Claiming Home Office Expenses

Did you know you may be eligible to deduct some of your home expenses from business profits? If you’re self-employed or a sole proprietor based from home, you receive favourable tax treatment from the Canada Revenue Agency (CRA). Deductions include:

  • Rent or Mortgage interest
  • Insurance
  • Utilities
  • Property taxes
  • Maintenance fees

Claiming Expenses as a Business Owner

In order to calculate the amount you can deduct from your tax bill, you’ll need to make the following calculation:

Divide the square footage you use for your business (A) by the total square footage of your home (B), then multiply this by the amount of allowable expenses (C).

So, (A ÷ B) × C = the amount you can deduct.

For Example:

Say your home office is 100 square feet, your home totals 980 square feet, and your monthly rent is $2,000 plus another $200 for utilities. Your calculation would be:

(100 ÷ 980) × 2200 = $228.49

That $228.49 is deductible from your tax bill for that month. When it’s time to submit your taxes, total these monthly amounts to find the yearly deductible.

Home office expenses are claimed through the same T2125 form you submit for all other income and business expenses. Find more information on the CRA website and TurboTax’s article on home office deductions for self-employed individuals

Claiming Expenses for Your Personal Living Space

Some additional deductions may apply if you’re also using your personal living space for your business.

One example would be if you’re running a childcare operation out of your home where children use a designated play area, the living room, and the kitchen. In this case, you’d calculate how many hours of the day that area is used for the business.

For Example:

The living room and kitchen are used between 7 am and 7 pm, Monday to Friday. This means that the home is used to provide childcare services 37.5 percent of the time.

The living room and kitchen are 400 square feet, and the house is 2,000 square feet. The total cost of hydro, insurance, and rent is $15,000 annually. The deduction would be:

400 ÷ 2000 × 37.5% × $15,000 = $1,125

Claiming Expenses when Operating at a Loss

It’s important to note that if the business is operating at a loss before deducting home office expenses, you cannot deduct any money from your tax bill. In other words, you don’t increase your loss by claiming in-home office expenses.

But you should still calculate and include the deduction on your tax return, as the amount can be carried forward until you’re operating at a profit and then deducted from your tax bill.

For Example:

Say in-home office expenses total $1,200 for both 2022 and 2023, and the business has a loss of $100 in 2022 but a profit of $5,000 in 2023. Then, the loss to be reported on the 2022 return is $100, and the income for 2023 is:

$5,000 – $1,200 – $1,200 = $2,600

Finding the Appropriate Deductions

Claiming appropriate tax deductions is an essential part of tax planning and maximizing your financial position. Be sure to discuss all the opportunities available to you with a qualified tax professional. Check out our Talk to an Accountant advisory services to get your burning tax questions answered. 

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