It’s getting close to that time of year again to start thinking about business tax returns. Many small business owners spend a lot of time working out of a home office, and some work exclusively out of a home office, so here are some pointers on what home office expenses you’re allowed to write off as part of your business year-end tax return.
Criteria for Claiming Home Office Expenses
CRA is quite specific in defining criteria for claiming home office expenses as part of your business tax return. As outlined on CRA’s website, you must satisfy at least one of two criteria:
The home office space is where you do most (at least 50%) of your work;
You use the home office space on a regular and continuous basis only for work purposes.
Some examples of home office spaces that you can easily include on your business tax return are a den, spare bedroom or extra room in your basement – as long as you’re using them exclusively for your work.
If you have set up a desk in a spare room in your basement but there’s also a TV where your kids play video games then you aren’t allowed to claim this space. Similarly, you can’t claim any home expenses if you work at your dining room table, even if you work there on a regular basis.
Which Home Expenses You Can and Cannot Claim
There are a few different ways to calculate home office expenses – some are relatively straightforward to understand whereas others are more open to interpretation.
For any costs that you incurred directly against the setup or maintenance of your home office space, you can expense the entire amount. For example, say you spend money on decorating and furnishing a home office to work out of when you first start your business. The CRA will allow most or all of this cost to be counted as an expense as long as those monies are spent exclusively on your home work space.
If you pay to have your basement finished and that includes a new home office, you’re allowed to write off a portion of the cost equivalent to how much of the overall project your office is. So say you spend $25,000 on renovating 500 square feet of your basement, 100 square feet of which is a home office. By CRA’s guidelines you are allowed to expense 20% (100 out of 500 square feet) of the cost – or $5,000 – as a business expense.
CRA will also allow you to write off the proportional cost of other household expenses such as electricity, heating, maintenance, property taxes, home insurance and internet. Again, you’re allowed to expense a proportional amount of these expenses based on how much of your total home size your home office takes up.
You are not allowed to include mortgage expenses as part of your business write-off. The CRA isn’t interested in sharing the cost of your purchasing your home.
Year-End Tax Deadlines
Just a quick note here about some important dates on the calendar concerning year-ends.
Unincorporated businesses are required to have a December 31 year-end and business tax returns are due by June 15. However, you should be aware that if you end up owing the CRA money, they’re going to start accumulating interest on those monies owed starting effective 90 days following your year-end, so even though you’re not required to file taxes until June 15 interest starts mounting starting on April 1.
Incorporated businesses can trigger a year-end at any time during the year as long as it is within 365 days of their previous year-end (or date of incorporation for new businesses), and they have 180 days to file their corporate tax returns. So if you own or operate an incorporated company with a December 31 year-end then you have until June 29 to file your taxes.
Many freelancers, solopreneurs and small business owners set up and work out of a home office as part of operating their business. The CRA does allow you to include part of the expenses of that home office in your business tax return, but there are certain criteria that must be met and some conditions on which expenses you are and are not allowed to claim.
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Have Your Say
Do you have a home office and are trying to understand which expenses to claim through your business? We’d love to hear from you! Also, please share this article using the social media share buttons – other people working out of a home office might benefit from this post!