The bad news: In Canada, you cannot claim your home mortgage when doing your taxes, if you’re a small business owner and work from home. The good news: there is a lot you can claim.
You can deduct a portion (we’ll address how much later) of many expenses required for running your business. This may include your utilities (heat, hydro), telephone, and cleaning supplies. If you own the home, you can claim a portion of your house insurance, property taxes, and mortgage interest. However, unfortunately, you can’t claim the actual mortgage payments.
If you rent, you can claim a portion of the rent you pay.
How much can small business owners deduct from home expenses?
Since you can’t claim your mortgage payments, let’s figure out how much of your other expenses you can claim.
First, you need to figure out what percentage of your home’s space is used for your business., based on square footage. That percentage will represent how much of your home expenses you can claim. If 8% of your home is used for your business, you can claim 8% of your phone bill, hydro, and so on.
• Let’s say your house is 1,000 feet
• Your office takes up 100 square feet (This is obviously easiest to figure out when your workspace is an entire bedroom or garage)
• That means 10% of your home is dedicated to your business
• Which also means 10% of your allowable home expenses can be claimed
• This is the amount you enter on the total business-use-of-home expenses claim on line 9945 of the T1 tax form.
Now keep in mind, you have to be running a small business from your home. These deductions are not accessible for people who simply work from home a lot, even though their job is based elsewhere.
You need to:
• Use your home is your principal place of business
• Use the workspace to earn your business income, and/or
• Use it to meet with clients, customers or patients
If you have any questions about any of your small business tax needs, please don’t hesitate to ask.