If you run a business from your home, part of your household costs may be deductible. The rules for self-employed people are more generous than for employees, but there are two conditions you must meet first.
The two conditions
You can deduct business-use-of-home expenses if your workspace is either:
- Your principal place of business, meaning you mainly run the business from home; or
- Used only to earn your business income and used on a regular and ongoing basis to meet clients, customers or patients.
Working out the business-use percentage
Divide the area of your workspace by the total finished area of your home. A 150 sq. ft. office in a 1,500 sq. ft. home is 10%. If the space is also used personally, such as a dining table, you also need to adjust for the hours it’s used for business.
Expenses you can claim (business portion)
- Utilities (heat, electricity, water)
- Rent, if you rent your home
- Home insurance and property taxes
- Mortgage interest (not the principal portion of your payments)
- Maintenance and minor repairs
- Internet (the business-use portion)
Rules that catch people out
- You can’t create or increase a business loss with home office expenses. Any unused amount can be carried forward to future years against income from the same business.
- Think twice before claiming depreciation (CCA) on your home. It can affect the principal residence exemption when you sell, which could create tax on the business portion of your home.
- Keep records: utility bills, your mortgage interest statement, property tax bills, and a simple floor plan with measurements.
Employees are different
If you’re an employee working from home, different rules apply. You’ll generally need Form T2200 from your employer, and the list of eligible expenses is shorter.
Running a business from home? See our plans and pricing or contact Wealth Street Services. We’re in Brampton and serve clients across Canada.
Sources
This article is general information, not tax or financial advice. Rules and amounts change, so confirm details with the Canada Revenue Agency or speak with our team about your situation.
