If I am working from home, can I claim business use-of-home expenses?
If you spend most of your business working hours at home, and if your home is the place where you meet with clients, customers, or patients, then the CRA has deemed you eligible to claim ‘business use of home expenses,” which calculates the percentage of your home expenses that are devoted to conducting your home business.
How do I calculate business use of home expenses?
To calculate your business use of home expenses, calculate the percentage of your workspace by dividing it by the total area of your home. This is a “workspace calculation.” For example, suppose you have a home office that is 10 x 10 feet in a house that is 2,500 square feet. The allowable portion of “business use of home” expense would be 100 divided by 2,500 = 4%. The personal use portion would be 96%.
You will then want to calculate your home business tax deduction by deducting a portion of all your allowable household expenses, including utilities, telephone, cleaning materials. If you own your own home, you can also claim a portion of your insurance, property taxes, and mortgage interest (not the mortgage). If you rent, you can claim a portion of the rent you pay.
Then you will divide your business use of home expense by the total expense of maintaining your home to arrive to your allowable deduction. For example, if your total expenses is $19,500, and your business use of home expense is 4%, your allowable deduction that you can claim on your T125 is $780, representing 4% of your total home expenses devoted to your home office.
Can I also deduct equipment that has depreciated over time for home based business?
Yes, you can also deduct equipment that depreciate in value over time, such as filing cabinets, computers, and printers, which fall under the rules for capital cost allowance.
According to the CRA, a capital cost allowance is a “tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence.” You can’t deduct the entire cost of your equipment on your income tax for that particular year. Instead, you only claim a portion of the original cost as a tax deduction each year and continue doing this over a period of years until the property or the equipment fully depreciates.