| Claiming
a deduction for a home office
If individuals run a business
from their home or earn income
by renting a portion of their
home, they are allowed to deduct
a portion of their house expenses.
This may include mortgage interest,
property taxes, utilities, and
repairs. Employees are allowed
very few deductions against
their employment income, but
may qualify for an office in
the home deduction under certain
circumstances.
If employees work from their
home and do not charge rent
to the employer, the individuals
may be able to claim a deduction
for the use of their residence
on their tax return if they
meet the following conditions:
- The office in the home must
be the individual’s
principal place of business;
OR
- The office must be used
on a regular and continuous
basis for meeting clients,
customers or patients
The difficulty with meeting
the first condition is the meaning
of the word ‘principal’.
It is the position of the tax
department that principal means
50%.
Thus, at least 50% of the work
of the individual is performed
in his home, rather than a location
owned by the employer. The reference
to ‘contract of employment’
need not be written, as oral
contracts are sufficient.
However, CRA requires the employer
to confirm the existence of
the contract on form T2200 that
must be submitted with the tax
return.
The expenses that individuals
are allowed to claim on their
tax return will depend upon
their employment status. The
available deductions can be
summarized as follows:
| Status |
Deductions
Allowed |
| |
|
| Employee |
Utilities |
| |
Repairs
and maintenance |
| |
Cleaning
materials |
| |
A
portion of rent. If the
property is owned, no deduction
is available |
| |
|
| Commission
Employees |
All
of the deductions available
to both regular employees
and employees earning a
commission, plus mortgage
interest and capital cost
allowance |
| |
|
| Self-Employed
|
All
of the deductions available
to both regular employees
and employees earning a
commission, plus mortgage
interest and capital cost
allowance |
| |
|
| |
|
Note: Although self-employed
individuals are allowed to claim
capital cost allowance on their
home, this deduction should
not normally be claimed, as
it may result in the loss of
a portion of the principal residence
exemption on the eventual sale
of the home.
|
"