Maximize your home office income tax deduction

As a sole-proprietor with a home office, you may be able to deduct a portion of your home expenses on your tax return.  It’s important to note that having a home office or doing some work from home doesn’t necessarily make you eligible for the deduction;  the CRA has criteria which must be met in order for you to deduct your home expenses.

What are the conditions to be eligible to claim the home office deduction?

In order to deduct business-use-of-home expenses, you must meet one of these criteria:

  • it is your main place of business (generally interpreted as more than 50% of the time),
  • you use the area only to earn your business income and on a regular and ongoing basis to meet your clients, customers, or patients.

What expenses are included?

The home office deduction includes the following:

  • heat
  • hydro
  • home insurance
  • water
  • property taxes
  • mortgage interest or rent expense
  • repairs and maintenance (this includes cleaning supplies)

Expenses directly related to your home office, can be deducted in full.  You can also claim CCA on the portion of your home used for business however this is typically not done since it can have negative tax consequences when you sell your home.

How does the deduction work?

If you are eligible to claim home office expenses, the deduction is based on the portion of your home used for your business.  For example, if your home office is 15% of the total square footage of your home, you can claim 15% of your home expenses as a deduction from your business income.  It’s important to note that home office expenses cannot be used to create a business loss.  That said, these expenses can be carried forward to subsequent years and deducted from income generated by the business, so long as the business-use criteria listed above are still met.

This information relates to sole-proprietors with a dedicated office space.  If you are a salaried or commission based employee with a T2200 or use portions of your home for multiple purposes (ie., operate a day-care), it’s a bit different.  If you’d like to know more about what the differences are, get in touch or click on these categories for links to the CRA website –  salaried employee, commission based employee, operate a day-care.

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