Can I Claim Home Expenses?
Now, you’re getting the INSIDE scoop.
When I meet up with sole proprietorship/partnership clients, one of the MOST COMMON things I get asked and discussed is home expenses.
My goal is to help you find expenses you can claim on your tax return, which can reduce the amount of tax you must pay (or even get a refund!).
This is something you might've not even thought about. Suppose you have clients stop by your home, or you work every day in your home office (or use a corner of your living room to work). In that case, you can claim that business-use-of-home portion onto your T2125 (Statement of Business or Professional Activities).
What is a T2125? I kind of have to go over it really quickly to give you an idea of what it is. As a sole proprietor/partner, when filing your INCOME TAXES, your accountant or tax professional (or yourself on H&R Block) will fill in your business information and numbers into a section called a T2125. It’s really just an extra form to report either business or professional income and expenses.
Now, onto the good stuff.
Remember that the business-use-of-home expense is separate from renting a designated office space. You utilize your home for personal use (duh!). But if you’re reading this, you also probably use it for business use, so we need to be able to determine which space and how big it is in square footage or meter, compared to the total square footage or meter of your home, which will give us a percentage. This percentage will determine how much of your TOTAL home expenses can be added to your business expenses.
Let me give you an example:
Let’s say you have a designated office space in your apartment where you work. This space measures 10’x10’, totalling 100 square feet. Your apartment is a total of 900 square feet. The business-use-of-home percentage is 11% (100/900).
This means you can claim 11% of your total home expenses as a business expense, even if you rent your apartment or house.
You must tally up ALL of your home expenses for the year (that matches your fiscal year, ex, January to December). It’ll look similar to this:
Rent - $12,000
Insurance – $1,500
Water + Heat - $2,400
Total expenses: $15,900
You can only claim the portion of these expenses directly related to business use. You can claim:
11% (this is your 100 square feet / 900 square feet) x $15,900 (total home expenses for the year) = $1,749.00 in business expenses.
However, you must add extra calculations if you work in a COMMON AREA (like your living room or kitchen). Don’t worry; I have a spreadsheet to help you with this LINKED BELOW. ↓
Now, I’ll give another example if you use a Common Area as a workspace.
Let’s say you work in your living room, and the total dimensions of the section you’re using in the living room are 5’x5’= 25 square feet, and you’re also working from your bedroom, which is also 5’x5’ = 25 square feet (and your space totals 900 square feet). The percentage of your space that is used for business is 5%. Perfect, we have the square footage. But now, you must figure out how many hours you spend working in these spaces weekly. Suppose you spend 4 hours daily for 5 days in your living room and 2 hours daily for 5 days in your bedroom, totalling 30 hours. I won’t bore you with the math because my spreadsheet will do it for you, but this will then get divided by the number of hours a week and give you a percentage. In this case, it gives us 18%.
Let me show you. Let’s take the same numbers as above:
Rent - $12,000
Insurance – $1,500
Water + Heat - $2,400
Total expenses: $15,900
You can only claim the portion of these expenses directly related to business use. You can claim:
5% (this is your 50 square feet / 900 square feet) x $15,900 (total home expenses for the year) = $1,749.00 x 18% (time you spend in those spaces) = $209.88 in business expenses.
Business-Use-of-Home Expenses, you may be eligible to claim:
public services (electricity, water)
heat
insurance
maintenance
mortgage interest
property taxes
rent
Here's what YOU need to do as a sole proprietorship or partnership business owner:
Enter your calculations in my Business-Use-of-Home spreadsheet and keep it for your records.
Keep the receipts of ALL of your home expenses.
LINK TO MY BUSINESS-USE-OF-HOME SPREADSHEET TO HELP YOU CALCULATE THIS >
If you have any questions regarding this, please feel free to send me an email at roxanne@openbookca.ca. I’m always here to help.
If an accountant, bookkeeper, or tax professional files your income taxes, that's it! They will do the rest!
Happy tracking!
Disclaimer: The information contained on this Website and the resources available for download through this website are not intended as, and shall not be understood or construed as, financial advice. While the professional at the Company have education and background in the field of business-accountancy and the information provided on this Website relates to financial issues, the information contained on this Website is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.
