This section is about working at home. NOT running a business from home.
There are many parts of the income tax act that the majority of people just don’t understand. When it comes to doing their taxes they just follow the forms they are expected to fill out. Thinking that everything they are entitled to or are responsible for will be covered on the form. Unfortunately, its not that easy and one form that is being filled out by everyone just does not fit the circumstances of each individual. For this reason, many people turn to professionals like an accountant to help them fill out their taxes. These are the experts that will get to know your financial situation and can determine what potential tax benefits may be available to you. A common tax problem for example that some people face is what they can claim for their workspace at home.
Are You Eligible?
So you work from home. You probably assume that you automatically qualify for the expenses that are allowable to be claimed on your income tax. Not so fast. There is some criteria that you must meet and this is where people get confused.
This is important. You must meet ONE of these conditions.
The workspace in your home must be where you are doing a minimum of 50% of your work.
You use the workspace for the sole purpose of earning your employment income. Also, it must be used for meeting clients, customers or other work-related people on a consistent basis.
What Expenses Can You Claim?
Once you know you are eligible to claim expenses you now need to know what it is you can claim.
First, you are going to have to determine the size of the workspace. You can do this by determining the percentage of the total finished area (this includes areas like the bathroom and hallways. So for example, if you have a home that is 1500 sq feet and your work area is 150 sq. feet then you can only claim expenses that pertain to that work area. Which would be 10% of your total living space. So you can claim 10% of the expenses that are applicable to your living space because you have dedicated a portion to it for working at home
Common expenses would include
Heating
Electricity
Property taxes
Home insurance
Maintenance
Maintenance
For the first four, you would take 10% of the costs of these to apply to your work expenses. For maintenance, you have to be careful. If the maintenance costs only applied to your work area then you can claim the total cost. For example, let’s say you bought paint to paint this area. Then you can claim the full cost of the paint. But, if you bought paint that was going to be used in other areas as well, then you can only claim 10% of the costs of the paint.
Rental Property
If you rent your house or are renting an apartment then you can deduct the applicable percentage from the rent and from the maintenance costs.
You Cannot Create Expenses For Claiming
You can only apply the expenses to the amount of your employment income that remains after you have deducted all the other employment expenses you are entitled to. So for example, if you had $400. of income left over after employment expenses then you could deduct up to $400. In eligible work at-home expenses. But if your expenses amount to more than this you could not claim them.
Carry Forward
Although you may not be able to claim all your expenses you can carry them forward to the next year. Provided you are still working for the same employer.
Using The Proper Forms
To claim your work at home expenses you would use the applicable section on FOR T777.
A Home Based Business
Now we are looking at a different scenario. This is where you are running your own business from home.
You need to meet the criteria
You need to meet ONE of these criteria
It is your principal place of business
The space you are using is only for the purposes of earning business and income and you use it regularly for meeting with clients or customers or patients.
If you meet either one of these criteria then you may be able to deduct expenses such as….
A portion of
your maintenance costs
Heating
Home insurance
Electricity
Mortgage interest
Capital cost allowance.
Calculating what is eligible….
This time to calculate the portion that is eligible first you have to calculate the number of hours you are using the room for business purposes. It can be a little confusing as to what space you can claim. If you are using the space for both living and working then you can determine how many hours are used for business and divide this by 24 hours. Then multiply the results by the home expenses. This will determine the amount of household costs that can be claimed as a business expense. If you have a designated room then you may be able to base your expenses on sq. footage. To be correct with the percentage of space that can be claimed for business expenses you should check with a qualified accountant.
Renting
If you rent your home then you may be able to deduct a portion of the rent based on the space used for business.
You cannot use your business expenses to create or increase a business loss.
Both of these working circumstances that take place in your home can be complex when it comes to your taxes. As a certified accountant I would be pleased to help you with your business taxes as well as your personal taxes. Give me a call at 416-398-1700.
