If your home is your principal place of business, you can claim Business-Use-Of-Home expenses on page 3 of the T2125 form.
The expenses allowed to be claimed include:
- Heat
- Home Insurance
- Electricity
- Maintenance (i.e. cleaning materials)
- Mortgage Interest (interest only, not mortgage payment)
- Property Taxes
- Water (if applicable to your business)
The amount you can claim is based on the square footage of the area used for business use. For example, if your house is 1,500 sq ft and the office you work out of is 150 sq ft, then you can claim 10% of the expenses above if you use this room solely for business activities.
If you also use the room for personal use, you also have to calculate the fraction of time that it is used for business use. For example, if you do 4 hours of work a day, 5 days a week, then you have to take 20 hours (4 x 5) divided by 168 hours (24 x 7). In this example, that’s 11.9%. That would be multiplied by the square footage calculation and you would only be able to claim 1.19% of the above expenses. Obviously, you would be better off if you use the room only for business activities.
Unlike the business expenses and Capital Cost Allowance we’ve discused this week, Business-Use-Of-Home expenses can only be applied against a net income and cannot create a net loss. For example, if you have $2,000 in business net income and $1,500 in Business-Use-Of-Home expenses then you can claim the full amount. If you have a net loss (income minus expenses), then you cannot claim the Business-Use-Of-Home expenses that year. However, the dollar amount you calculated should still be entered into the tax form as it can be carried forward to future years. So once you are finally achieving a positive net income, you can claim the carried forward amount up to the amount of your net income. If you still can’t claim it all, carry forward the remaining to the next year.
Business-Use-Of-Home Expenses,
When I claim heat, insurance, electricity etc. expenses should I enter amounts including paid GST/PST or without them? And the same question for CCA.
Thanks for the great series of articles.
Thanks for the comment!
Including GST, and I believe PST, depends on one thing… whether you are collecting GST on sales or not.
If you do not collect GST, then you can include the GST in your expenses and CCA.
If you do collect GST, then you use an input tax credit and can’t include that same amount in your expenses. I’m not familiar with it as I don’t fall under this category, but I believe an ITC offsets GST you have collected so that you submit less to the CRA.
No, I do not collect GST.
I’m freelance web designer/programmer with a few projects a year with revenue less $30000.
That means I’ll include GST in my expenses. Thanks again for clarification.
I recently came across your website and have enjoyed reading the articles esp the ones about investments instruments for TFSA/RRSP .
I hope you have more articles about REITS/and investment funds.
Marian, thanks for the comments. I will definitely have more posts on REITs and funds in the future!
Can I claim the GST paid on business-use-of-home expenses when filing my GST return?
BusinessMan, If you collect GST, then the GST you pay is an input tax credit, not claimed in Business Use Of Home expenses. You’ll find more detail in the comments above.
Further to BusinessMan’s question, I would like to know how to handle ITC’s for home business expenses as well as vehicle repair and fuel costs. I collect GST, report quaterly and have been including total fuel and vehicle repair amounts. Trouble is at income tax time, only a percentage of these are allowable based on business versus personal use. Are you picking up what I’m putting down?
To allow for this you have to make an adjusting entry to deduct the amount of GST ITC’s at the end of the year on your final GST summary (ie. if you can only claim 40% then you need to subtract 60% of the GST ITC’s you claimed during the year to allow for this at year end from the current amount of ITC’s). If you do not this is one of the first things they look at in a GST audit.
Excellent post, I started my home business a few months ago and this information will help me a great deal come tax time next year.
Can I claim on my computer equipments and other furnitures, appliances and fixtures as these are my essentials in business.
-Rachael
Enjoyed your blog.
Holly Uttley
http://website.ws/huttley
Great to see we can carry forward the home business expenses. Your site does a great job answering all my questions.
I provide cleaning services as an independent cleaner for a large company. I’m not on their payroll; I invoice them every month for a fixed amount. I don’t have a business licence/registered company. Can I claim business use of home expenses? plus auto expenses ? Both are needed for my service. Full income is declared with CRA but I’ve never declared expenses.
John,
Kelly knows what he is talking about whether he works for the govt, a taxman or an ordinary layman. As a taxpayer you must know how much space you use for your home for business, and mileage of your car for business use vis-a-vis personal use and repairs etc. If you do this schedule, you will make the taxman job easy and of course lessen his professional fee because one of the tedious works for a tax man is to organize and tabulate tax attachments.