Home Office Expenses – What Costs are tax Deductible?

When you work from home, there is a possibility that you can deduct the home office cost on your individual taxes. Before we begin to explore as to what costs can be deducted for your taxes, let us understand under which situation the home office cost can be deducted.

The home office cost can be deducted when you have either employment income or income from business or profession. Of course the elements of deductible cost differs.

Let us discuss the deduction in case of self-employed individuals

There are two situations under which this cost can become deductible.

1)      When the Home Office is your principal place of business and

2)      When the Home Office is not your principal place of business

When Home Office is your principal place of business, it does not have to be used exclusively for business purposes. If, for example, a dining room table is used to run a mail order business and that room qualifies as principal place of business for the operation, the home office cost can be deducted for the dining room space.

If your home office is not the principal place of business, it must be used exclusively for the purposes of earning income. This requires that some part of home must be designated as home office for work and for no other purposes. Also, another condition in such a case will require that home office must be used to meet on a regular and continuous basis for meeting clients, patients and customers. You may want to refer to CRA (Canada Revenue Agency) circular IT-514 to get more details on this deduction

For your self-employed income, you can deduct rent, utilities,insurance on home,property tax and interest on mortgage proportional to you total home area.It is never advisable to deduct the CCA (Capital Cost Allowance) if it is your principal residence since claiming CCA will amount to losing of principal residence exemption and you may be asked to pay tax at the time of selling your principal residence.At the moment, there is no capital gains tax when you sell your principal residence 

In case if you are not self-employed and employed with any employer, the deduction for home office cost is granted provided if the same is used on a regular and continuous basis to meet customers or other persons in the course of carrying out the employments duties.

The following costs can be deducted for home office cost in an employment scenario:

If you earn regular salary income and no commission, then only rent and utilities are deductible and allocated to the home office portion. However, in case if your employment income includes commission income, in addition to the above two cost elements, you can also deduct the insurance on home and property tax allocated to the home office area.

Home Office cost is deducted generally in proportion of Home office square feet area to Total Home area and if the home office cost cannot be deducted fully against the employment income or business income, the same can be carried forward to the future year to offset against such income.