Have a Canadian home based business? Then you’ll want to see if these home based business tax deductions apply:
4) Mortgage Interest & Property Taxes
If you are carrying a mortgage on your home and running a home based business, you can claim your mortgage interest under Business-use-of-home expenses - assuming your business meets the requirements for Business-use-of-home deductions.
Generally, you can deduct expenses for the business use of a work space in your home as long as:
- the work space is your principal place of business; or
- you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients (Canada Revenue Agency).
If you own your own home and are running a home based business, you can also claim your property taxes as expenses.
If you are renting, you can deduct the cost of your rent.
There is a catch, however; you can only deduct a portion of these expenses, dependent on how much of your living space and time is actually devoted to business use. Calculating the Home Based Business Tax Deduction explains how to do this step by step.
Tax Tip: From the Canada Revenue Agency: “You can use the chart "Calculation of business-use-of-home expenses" on Form T2125 to calculate your allowable claim for business-use-of-home expenses. The expenses you claim on line 9945 must not be claimed elsewhere.
5) Other Business-Use-of-Home Expenses
Besides mortgage interest, property taxes and/or rent, there are other expenses that home based business operators who qualify for business-use-of-home deductions can claim.
Some of the most common of these are:
- Cleaning materials
- Internet connection
Remember, “you can deduct any reasonable current expense you incur to earn business income” (CRA) for your home based business. But, as you read in point 4, you can only deduct the portion of these expenses related to business use and what you claim here can’t be claimed elsewhere.
Tax Tip: From the Canada Revenue Agency: “Purchases and business expenses must... be substantiated with a sales invoice, agreement of purchase and sale, a receipt, or some other voucher that supports the expenditure.”
6) Carry Forward of Unused Work Space in Home Expenses
You can’t use business-use-of-home expenses to create or increase a loss for your business. So if you end up with having more expenses than income for your home based business, you will have what the Canada Revenue Agency calls unused Work Space in Home Expenses which you can carry forward into the next year.
Like the unused Capital Cost Allowance claim, the beauty of this is that you don’t necessarily need to claim these expenses in the tax year following either. If your home based business continues to meet the conditions for claiming business-use-of-home expenses, “an indefinite carry forward is provided” (CRA) meaning that you can use these unclaimed expenses when it’s convenient to offset higher income in a later year.
Like everything else related to taxes, meticulous records are a must; all your home based business deductions needs to be documented with receipts. But if you have a home based business, these are tax deductions you don’t want to miss.