Personal Finance

Home Office Eligibility and Deduction: The Basics

by Paul Van Walleghem
November 12, 2020
CFE Graduate - Lazer Grant LLP Chartered Professional Accountants
November 12, 2020

Summary: Home Office Expenses

Have you started a business out of your home? Did you know that some of your home office expenses may be eligible as a deduction on your income tax return?

For your home office expenses to be deductible, you must meet the following criteria:

  • your home office must meet one of the two criteria set out below; and
  • the total expenses must be pro-rated based on the size of your office compared to your home.

Criteria

For a home office to be eligible for deduction in your business, according to the Income Tax Act:

  • your office space must be your principal place of business – 50% or more of your business activities are conducted inside that space; and/or
  • the space is used to earn business income and is regularly used, on an ongoing basis, to meet clients or customers.

If at least one of these criteria is satisfied, your home office expenses can be deducted against your business income for the tax year.

Eligible home office expenses

Many expenses are eligible for the tax deduction. Common expenses include insurance, utilities and other maintenance costs. Some lesser known items that can increase the amount you are able to deduct include mortgage interest and property taxes paid during the year. If an expense relates to both your home and your business, it is likely deductible.

Calculating the Deduction

Measure the size of your home office then divide that by the size of your home. That will give the percentage used to calculate the deductible amount.

  • For example, if your home is 1,000 square feet and your office is 100 square feet, the deductible percentage is 10%.

Next, multiply your total eligible expenses by your percentage. That gives the maximum allowable expense you can deduct from your business income for the year.

The amount to be deducted from your business income is the lower of the eligible amount calculated above and the amount needed to reduce your business’ net income to nil. You cannot use your home office deduction to create a business loss.

If there is a difference between the amount deducted and the eligible amount, you can carry it forward to be applied against future business income.

About Paul Van Walleghem

Paul Van Walleghem is a CFE graduate at Lazer Grant LLP Chartered Professional Accountants, a local public accounting firm in Winnipeg, Manitoba.  He has six years of public practice experience. Paul’s main focus is to help small-to-medium-sized businesses grow and succeed.

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