the kitchen. A room used only as an office is claimed at that area share. If it doubles as something else in the evenings and at weekends, such as the dining table, the percentage is cut again in proportion to the hours you actually work there.⁵

Applied to that percentage, a salaried owner can claim electricity (your hydro bill), heat, water, the utilities part of condominium fees, home internet access fees, and minor repairs. Minor repairs means work that keeps the space usable, such as repainting the office or replacing a cracked window in it.⁶ You can’t claim mortgage interest, furniture, capital costs such as a new furnace, or capital cost allowance. If you own your home you also can’t invent a rent for the office and add it to this claim. Charging rent is a different thing, and it belongs to route 4, where your corporation pays you real rent under a real lease.⁷

You’ll be signing your own T2200, and the CRA sets a higher bar for an owner who signs for their own company. Guide T4044 asks you to establish that the costs are comparable to what an employee who isn’t a shareholder would have to pay, doing similar work at your company or at a similar business. The guide also warns that a written employment contract may not by itself be enough to show a shareholder was required to pay them.⁸ So keep the evidence: the telework arrangement, your room measurements, the bills, and a working pattern that still matches the form.

One limit does most of the damage. The claim can’t create or increase a loss from employment, so it can never exceed the salary your corporation paid you, after any other employment expenses you’re claiming. Say you paid yourself $5,000 and your work-space costs come to $6,000. You claim $5,000 this year, and the extra $1,000 carries forward against salary from the same employment next year, subject to the same cap again, until you can use it.⁹

The lease, and why it isn’t set out here

A lease is the one route we haven’t reduced to steps, because on this fact pattern it can’t be. What it buys you is a much larger pool of deductible costs, since a landlord can deduct a share of mortgage interest, property taxes and home insurance, and a salaried employee can deduct none of those three. What it costs you is three questions to settle on your own numbers. The rent has to be reasonable, or your corporation loses its deduction while you still pay tax on every dollar received.¹⁰ The rent has to be genuinely paid, not just recorded as owing.¹¹ And renting out non-residential space is a taxable sale for GST/HST, the federal sales tax on most business sales. So a lease can pull you personally into that system, and have you charging sales tax on top of the rent.¹² Whether a rental priced close to cost is a business at all for that tax is unsettled, and we’d rather say so than guess.

Selling your home later

One rule applies to every route here: don’t claim capital cost allowance on any part of your home. Your principal residence exemption lets you sell the home you live in without paying tax on the gain. The CRA leaves it fully in place on three conditions. The home has to stay mainly a home, with the business use secondary. You can’t have rebuilt or converted part of it (a desk in a spare room is fine, a separate street entrance and a waiting room may not be). And you can’t have written the house down for tax.¹³ Break one of the three and part of your gain on sale becomes taxable. Writing the house down is the worst, because the tax rules then date the sale of that part of your home to when the business use started rather than to the year you claimed, so several years of gain land at once.

How often this changes

Re-run the decision when one of these happens, rather than on a schedule:

• You switch between salary and dividends, which zeroes the personal claim in one direction and restores it in the other.
• Your corporation takes premises of its own (e.g. a clinic), or you start spending most of your week at client sites, which breaks the more-than-half-your-time test.

Closing thoughts

For a work space of around a tenth of a typical home, the tax an owner actually saves usually runs to a few hundred dollars a year. Owners routinely spend more in accounting fees arguing about which route to take than a year’s saving comes to. Pick a structure you can defend, write it down, and let it run for years.

How we handle it

We set the mechanism once and put the paperwork behind it. The pieces are employment terms making the work space a real condition of the job, a T2200 whose conditions match how you actually work, the measurements behind your percentage, and reimbursements paid into your bank account during the year rather than booked after year end as an amount owed. If a lease looks right on your numbers, we settle the three questions above first.