How To Claim Work-At-Home Expenses: Self-employed Canadians

“What you can claim for work-at-home expenses changes if you’re self-employed rather than employed by someone else,” says Jeff Stokley, chartered investment manager and financial management adviser with Investors Group in London, Ontario. “A worker requires form T2200, the Declaration of Conditions of Employment, completed by the employer, while a self-employed person includes the eligible portion of home expenses on form T2125.” Even when a worker has a completed form T2200, the range of eligible expenses is not as extensive as self-employment, and any expenses reimbursed by the company may not be deducted. Further, the CRA requires that a home office be where a worker spends 50 percent or more of work time, or that the workspace be used only for earning employment income, and is used regularly to meet clients. Canadian Broadcasting Corporation news reported in 2013 that the CRA is watching form T2200 use more closely than in past.

There are some common expenses regularly claimed by employed taxpayers when the employer does not cover the costs. Professional and union dues related to the taxpayer’s job are claimed on line 212 of the federal return. In some cases, if an employee hires an assistant directly, that salary is deductible. Office supplies and travel expenses are allowable if the employer does not reimburse the employee. Generally, capital expenses are not allowable for an employed taxpayer, though in some circumstances capital cost allowance on a personal vehicle used for company purposes may be claimed. Purchases such as computers or office furniture are not eligible expenses. Similarly, phone costs or business equipment rentals are not eligible. Meals and entertainment costs, outside of business travel, are not allowable. Free software and free offerings from commercial software vary in the ability to provide tax advice as you complete your tax return, though all features of a T1 return will be supported.

Self-employment expands the range of work-at-home expenses for which a taxpayer is eligible. On top of the prorated amounts employees can claim on rent and maintenance, self-employed taxpayers can claim portions of home insurance, property taxes and mortgage interest. A phone line dedicated to business is fully deductible. The general rule followed is that any expense that is reasonable for the running of a business is eligible. One restriction is that business expenses cannot be used to create or expand a business loss; however, in such a case, unclaimed expenses can carry forward to another tax year. Most free tax software allows you to claim work-at-home expenses, though upgraded commercial versions may support these expenses with more focus on self-employment.

Earnings and expenses from business and professional activity for an individual are reported by way of form T2125. Page 3, part 5 of the form lists expense categories and calculations for deduction from gross profit to determine self-employment net income. Net income is transferred to T1 tax return lines 135, 137 or 139, for business, professional or commissioned earnings respectively. Since form T2125 is commonly used with the T1 tax return, CRA-certified free software will support the form. If you are filing electronically, keep all receipts and support documentation, whether you are employed or self-employed, to meet CRA’s record retention recommendations.