Do you work from home? Make sure you know the guidelines for deductible home office expenses!
The Canada Customs and Revenue Agency (CCRA) Interpretation Bulletin IT-514 outlines the guidelines dealing with deductibles of home office expenses. Make sure you know which expenses can be written off against business income and that you satisfy the necessary criteria before claiming any deductions.
The Home Office
The home office is defined as the location where the individual principally performs their business (i.e. at least half of the time), OR the office is used exclusively for the purpose of earning employment income (in other words, no personal use) and on a regular and continuous basis for meeting clients.
What you can write off
If the criteria for a home office are satisfied, you can deduct housing expenses up to the limit of your business income. In other words, you cannot use home office expenses to create a business loss. However, home office expenses that cannot be used in the year can be carried forward and deducted from income in future years.
Eligible expenses
Home office expenses include the pro-rated portion of:
• Rent
• Minor repairs and maintenance
• Cleaning materials
• Utilities such as heating and lighting
• Capital cost allowance (CCA)
• Property taxes
• House insurance
• Mortgage interest
As a self-employed businessperson, you are allowed to deduct a portion of your mortgage interest for home office expenses. Beware of claiming CCA against the fair market value of your home. While allowable in theory, it is seldom desirable since it can impair your claim for principal residence exemption, meaning you’ll end up paying additional taxes when you sell your house.
You should also keep in mind that some office expenses are fully deductible, such as those that are used entirely and exclusively in the activities of the home business. Examples include supplies, the cost of a separate fax and phone line, furniture and computer equipment used solely in the operation of the business.
Other expenses are claimed proportionately, as a ratio of business to non-business use. For example, if your house is 1000 square feet and your office is 100 square feet, you can deduct 10% of mortgage interest and insurance costs as an eligible home office expense.
As with all tax matters, the key is to keep accurate records so that you’ll be able to provide good documentation in the event of an audit
C. Couzelis & Co. 