Small Business Tax Tips
Can You Claim Business-Use-Of-Home Expenses?
Many small business owners have home offices, but having a home office isn’t enough to be able to deduct business-use-of-home expenses from their income tax.
The Canada Revenue Agency has strict guidelines about who can and can’t claim this deduction. To deduct business-use-of-home expenses, you have to either be:
- Using your home as your principal place of business; or
- Using the space only to earn business income and using it on a regular and ongoing basis to meet your clients, customers or patients.
What Can You Deduct?
Common business-use-of-home expenses include a portion of:
- Your property taxes
- Your home insurance
- Capital Cost Allowance
- Utilities such as heat and electricity
- Cleaning supplies
- Mortgage interest
- Rent
How do I calculate the percentage of use?
The Canada Revenue Agency recommends that you “use a reasonable basis such as the area of the work space divided by the total area of your home”. Also, if you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct. If you run the business for only part of the week or year, reduce your claim accordingly.
You can’t use business-use-of-home expenses to create a business loss. In other words, your business-use-of-home expenses can’t be more than your business income. (However, you can use any expense you weren’t able to deduct in that tax year the next tax year, as long as you still meet the business-use-of-home expenses conditions.)