Incorporated IT contractors outside Quebec who take salary from their corporation are employees for tax purposes. Employees do not file Form T2125 the way a sole proprietor does. If a salaried owner wants to claim home office expenses on their personal return, the route is Form T777, Statement of Employment Expenses, supported by a signed T2200 from the corporation. The eligible expenses, the work-from-home threshold, and the documentation requirements are all narrower than the self-employed rules covered in the home office and vehicle expenses guide, and a corporation-level reimbursement is often the simpler alternative.
Why the Employee Route Is Different
A sole proprietor’s home office deduction reduces business income directly on T2125 and can include a share of mortgage interest, property taxes, and home insurance. An incorporated contractor paid by salary earns employment income, not business income, and employment expense deductions run through a separate and more restrictive system built around Form T777 and the employer’s T2200 certification.
This distinction matters because many incorporated contractors assume the T2125 rules they used before incorporating, or that a sole proprietor peer uses, apply equally to them. They do not. The corporation is the employer. The contractor, in their capacity as an employee of that corporation, is subject to the employee expense rules, regardless of also being the corporation’s owner and director.
The T2200 Requirement
The employee home office claim depends on the employer’s declaration. The corporation, acting through an authorized officer or director, completes and signs Form T2200, Declaration of Conditions of Employment. The T2200 confirms that the employee was required to work from home and to pay their own home office expenses as part of their employment.
CRA does not require the work-from-home condition to be written into a formal employment contract, but it should be based on a genuine arrangement, whether a written telework policy, an employment letter, or a corporate resolution. For an owner-manager corporation, the T2200 is signed by the same person who benefits from the claim, acting in their director or officer capacity. That overlap is common in owner-managed files, but the underlying requirement should still be real: the corporation should have an actual reason the contractor works from home, such as no dedicated office space being provided, and that reason should be reflected in the corporate records rather than invented at filing time.
The More-Than-50% Threshold
An employee generally needs to have worked more than 50% of their time from the home workspace for at least four consecutive weeks in the year, or have the workspace used exclusively to earn employment income and used regularly and continually for in-person meetings with clients or customers. Most incorporated IT contractors working primarily from a home office through the year meet the first test. A contractor who spends most of their billable time at a client site and works from home only occasionally does not meet either condition and cannot claim home office expenses through the employee route for that year.
The threshold is assessed for the specific tax year, not as a one-time determination. A contractor whose work pattern shifts partway through the year, for example moving from mostly on-site to mostly remote after a contract change, should confirm which portion of the year meets the threshold before including home office costs in the claim.
Eligible Expenses for Employees
The eligible expense list for a salaried employee is narrower than the sole proprietor list. Employees do not deduct mortgage interest, principal mortgage payments, property taxes, home insurance, capital cost allowance, or furniture through a home office claim. The deduction is limited to operating costs attributable to the workspace:
- heat
- electricity
- water
- the business-use portion of rent, for contractors who rent their home
- the business-use portion of internet access fees
- maintenance and minor repairs attributable to the workspace
Equipment purchases, modem or router costs, and a home’s capital expenses are not part of this claim. Contractors who purchase equipment for business use should look at the technology equipment and CCA guide instead, since equipment follows capital cost rules rather than the home office rules.
Calculating the Claim
The calculation starts with the workspace’s square footage divided by the home’s total finished square footage, applied to eligible expenses for the period the work-from-home condition was met. A dedicated room used only for work gives a straightforward calculation. A shared space, such as a home office corner of a living room, requires an additional adjustment for the proportion of time the space was used for work relative to total hours in the week, since the space is not used exclusively for employment.
The deduction reduces employment income on the T1 return and cannot create or increase an employment loss. Unused amounts carry forward against employment income from the same employer in a future year, which matters for a contractor whose corporation’s compensation structure changes and salary income drops in a later year.
Employee Claim or Corporate Reimbursement
Incorporated contractors outside Quebec have the same two-route choice described for Quebec contractors in the TP-59 and employee route guide: the personal T777 claim, or a corporate reimbursement of documented home office costs.
Employee claim (T777). The contractor takes salary, the corporation signs the T2200, and the contractor deducts home office expenses against personal employment income. No corresponding deduction is claimed on the corporation’s T2 for those same costs.
Corporate reimbursement. The contractor submits a documented home office expense claim to the corporation. A properly supported reimbursement is generally deductible to the corporation and generally not a taxable benefit to the employee, since it repays an employment-related cost rather than providing a discretionary allowance. No T777 or T2200 claim is needed for costs handled this way.
The two routes cannot both apply to the same expense in the same year. Which one produces a better outcome depends on how compensation is structured between salary and dividends and how the corporation’s taxable income compares to the contractor’s personal marginal rate, which is a compensation planning question rather than something to decide independently at filing time.
Documentation
For an employee claim under T777, keep:
- the signed T2200 from the corporation
- the square footage calculation for the workspace and the home
- an hours-of-use calculation if the workspace is shared rather than dedicated
- receipts or statements for each eligible expense category claimed
- evidence supporting the more-than-50% work-from-home condition for the relevant period
For a corporate reimbursement instead, the underlying receipts and a brief note of business purpose are the primary support, along with confirmation that the amount reimbursed reflects only the business-use portion of a mixed-use cost.
Reconstructing a work-from-home arrangement after CRA has already asked about it is a weaker position than documenting the arrangement when it began. The T2200 itself does not need to be filed with the return, but it must be available if CRA requests it, along with the receipts supporting each claimed amount.
Related Articles
- Home Office and Vehicle Expenses for IT Contractors covers the sole proprietor route on T2125 and TP-80, which does not apply once a contractor is paid salary by their own corporation.
- Home Office Expenses for Quebec IT Contractors: TP-59 and the Employee Route covers the equivalent employee-route rules for a Quebec establishment, including the parallel TP-59 and TP-64.3 filings.
- Owner-Paid Expenses, Reimbursements, and Corporate Credit Cards covers the reimbursement mechanics and documentation standard that apply to the corporate reimbursement route described here.
- Vehicle Expenses for Incorporated IT Contractors covers the parallel employee-versus-reimbursement question for vehicle costs.
Get in touch if your corporation’s compensation structure has changed and you want to confirm which home office route, employee claim or corporate reimbursement, fits your current file.