Can I Deduct Work-At-Home Expenses?
A study conducted by Statistics Canada shows that more than one out of five employed university graduates work from home. Working at home has many practical and financial benefits. You save money on commuting costs, meals and clothing. If you run a business from home, you also save money on building rent and overhead. But, you have to spend money to make money -- supplies, additional utilities and home office space are just a few of the things you need when you run a home office. Because of these expenses, the Canada Revenue Agency offers a home office deduction.
June Fitzmartyn, a CPA and a tax professional based in Vancouver, B.C., says that this deduction is only available if "you are self-employed or you get a form from your employer (Form T2200, Declaration of Conditions of Employment) that states you must work at home and keep an office." The CRA also requires you meet one of the following conditions:
* Your home must be your primary place of business. That is, you conduct business in your home more than half of the time. * You meet clients, customers or patients in your home and as a result, you earn business income from your home.
You can deduct expenses that are required to run your home office. Electricity, heat and maintenance costs are examples of deductible expenses. According to Fitzmartyn, you also can deduct "home insurance, property taxes (even the cost of a) cleaning lady." If you rent your home, you can deduct a portion of your monthly rent.
Calculating Your Deduction
To determine the cost of your home office, the CRA says you must determine the percentage of the finished area of your home that is allocated for business use. The finished area includes all useable space, including hallways and bathrooms. Fitzmartyn says that you can "use the square footage of your home" to perform the calculation. Take the square footage of your home work space and divide that amount by the total square footage of your home to get the percentage, she says. For example, let's say your home has 2,000 total square feet of usable space and your home office takes up 200 of those square feet. The percentage of the home allocated for office space would be 10 percent. If expenses, such as rent, cleaning supplies and utilities, total $20,000, then your deduction would be $2,000.
Business and Personal Use
If you use your work space for business and personal use, you must only deduct the business portion. To determine the business portion, calculate the amount of hours per day you use your work space for business use and divide that amount by 24. This calculation provides you with the percentage of the time that you use the space for business. You can only claim that percentage as your home office deduction. For example, let's say you work in your home office 12 hours per day on average and the remainder of the time, you use the space for personal use. This means you must further reduce your home office deduction by 50 percent. From the previous example, instead of claiming a $2,000 deduction, you would only be able to claim half of that amount, or $1,000.
Things to Consider
You can only claim expenses that you pay for out of pocket. If an employer pays for any of your business expenses, or reimburses you for any such expenses, you may not include these amounts. You also may not use your home business expenses to create a loss. All of your other business expenses, such as advertising and legal fees, must be deducted first, says the CRA.
References & Resources
- June Fitzmartyn, CPA, Vancouver, BC
- Canada Revenue Agency: Line 9945 - Business-Use-Of-Home Expenses
- Canada Revenue Agency: Work-Space-In-The-Home Expenses