Home office for work
There are a lot of benefits to working from home, time with family, and if you are savvy, big savings come tax time.
Do you qualify?
According to the Canada Revenue Agency, to apply for home-office deductions you must meet at least one of the following criteria:
1. You do more than 50 per cent of your work at home.
2. You use your home workspace exclusively to earn employment income, and you regularly meet clients or customers there.
If you do manage to meet the criteria, you will need to get your employer to sign a T2200 federal form certifying that fact. If the company will not sign, you cannot claim. Once your paperwork is in order, you can write off a percentage of the cost of maintaining the work space, such as heating, electricity, minor repairs and cleaning. A percentage of rental payments can also be deducted, but if you own the home, you cannot claim mortgage interest, property taxes, home insurance or capital cost allowances. There is an exception for salespeople who work on commission, who are allowed to deduct a pro-rated portion of their home insurance costs and property taxes.
If you are your own boss, you have far more to gain. In addition to expenses, you can also claim a portion of home insurance, internet services, property taxes and mortgage interest costs (but not the part of the mortgage payment that is a repayment of principal).
Self-employed workers can also claim capital cost allowance, known as depreciation, on the office portion of their home – but there could be negative tax implications if you ever decide to sell. If you do not claim depreciation, your entire house may be regarded as your principal residence and any gain realized on it is eventual sale may be tax-free.
Calculating your deductions
Whatever your situation, you can only claim expenses that relate to your work. if you are not clear what that entails, just try to be reasonable.
To calculate what you are owed, you will need to determine what percentage of your home you use to earn income. For example, if your home office takes up 10 per cent of the total square footage of your home, you claim 10 per cent of your expenses. If you work 12 hours per day and use the space for personal reasons the rest of the time, you have to reduce your home-office deduction by 50 per cent. Any expenses that relate directly to the home office, like a separate phone line or office supplies can be deducted in full.
Keeping detailed records of all your expenses is key.