Tax Tips for Small Businesses – Home Office

There are many advantages to operating your business from a home office. But in order for your home office expenses to be deductible you need to meet one of the following conditions:

1) Your home office is your principal place of business (ie. it is used more than 50% of the time) OR

2) Your home office is used exclusively to earn business income AND is used on a regular and continuous basis for meeting clients or customer

If you are one of the many lucky Canadians who get to enjoy the benefits of working from home and you meet one of these conditions then you can expect to be able to deduct a reasonable percentage of you home expense. They include:

  1. Direct Operating Expenses – Computers, Printers, Software Programs, Desks, Cabinets, Office Phone Line
  2. Home Expense – You can take a percentage of our home’s operating expense based on the square footage of your office in relation to the total square footage of your home. These home expense can include: utilities, rent, home insurance, mortgage interest, property taxes, home insurance
  3. GST – If you are registered for GST, then any GST that you actually paid on expenses can be claimed in an input tax credit. Remember that certain home expenses are NOT subject to GST

Tips to remember

– these expenses can only be deducted from the business income generated from working from your home

– these expenses they cannot be used to create a business loss

– if you have a home office expense that cannot be deducted because it is creating a loss- you are still eligible to claim these expenses for a GST input tax credit

– if you also have an outside office, you MUST designate an area in your home that is used solely for your business

– its not recommended that you claim depreciation on the portion of your home that is used for business as this can impact the capital gains exemption on your principal residence if you ever sell your home

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