I know people are working from home now more than ever before because of COVID-19. Start planning today to ensure you’re getting the proper deductions for the 2020 tax year. There are three types people that can claim their home spaces: employed individuals, commissioned sales people, and self-employed or sole proprietors.
In all cases you will need to know how much of the deductible expenses you can claim. A good way to calculate that is by using a percentage of your home. For example, your home is 1200 square feet and you use a 10’x10’ bedroom as your office. You can claim 8% of your expenses (100 / 1200).
Maintenance on the home is a tricky one to claim. You can claim the full cost of paint for the office area, but you cannot claim painting the whole house. You can, however, claim a portion of a new roof. Please see the chart below for a list of all allowable expenses.
Your home expense deduction can’t be more than the income earned from the space. In other words, you can’t use the home expenses to create a loss. The CRA does let you carry forward any unclaimed amounts. This may be the case for a self-employed person with high operational costs.
Employed Individual
An employed person must work from home at least 50% of the time to qualify. Your employer must provide you with a T2200 Declaration of Conditions of Employment to claim the expenses. In addition, you may have some out of pocket expenses like office supplies or cell phone usage. Make sure these are listed on the T2200 too.
Commissioned Salesperson
There are few conditions that must be met for a commissioned salesperson to qualify to claim employment expenses including the work space in the home.
- Under your contract of employment you had to pay for your own expenses.
- You were normally required to work away from your employer’s place of business.
- You were paid in whole or in part by commissions or similar amounts.
- You did not receive a non-taxable allowance for travelling expenses. Generally, an allowance is non-taxable as long as it is a reasonable amount. For example, an allowance for the use of a motor vehicle is usually non-taxable when it is based solely on a reasonable per-kilometre rate.
As with employed individuals, your employer must provide you with a T2200 Declaration of Conditions of Employment.
Self-Employed/Sole Proprietor
To qualify for this deduction the home office must be your principal place of business OR you must use the space only to earn business income on a regular and on-going basis. For example, you meet clients, customers, or patients in the space.
| Deductible Expenses | Salaried | Commission | Self-Employed |
| Supplies – office supplies (excluding briefcases and calculators) | X | X | X |
| Cell phones – airtime expenses | X | X | X |
| Cell phones – connection fees | X | ||
| Internet | X | ||
| Work space in the home – electricity, heating, Maintenance, rent | X | ||
| Work space in the home – all above plus property taxes, home insurance | X | ||
| Business use of home – all above plus mortgage interest | X | ||
| Accounting & legal fees | X | X | |
| Advertising & promo | X | X | |
| Entertainment (50%) | X | X | |
| Licenses & bonding premiums | X | X | |
| Leased equipment – computers | X | X | |
| CCA on capital purchases | X | ||
| Office rent | X | X | |
| Training costs | X | X | |
| Salaries & wages | X |
Every situation is different and this should only be used as a guideline. Remember, keep all your bills and receipts with your tax return for seven years in case you’re asked by the CRA to provide proof of the claim. Start collecting them now somewhere that will be easy to find come tax time.
Pam Little is a Chartered Professional Accountant with over 20 years of experience. She helps small and mid-sized businesses manage their revenue and expenses and maximize tax benefits. To book a free consultation contact Pam Little, CPA at pam@pamlittlecpa.com or call 416-268-1605.