When you're self-employed, your workplace can be in your home. The CRA lets you claim part of those expenses to lower your tax bill. But, be sure you're following the rules to deduct your business-use-of-home expenses.
Can I claim business-use-of-home expenses?
If you want to deduct the costs of your home office or an area of the home used for business, make sure you qualify first. Your home workplace qualifies as long as it meets one of the following conditions:
- The home office or area used for business is your principal place of business, or
- You use the space exclusively for business and you use it regularly for business.
What can I claim for business-use-of-home expenses?
You can deduct the following costs as part of your business-use-of-home deduction:
- Home insurance
- Heating bill
- Electricity bill
- Cleaning material
- Property taxes
- Mortgage interest
- Capital cost allowance
- Rental cost
- Other home improvements costs that impact the office like a new roof.
How to calculate my business-use-of home deduction?
Use the square footage of your house and designated work area to help determine your deduction. Divide the total area of your home by the total area of your work area. Use this percentage on the applicable home expenses to come to your deduction. For example, if your home office is 10 percent of your home and you spent $20,000 on your home for the year, your business-use-of-home deduction would be $2,000.
What if I use my home office or work area for business and personal reasons?
If you use part of your home for business reasons, you can only claim the business part. You will have to calculate how many hours in the day you use the area for work and then divide that amount by 24 hours. Multiply that result by the business portion of your home expenses for the year.
Where do I claim the business-use-of-home deduction?
You can claim this deduction on Form T2125, part 8.
What other things should I keep in mind?
This deduction can't be more than the net income from your business. In other words, you can't use it to create a business loss or increase an existing business loss. You can deduct the lesser of:
- Amount carried forward from a previous year, plus your business-use-of-home deduction for the current year or
- The net income loss after adjustments.
Also, if you're deducting capital cost allowances on the business use of your home, you'll be subject to capital gain and recapture rules.
