Business Use of Home Tax Deduction

Tax time is rapidly approaching and self-employed people or business owners will have certain deductions they can claim against their professional income.  We’re going to look at the business use of home expense deduction and how to calculate it.

You can claim part of the expenses for your home provided you meet one of two criteria:

  1. it is your principal place of business;
  2. you use the space only to earn business income and use it on a regular basis to meet with your clients, customers or patients.

Example 1:   you are a bookkeeper, graphics designer, seamstress, consultant or something similar; the type of work that you do is mostly at a desk and you do most of that work at a desk in your home.  

Example 2:  the business is registered to your home address (principal place of business).

Example 3:  you are a hairdresser, chiropractor, dog groomer, massage therapist etc who has converted part of the home into the space where you service your clients or customers.  Also, that area is now strictly for business; it does not serve as the family tv room after hours.

Okay, so you qualify for this deduction.  What can you deduct?  You can deduct part of the regular maintenance costs of your house such as heating, home insurance, electricity, water, sewage fees, garbage fees, cleaning materials (does anyone actually track how much they spend on that??), property taxes, mortgage interest, and capital cost allowance (home owners only).

How much can you claim?  First you need to know the total square footage of your house.  Then you need to measure the area of the “business space” or work space.  Let’s say your house is 1,000 square feet and your work space is 100 square feet.  You divide 100 by 1000 to get 1/10, or 10%.  So if your costs for the year were $12,000 you can claim $1,200.

Now, let’s say you use that space partly for living and partly for personal use.  This is my personal case as the desk I work at is also the desk where I sit and play computer games when I’m not working.  Now you have to take the number of hours per day that you spend doing business, let’s say 8 and multiply by the number of days per week that you work, let’s say 5.  That would be 8 X 5 = 40.  Divide those hours by the total hours in a week, which is 168; 40/168 equals 23.8%.  Take the $1200 from the first calculation and multiply that by 23.8% and now you can claim $285.60.

There, we’re done!  So add up all of the allowable expenses for your home, then multiply it by the percentage of the square footage if that space is strictly used for business.  If it’s both business and personal then also multiply by the percentage of hours per week for the total deduction you can claim.

This information was taken from the Business and Professional Income (Includes Form T2125) 2011 booklet published by the Canada Revenue Agency.  For more detail visit www.cra.gc.ca and search for Interpretation Bulletin IT-514 or consult with your tax expert.

© Rigel Chiokis 2012 - 2017