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:
- Home Insurance
- 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.