Your Small Business & Business Use of Home Expenses

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

Caveats

The big one; you can only deduct a portion of these expenses, relative to the part of our house you actually use to conduct business.  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” (T4002 – Business and Professional Income Guide).

Also, the portion you deduct needs to account for the time you spend actually working at your business if you use part of your home for both business and personal living. The Canada Revenue Agency explains,

“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” (T4002 – Business and Professional Income Guide).

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.)

Capital gain and recapture rules will apply if you deduct Capital Cost Allowance on the business-use part of your home and you later sell your home.

How to Calculate Business-Use-Of-Home Expenses

Form T2125, Statement of Business or Professional Activities, which is part of your T1 income tax package, includes a section for calculating business-use-of-home expenses. The results of this calculation get entered on line 9945 on your individual income tax form.

Did you know? TurboTax Home & Business helps you calculate your business-use-of-home expenses. When you enter your total home expenses for the tax year and the total area of your home and work space, TurboTax will calculate the allowable portion of your expenses.

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