Telephone & Utilities Deductions for Canadian Contractors (T2125 Line 8220)

For Canadian contractors and self-employed professionals, the phone on your desk and the internet connection powering your work are legitimate business expenses — but the CRA expects you to separate the business portion from personal use. This guide walks through exactly what qualifies as a telephone and utilities deduction, how to calculate your business-use percentage, and the documentation you need to support your claim.

What Falls Under Telephone & Utilities?

The CRA's telephone and utilities category (Line 8220 on Form T2125) covers two distinct types of expenses.

Telephone expenses include your cell phone plan, a dedicated business landline, and any long-distance charges made for business purposes. If you use one phone for both business and personal calls — which most contractors do — only the business-use portion is deductible.

Utility expenses cover the cost of heat, electricity, and water used in a dedicated workspace. If you work from a home office, these costs overlap with your home office deduction and must be apportioned accordingly. If you rent a separate office or studio, the full utility bill for that space is generally deductible.

Internet service sits at the intersection of both categories. Your monthly internet bill is deductible to the extent it is used for business. For most contractors, internet is their primary business tool, which supports a high business-use percentage.

Calculating the Business-Use Portion

The CRA does not require you to track every minute of phone usage, but it does expect a reasonable, defensible estimate of how much of your phone and internet time is business-related.

For your cell phone, a common approach is to review two or three months of bills and estimate what percentage of your calls and data usage were for business. If you make frequent client calls, attend video meetings, and use your phone to manage invoices, a business-use percentage of 50 to 80 percent is typically supportable for a full-time contractor. Once you settle on a percentage, apply it consistently to the full year's bills.

For internet service, many contractors who work primarily from home claim 50 to 75 percent as the business portion, reflecting that the connection is used for both work and personal browsing. If your business is entirely internet-based — software development, consulting, content creation — a higher percentage is reasonable and defensible. The key is that your estimate reflects reality and that you can explain your reasoning if the CRA asks.

If you maintain a home office, some accountants prefer to roll internet costs into the home office calculation (based on workspace square footage) rather than treating it separately under Telephone & Utilities. Both approaches are acceptable — consistency matters more than which method you choose.

Cell Phone Plans: Business-Only vs. Mixed Use

The cleanest approach to cell phone deductions is to have a dedicated business phone on a separate plan. In that case, the entire plan cost is deductible. The downside is the cost of maintaining two lines.

Most contractors use a single phone for both business and personal use. In that case, you estimate the business-use percentage and apply it to the full plan cost including data charges, hardware payments if the phone is on a device financing plan (through Capital Cost Allowance), and any add-on services used for business purposes such as international roaming during a business trip.

Home Office Utilities: How the Overlap Works

If you claim a home office deduction, the utility portion is typically calculated as a percentage of your household utility bills based on the size of your workspace relative to your home's total floor area. For example, if your home office is 150 square feet in a 1,200 square foot home, you can claim 12.5 percent of your heat, electricity, and water bills as part of the home office deduction.

The phone and internet bills are usually handled separately under Telephone & Utilities. Your accountant can advise on the cleanest way to structure this based on how you use your home and workspace.

What Records You Need

The CRA expects you to keep your monthly bills for at least six years. For cell phones with mixed use, keep a brief written note explaining how you arrived at your business-use percentage — for example, a summary of the types of calls you make for business, the apps and tools you use on the phone for work, and your estimate of the time split. This does not need to be elaborate, but having something on record is much better than trying to reconstruct your reasoning years later during an audit.

For utility bills tied to a home office, keep copies of the bills alongside your home office calculation showing the square footage of your workspace and your home.

GST/HST Input Tax Credits

If you are registered for GST/HST, the tax portion of your telephone and internet bills paid to GST/HST-registered providers is claimable as an input tax credit. Only the business-use portion of the expense generates an eligible ITC, so your business-use percentage applies here too.

Most cell phone carriers and internet service providers in Canada are GST/HST registered. The tax will appear on your monthly invoice. Keep the invoices to support your ITC claims on your GST/HST return.

How to Claim on Your T1 Return

Telephone and utilities expenses are reported on Form T2125, Line 8220. Add up all qualifying bills for the year, apply your business-use percentage, and enter the total. If you use ExpenseFlow, transactions categorized as Telephone & Utilities are totaled automatically and ready to transfer to your T2125 at filing time.

If your utilities are part of a home office claim, they may instead appear on the home office section of T2125. Your accountant will know where to put them based on how your return is structured.

A Practical Note

One mistake contractors make is claiming 100 percent of a personal phone bill simply because they use the phone for work. The CRA views this with skepticism unless you have a second dedicated personal device. A well-documented 60 or 70 percent claim on a single phone is far more defensible than an unsupported 100 percent claim, and it gives you something concrete to point to if your return is reviewed.

The same logic applies to internet. Claim what is reasonable for your actual work habits, document your reasoning, and keep your bills. A clear, consistent record is the best protection you have.