Deducting Your Home Office Expenses

Every home-based entrepreneur can and should deduct a portion of home expenses. In order to be eligible to do that, you must meet one of the following criteria:

  1. Your home must be your principal place of business, OR
  2. You use a designated area in your home for the sole purpose of earning business income AND you use this space on a regular and ongoing basis to meet clients.

In the first case it is not mandatory to separate your business area from the rest of your home, but things can get a bit complicated when your clients use, let’s say, a hallway, family room or front foyer. First of all, you will have to calculate the percentage this total “business space” represents of the square footage of the house. And then you will have to pro-rate the approximate time the area is used for business purposes as compared to personal use. For example the above mentioned rooms represent 30% of your house, and your clients use them in the daytime – 40% of the total time. So you would be able to deduct 12% (40% of 30%) of eligible home expenses. We still suggest that you designate an area in your home to be used solely for business purposes to maximize your deductions.

In the second case where your home is NOT your principal place of business, make sure that you designate an area in your home to be used SOLELY for your business. You cannot put a desk in your living room and call it your office. In addition you must be prepared to demonstrate to the CRA that you regularly meet clients/prospects or patients at home. Your Daily Business journal might be very helpful here.

Speaking of eligible home expenses – you can deduct a portion of mortgage interest, home insurance, repairs and maintenance (NOT capital improvements!), property taxes, utilities, and any other general house expenses. At the same time you can deduct 100% of any expenses that relate directly to your business – let’s say, the insurance company increased your premiums due to the business operations from home, or directly to your office (for example, wall painting).

You can always CONTACT US to discuss your particular situation.