Do I Qualify for Home Business Expenses?

Do I Qualify for Home Business Expenses?

When you work from home, or more specifically, have a home-based business, you can qualify for home business expenses. The CRA has several tests, however, to determine whether or not you can legitimately claim them. Here is an overview of the qualification process:

The work space is the principal place of the individual – this space inside your home must be used to perform functions such as: meeting clients, making phone calls, processing work orders, payroll, bookkeeping, etc. You may be working in the field (i.e. a construction contractor builds buildings out in the field but has his main office space in his home to perform administrative duties). Such a space cannot be claimed if you have an alternate commercial workspace to perform similar business activities.

The workspace must be used on a regular and continuous basis – the space must be used exclusively to earn business income, and must be used to meet clients, patients and other customers on a regular and continuous basis. This can be achieved when you designate a room (or rooms), and they be used for no other purpose.

Restriction on deduction – eligible expenses for home business use can include: rent, mortgage interest, property taxes, home insurance, utilities such has heating, lighting and water. However, these expenses must be prorated – the square footage (or meters) of the workspace divided by the square footage (or meters) of the dwelling.

Carry forward of undeducted expenses – home business expenses cannot contribute to a making a capital loss, or a greater capital loss if a capital loss has already been achieved. Simply put, home business use expenses can only reduce business income to zero. Any unused expenses, however, can be carried forward into future years.

If you have a home-based business, please go to www.cra.gc.ca to get more information on this subject.

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