Claiming Your Home Office Expenses

Saving money on transportation, working on your own time, and freedom from supervision are some of the many advantages of working from home.

If you work from the comfort of your home, you may be able to claim a portion of your home office expenses. However, the Canada Revenue Agency (CRA) has rigid rules in place to determine who can claim these deductions.

In general, to qualify for these deductions, one of the following conditions must be true:

  • Your home is used as your principal place of work – meaning this is where you do work more than 50% of the time
  • You use this workspace exclusively for work and use it on a continuous basis to meet clients and customers

The guidelines regarding what deductions can be claimed also depend on whether you are an employee or self-employed. Generally, when an employee is paid, his or her employer automatically deducts Canada Pension Plan (CPP) contributions, Employment Insurance premiums (EI), and income tax. A self-employed individual, on the other hand, must handle his or her own tax responsibilities.

What you can claim as a self-employed taxpayer vs. as an employee

Both self-employed individuals and employees are eligible to claim rent, maintenance costs, and utilities (such as electricity, heat, water). However, only self-employed individuals and commission employees may claim property taxes, mortgage interest, and home insurance. Self-employed taxpayers report these expenses on the T2125, Statement of Business or Professional Activities, while employees report this on the T777, Statement of Employment Expenses.

Calculating the deduction

To calculate the amount of deductible expenses, use the square footage of your workspace as a basis. Divide the area of your home office by the total square footage of your home. If your office, for example, accounts for 5% of the total square footage of your home, you can claim 5% of the expenses you are eligible for.

If your office is not your principal workspace but you still use it to earn business income, calculate the percentage of time you use your space for work and apply that to the calculation.

Let’s say your expenses for the year relating to your business amount to $50,000. Your office is 5% of the area of your total home area, and you use your office 6 hours a day for work (6/24 = 25% you do your work in your home office 25% of the time). Your total deductible amount would be

$50,000 x 5% x 25% = $625

Restrictions on these deductions

The amount that you are allowed to deduct for these expenses is limited to your remaining employment income after all other employment expenses have been deducted.

For instance, let’s say your business made $20,000 in revenues in 2017 and incurred expenses (excluding home office expenses) of $18,000. If your total deductible home office expenses amount to $4,000, you can only claim $2,000 ($20,000-$18,000) in 2017. The remaining $2,000 can be carried forward and claimed in another year.

Common tax-filing mistakes

Some tax mistakes commonly made by self-employed taxpayers and employees include:

  • Claiming a percentage of maintenance or repair costs that have no direct relation to the workspace
  • Deducting the principal mortgage payments in the year; only mortgage interest is deductible (for self-employed individuals)

 

Don’t miss out on these deductions. If you work from home, call or email Gram LLP today to make sure you’re taking full advantage of your deductible expenses.