The Canada Revenue Agency (CRA) allows you to deduct expenses for the business use of your home, if it is your main place of business or if you use the space to earn your business income. Here’s how to claim business use of home expenses in Canada on your taxes.
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How to Claim Business Use of Home Expenses in Canada
In this post, I’ll go over what is considered a business expense to the Canada Revenue Agency, how to calculate the work-at-home-portion of your home expenses.
‘This post will also go over what are some of the home office tax deductions or home-based tax deductions in Canada, what are some of the self-employed tax deductions in Canada.
Finally, this post will review if you are eligible for and also how to claim business use of home expenses if you are an employee.
What Are Considered Business Expenses to the CRA?
For the work at home portion, there are a number of things that are considered business expenses to the CRA.
Here’s a list of deductible expenses that are okay with the CRA.
For example, you can claim the portion that you use for your business of:
- Cell phone bills
- Office/ home phone bills
- Capital Cost Allowance of equipment such as a computer, cell phone, printer etc.
To calculate this, you would calculate what percentage of the day or what percentage of the time you are using the above expenses for business purposes.
In addition to the above expenses that you can claim as a tax deduction, you can also claim expenses related to expenses you pay for within your home too. This is the case if you use your home for your business or to earn income, as mentioned above.
The work at home portion of your mortgage interest is considered a business expense. Yes, if you bought a home and overstretched yourself, this is the one silver lining to your mortgage interest payable, you have more in the form of a tax deduction.
How to Calculate the Work at Home Portion
To calculate the work at home portion, you have to know the total square footage of your home. Then you will also have to calculate the total square footage of your home office or workspace area. To do this, you can estimate by getting a tape measure and multiplying the area by feet (rudimentary, but it works!).
- Your home office is 200 square feet
- Your home is 2500 square feet
The work at home portion and proportion that you can deduct from your taxes in Canada is 200/2500 or 8% (0.08). This is called the prorated portion.
For example, if your home insurance was $1500 for the year, you would be able to use $120 of it ($1500 x 0.08) as a tax deduction.
This amount further gets reduced if you only use it for half the year for business purposes. For example, you would be able to deduct $60 as a tax deduction if you only used that portion of your home for business purposes for 6 months of the year.
Home Office or Home Based Tax Deductions in Canada
The home office or business-use-of-home expenses is entered on Part 7 of the T2125 form.
- Home insurance
- Mortgage interest or rent
- Maintenance fees that your strata charges
- Water bill (listed under ‘other expenses’)
- Property taxes
- Heat/Gas (e.g. your Fortis bill)
These are all inputted on the form T2125, Statement of Business or Professional Activities.
Canada.ca states that the business-use-of-home expenses cannot be exceed your net income from the business before you deduct these expenses (basically, you cannot use your home expenses to create a business loss).
You can carry forward the lesser of the two:
- Any amount that you carried forward from the previous year in addition to the business-use-of-home expenses from the current year
- the amount of net loss after adjustments
Here’s an example from Canada.ca on how to calculate the business-use-of-home expenses.
Self Employed Tax Deductions in Canada
Other things you can include in the T2125 form are:
- Office expenses
- Office stationery
- Meals and Entertainment (for business use)
- Repairs and maintenance
- Salaries and wages
- Interest and bank charges (e.g. even Paysimply charges if you pay your CRA taxes with a credit card)
For more information, I would recommend consulting a tax accountant who can guide you with your tax return for self-employed expenses and calculation of business at home expenses. Things can get pretty complicated.
Business-At-Home-Expenses for an Employee
If you’re wondering if you can claim business-at-home-expenses working at home as an employee, it’s a bit trickier. According to this CTV news article, you would have to be working at least 50% of the time (or 6 months of the year) at home in order to claim these expenses.
Also, you would have to be using your home as a workplace to earn income or to have meetings (e.g. phone meetings). Technically the CRA does not yet consider Zoom online meetings to be meetings but they consider phone calls as meetings. Things may change and there may be new announcements from the Canada Revenue Agency.
The expenses that employees can deduct are utilities (hydro and gas/ heat), as well as maintenance and repairs for the work area. Employees cannot deduct mortgage interest, home insurance, property taxes, or Capital Cost Allowance/ Depreciation on home equipment.
If you do qualify for the business-at-home-expenses, you would need to keep a Declaration of Conditions of Employment form, the T2200 form from your employer in case the CRA asks to see it.
This form allows you as an employee to deduct expenses from your employment income.
Some employers will cover costs for you to work at home, for example, my friend received a new monitor from her workplace because she is working from home, but it is considered a taxable expense for her. However, the Canadian government in April announced a $500 exemption for computer related equipment and the $500 not considered a taxable benefit.
In summary, there are a number of home related expenses that you can deduct if you are a business owner who works from home.
However, the prorated portion has to be calculated depending on the square footage of your workspace area (or the area of your home where you do business). In addition, it has to be calculated according to the time in a calendar year it is used for business.
As mentioned, you should contact your accountant to discuss how to claim business use of home expenses in Canada.
Do you do your own taxes or do you hire an accountant?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.