Deducting Business Use of Home Expenses: A Guide for Entrepreneurs

In Canada, self-employed individuals and small business owners may be eligible to claim expenses related to using their home for business purposes. To qualify for these deductions, you must meet specific criteria set by the Canada Revenue Agency (CRA):

• Your home must be your principal place of business, OR

  
  

• You must use the space exclusively for earning business income and use it regularly for meeting clients, customers, or patients.

Eligible expenses:

You can claim a portion of various household expenses such as:

• Insurance

• Property Taxes

• Mortgage* Interest or Rent

• Utilities

*Reminder: mortgage principal payment should not be included!

To determine the deductible portion, use a reasonable calculation based on the proportion of your home’s workspace relative to its total area.

If the workspace is used for both personal and business purposes, you must further prorate the deduction based on the time spent using the space for business activities.

Calculator:

Use our calculator below to estimate your business use of home deduction:

Feel free to print and provide us a copy (or PDF) so we include it on your tax return:

• Please enter annual expenses for your fiscal year

Contact our office if your home office calculation requires the deduction to be prorated based on hours used or other modifications.

Limitations (for sole proprietors):

The amount you can deduct for business-use-of-home expenses cannot exceed your net business income before accounting for these expenses. You cannot use the deduction to create or increase a business loss. Unused expenses can be carried forward and applied in future tax years, provided you continue to meet the eligibility conditions.

Claiming other expenses (internet & phone, repairs):

When claiming business use of internet and telephone expenses, it’s important to calculate these separately from the business use of home. Unlike home-related expenses, which are often based on the size of your workspace, internet and telephone usage should be allocated based on actual business use. This can be measured by tracking the time or data used for business purposes versus personal use.

Repairs made exclusively to your home workspace may be 100% deductible, as they relate solely to the business area. For example painting a wall in your office space would qualify for a full deduction, as these repairs directly support the business environment.

Use our business use of internet calculator below to estimate the deduction for the year. This calculator is designed for individuals who work from home and use the internet regularly during their work activities.

Of course, this isn't the only way to handle the business use of internet calculation. Extremely risk-averse clients, for example, may prefer to keep detailed weekly logs, even though it's not strictly required. Those who are less risk-averse might feel comfortable using an educated estimate instead for their business use percentage.

Business use of home for Incorporated business:

If you are incorporated, claiming business use of home expense allows you to reimburse yourself for a portion of household expenses that are directly related to your business activities that you paid for personally. This reimbursement generates a deductible expense for the corporation, reducing its taxable income. At the same time, the payment creates a payable to the owner-manager, which can be paid out without any tax consequences, provided it reflects a reasonable portion of business-related expenses.

Requirement to keep records:

It’s essential to keep detailed and accurate records when claiming the Business Use of Home deduction, as this is often considered "low-hanging fruit" by CRA auditors. The CRA is well aware that many businesses seek to claim these deductions, and there is a natural temptation to overstate the area of your home used for business since the expenses are already incurred. However, overstating these deductions can lead to audits and potential penalties. To avoid issues, ensure you maintain clear documentation, including floor plans, expense receipts, and calculations of the portion of your home genuinely used for business. Being meticulous with your records helps support your claim in case of a CRA audit.

Summary:

If you operate your business from home, be sure to claim the business use of home deduction. The key benefit of this deduction is that you’re already paying for home expenses, and by using part of your home for business, you can claim a portion of those expenses against your business income, reducing your tax liability. This allows you to save on taxes while covering costs you would incur anyway.

This blog has been prepared to provide general guidance and should not be considered specific advice. It may not address individual situations, and the information contained should not be used as a basis for action or inaction without seeking professional advice tailored to your circumstances. For personalized assistance, please contact Jenkyns Smith CPA's LLP.