Understanding Business-Use-Of-Home Expenses 

Ever wondered if your business can claim deductions for home office expenses? Let’s delve into the specifics of what the Canada Revenue Agency (CRA) permits, how to compute these expenses, and the maximum deductible amount. 

The Rise of Home-Based Businesses 

In the wake of the Covid pandemic, there’s been a surge in home-based businesses. A common query among business owners is whether they can claim expenses related to the business use of their homes. They often seek clarity on which expenses are deductible and the method to determine the right amount. 

Eligibility Criteria for Deductions 

According to CRA guidelines, businesses can deduct expenses for workspace use in their homes if: 

• It serves as the primary business location. 
• The space is exclusively used for business income generation and is regularly utilized for client or customer meetings. 

Deductible Expenses 

Expenses that can be deducted include a portion of maintenance costs like heating, electricity, cleaning supplies, home insurance, property taxes, and mortgage interest. While you can claim the capital cost allowance (CCA) on your home, it’s advisable not to. Claiming CCA might lead to complications when selling the home, potentially affecting the personal residence exemption on capital gains. 

For those who rent their homes, a portion of the rent and any workspace-related expenses can be deducted. 

Calculating Deductible Amount 

The CRA suggests using a “reasonable basis” for calculations, such as comparing the workspace area to the total home area. Here are two common scenarios: 

• Exclusive Business Space: If a specific room is solely for business, calculate the percentage of the home it occupies. For instance, if your home’s annual maintenance costs are $10,000 and you use one room (100 sq. ft) in a 1000 sq. ft house for business, 10% (or $1,000) can be allocated as a business expense. 
• Mixed-Use Space: If a space serves both personal and business purposes, consider both the space percentage and the hours it’s used for business. For example, if you work 5 hours daily for five days in the aforementioned room, you’d use it for 25 out of 168 hours weekly. Thus, the $1,000 expense would be reduced to $148.8. 
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Maximum Deductible Limit 

The deductible amount for home office expenses is limited by the business income. You can’t claim expenses exceeding this income or use them to amplify/create a business loss. If your expenses surpass your income for the year, you can defer them to subsequent years. Always retain receipts for potential CRA audits.