Claiming Phone, Internet, and Utility Expenses as Business Deductions in Canada

Your phone bill, internet connection, and utilities all keep your business running, but the CRA will not let you deduct the full amount unless they are used exclusively for business. For most self-employed Canadians, these costs are split between personal and business use, which means you need to calculate a reasonable business-use percentage and keep records to back it up.

Here is how to handle each of these expenses on your tax return.

The Business-Use Percentage

The core principle for all shared personal-and-business expenses is the same: you can deduct the portion that relates to earning business income. The CRA does not prescribe a specific formula for calculating the split. Instead, it expects your method to be reasonable and consistent from year to year.

You should be able to explain your method clearly if asked. A statement like "I use my phone roughly 60% for business based on my call and data usage patterns" is a starting point, but having supporting evidence makes the claim much stronger.

Cell Phone Expenses

Your cell phone plan is likely one of your most-used business tools, but it is also clearly personal. The CRA allows you to deduct the business-use portion of your cell phone costs, including:

• Monthly plan charges
• Device payments or lease costs (the business portion)
• Business-related long-distance charges
• Data overages caused by business use

Calculating the Business Percentage

There is no single required method, but here are approaches the CRA would consider reasonable:

Usage-based estimate. Review your call logs and data usage for a representative month. If 65% of your calls and data relate to business contacts, projects, or client communication, 65% is your business-use percentage.

Time-based estimate. If you use your phone roughly equally throughout waking hours and you work 8 hours of a 16-hour day, a 50% business-use claim could be reasonable.

Dedicated business line. If you have a separate phone number or SIM card used exclusively for business, that line is 100% deductible. The personal line gets no business deduction.

Where to Claim It

If you are self-employed and not claiming home office expenses, cell phone costs go on line 8523 (Telephone and utilities) of your T2125.

If you are claiming home office expenses using the detailed method, your cell phone is generally claimed separately from home office costs because it is not tied to the physical workspace. It still goes on line 8523 as a standalone business expense.

Home Internet Expenses

For freelancers and home-based business owners, internet is essential. The CRA allows you to deduct the business-use portion of your home internet costs.

Calculating the Business Percentage

Internet is trickier than phone because usage is harder to quantify. Common approaches include:

Time-based method. Estimate the hours per week you use the internet for business versus personal purposes. If you work 40 hours a week and your household uses the internet roughly 80 hours per week total (including evenings, weekends, and other household members), a 50% business-use claim might be reasonable.

Proportional method. If you have a home office and claim it using the detailed method, you could align your internet business-use percentage with your home office percentage (based on square footage or rooms), although the CRA does not require these to match.

Home Office vs Standalone Claim

Here is where it gets important to understand the distinction:

• If you claim the detailed method for home office expenses (Form T2125, Part 7), your internet costs can be included as part of your home office calculation, prorated by the same workspace percentage
• Alternatively, you can claim internet as a separate business expense on line 8523 using a different business-use percentage that reflects actual usage rather than square footage

You cannot double-count. If you include internet in your home office calculation, do not also claim it separately on line 8523.

Bundled Plans

Many Canadians have bundled packages that combine internet, television, and sometimes home phone. The CRA expects you to allocate only the business-related portion. If your bundle costs $150 per month and a comparable standalone internet plan would cost $80, use the $80 figure as your base for calculating the business-use percentage, not the full $150.

If the bundle does not itemize the components, use the standalone market price of the internet component as a reasonable estimate.

Landline Telephone

If you still have a home landline that you use for business calls, the same rules apply. Deduct the business-use portion based on a reasonable estimate of business versus personal calls.

If the landline is used exclusively for business (no personal calls), it is 100% deductible as a business expense on line 8523. This is uncommon for home landlines but possible if you have a dedicated business line.

Utilities (Electricity, Gas, Water)

Utilities are typically claimed as part of your home office expenses rather than as standalone business deductions. The business-use portion is calculated based on the percentage of your home used for business.

The Home Office Calculation

Under the detailed method on the T2125, you calculate your workspace-use percentage and apply it to eligible home expenses including:

• Electricity
• Heat (natural gas, oil, propane)
• Water
• Home insurance
• Property tax (for homeowners)
• Rent (for renters)
• Maintenance and minor repairs

Calculating the Workspace Percentage

The CRA accepts two approaches:

Square footage method. Divide the area of your workspace by the total area of your home. A 150 sq ft office in a 1,500 sq ft home gives you a 10% workspace percentage.

Rooms method. Divide the number of rooms used for business by the total number of rooms. If you use one room out of eight for business, the percentage is 12.5%.

If you use the workspace only part of the time (for example, you also use the room as a guest bedroom), you must further reduce the percentage based on the proportion of time it is used for business.

Utilities You Cannot Claim Separately

If you are already claiming utilities through the home office calculation on your T2125, you cannot also claim them as a standalone expense on line 8523. The home office section is the proper place for utility costs tied to the workspace.

However, if you have a separate dedicated business space (such as a rented studio or workshop that is not part of your home), the full utilities for that space are deductible as a regular business expense.

What Documentation the CRA Expects

The CRA does not require you to submit receipts with your return, but it expects you to have them available if requested. For phone, internet, and utility expenses, keep:

• Monthly bills or statements for each service (at least 12 months of bills per tax year)
• A written note explaining your business-use percentage and how you calculated it
• Call logs or usage records for a sample period, if available, to support your phone claim
• Your home office square footage calculation if utilities are claimed through the home office method
• Invoices for any equipment purchases (routers, phone hardware) where you claim a business portion

Keep these records for six years from the end of the tax year. Digital copies of bills downloaded from your service provider's website are acceptable.

Common Mistakes to Avoid

Claiming 100% of a shared service. Unless a phone line or internet connection is used exclusively for business, claiming the full amount is a red flag. The CRA knows that most people use their phone and internet personally as well.

Using an unreasonable percentage. Claiming 90% business use on a cell phone when you have a family and use the same phone for personal calls, social media, and streaming is hard to defend. Be honest and conservative.

Double-counting utilities. Do not claim internet or electricity both as a standalone expense and as part of your home office calculation. Pick one method and stick with it.

Forgetting bundled plan allocation. If you deduct your full $200 bundled TV-internet-phone bill as an internet expense, the CRA will not be impressed. Isolate the internet or phone component.

Not adjusting year to year. If your business-use percentage changes significantly (you moved to a bigger office, started working from a coworking space part-time), update your calculation.

Sources

1. CRA Business Expenses - Telephone and Utilities
2. CRA Guide T4002 - Self-employed Business, Professional, Commission, Farming, and Fishing Income
3. CRA Business-Use-of-Home Expenses
4. CRA Keeping Records