With more people working from home, the question of deducting home expenses often arises. The Canada Revenue Agency (CRA) has restrictions and guidelines on what is allowed to be deducted, starting with determining whether you are an employee or if you are self-employed.
Deductions for Employees
The CRA allows you to deduct certain home expenses for your employment as long as you meet one of the following conditions: The work space is where you mainly do your work (more than 50 percent of the time), or you use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers. This means that the space is only used for work-related business. Please note, for salaried employees you are not able to deduct your mortgage interest, property tax, home insurance, or capital cost allowances as part of your work space in the home expenses.
If you meet these requirements, you also need to complete Form T2200 (Declaration of Conditions of Employment), which must be signed by your employer. You cannot simply decide that you work from home; your employer must require it. Some employers put this in an employment agreement requiring a home office, which would further support your claim. You will then need to complete a T777, Statement of Employment Expenses, for your tax return.
The amount of expenses you can deduct is limited to the amount of income generated from the employment. Consider keeping an appointment log to further support your position of meeting clients in your home work space. You can’t create a loss from claiming home office expenses, and you can’t apply the expenses to other income. If you can’t use all the expenses in a year, you can carry forward to the following year, as long as the income is from the same employer. If you rent your home, you can deduct the percentage of rent and maintenance costs related to the work space.
Deductible Home Expenses for Commissioned Employees
You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, maintenance, property taxes and home insurance, similar to self-employed individuals. You can’t deduct mortgage interest or capital cost allowance if you are an employee, but you can if you are self-employed.
Deductions for Self-Employed Individuals
If you are self-employed, you can deduct expenses for the business use of a work space in your home as long as you meet one of the following conditions: It is your principal place of business, or you use the space only to earn your business income and use it on a regular and ongoing basis to meet your clients, customers or patients. To understand all the items that are included as part of your business use of home expenses, review the T2125, Statement of Business Activities form. Track your costs throughout the year so you are prepared to complete this section at tax time.
Calculating Your Work Space
One of the most common ways to calculate the percentage of expenses for work space in the home is to use a square footage of the space or room out of the total square footage of the home. For other costs, it may not be appropriate to use such a percentage. For example, if the expenses you paid were repairs to the work space, you would expense all of these and not a percentage of square footage.
Whether you are an Employee or Self-Employed, TurboTax Online makes it easy to claim your home office expenses.
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