Accountants
Tax deductions for home-based businesses in Canada
Running your business from home comes with advantages that go above and beyond the short commute. One of them is that you can actually deduct some costs as business-use-of-home expenses. Before you can start adding up any numbers, it’s important to understand your eligibility to make those deductions in the first place. Can I […]
Running your business from home comes with advantages that go above and beyond the short commute.
One of them is that you can actually deduct some costs as business-use-of-home expenses. Before you can start adding up any numbers, it’s important to understand your eligibility to make those deductions in the first place.Can I get tax deductions?
If you’re using your home as your primary place of business—and not conducting business somewhere else on top of that—then you’re probably eligible. Check out the Canada Revenue Agency (CRA) guidelines to make sure your home-based business qualifies.. If your business does qualify under these rules, you might be pleasantly surprised to learn about all of the expenses you could claim on your income tax return. Ka-ching.Start by calculating your deduction rate
To figure out your business-use-of-home expenses, start by measuring the amount of space in your home that is used for business purposes. Let’s say you’ve converted a spare bedroom into your home business office, and it measures 300 sq. ft. And let’s say the total floor space in your home is 2000 sq. ft. That means 15% of your home is used for business purposes. This is the percentage you can apply to certain home expenses, including:- Heat, hydro, cleaning services, security alarm monitoring, home telephone (if you use it for business purposes)
- Home insurance, maintenance, and repairs
- Rent or mortgage interest
Organize your receipts
Pull together expense receipts for all items or services you purchased to run your business during the past taxation year. Beyond the above business-use-of-home expenses, as with any business, the expenses you rack up in the pursuit of income are tax-deductible at full value. While it’s a good idea to check the CRA website later for a list of eligible business expenses, here’s a quick summary:- Employee salaries, wages, and benefits
- Office supplies (e.g., ink cartridges, printer paper, pens, pencils, and stamps)
- Dedicated business telephone line
- Professional fees paid to your lawyer, accountant, and consultants
- Website design and hosting fees
- A portion of meal and entertainment expenses incurred with customers or prospects
- Marketing costs for money spent on advertising and social media
Don’t forget to deduct motor vehicle expenses
Working from home likely means you must travel to meet customers, visit suppliers, or pick-up supplies for your business. Remember to claim allowable vehicle-related expenses.- If you have a company vehicle used exclusively for business purposes, 100% of related costs are deductible from your business income tax
- If you have a personal vehicle used for both business and personal travel, you can expense a portion of expenses used for business
- To prove business use, keep a log of kilometres driven for business trips
