If your business operates out of your home or living space, you may be eligible for credits that can help reduce the taxes you owe each year. Canada Revenue Agency honours your home office or workspace, if you meet one of these two conditions (quoted from CRA’s website in italics):
- The workspace is where you mainly (more than 50% of the time) do your work.
- You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
Read on for a summary of tax credits and requirements for those that work from home.
DO I QUALIFY?
Along with the above CRA guidelines, you may be required to provide a form from your employer that specifies the need for you to work from home. Self-employed or small business tax returns generally do not require such a form.
WHAT CAN I CLAIM?
Income tax credits for a home office are very wide-ranging. Here are just a few of the deductible expenses that may be available to those that operate workspaces out of their home:
- Home insurance
- Property taxes
- Maintenance costs
- Rent/mortgage payment
- Housekeeping/cleaning costs
Depending on usage, some or all of these may be entitled to a full or partial tax credit. Examine your home expenses closely and get the best possible tax return.
HOW MUCH OF MY HOME IS CONSIDERED WORKSPACE?
CRA allows you to use a “reasonable basis” to determine the percentage of your home or living space that is used for your work. For example: in a five-bedroom home with one dedicated workspace, you are entitled to claim a fifth of your deductible expenses. Another example: you use an existing living space as a workspace for 12 hours of the day, so you are entitled to claim half of the expenses.
The above guidelines only address a portion of the requirements and credits for those that work out of their homes. For more details, consult the CRA website or your Liu & Associates financial expert. We can help ensure your home-based business will have a maximized tax return every year.