Business-use-of-home expenses - Segment 9


Host: Welcome to the segment called Business-use-of-home expenses, part of the Reporting Business Income and Expenses video.

With me is Linda Bishop. Welcome Linda.

Can you tell us some factors to consider when claiming a business deduction for using part of your home?

Subject matter expert: You can deduct expenses for the business use of a work space in your home, as long as it's 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 or customers.

Also keep in mind that if you have an office located outside of the home you cannot claim business use of home expenses; since your home would not be your principal place of business.

Host: In today's economy, more and more small business owners are choosing to operate businesses out of their homes. What is, and is not, deductible?

Subject matter expert: When you run a business from your home, you may be able to deduct a percentage of your home expenses such as heating costs, hydro and insurance. You may also be able to deduct part of your property taxes, mortgage interest, and capital cost allowance (CCA). To calculate the part you can deduct, use a reasonable basis, such as the area of the work space divided by the total area of your home.

Host: How does that calculation work?

Subject matter expert: Let's look at an example.

Monique has an office in her home where she conducts all her real estate business activities. However, the space is not used only for business. Her business runs from 7:00a.m. to 5:00p.m., so 10 hours out of a 24-hour day. The business uses an area of 35 square metres. The house is 100 square metres, and the annual household expenses are $5,800.

This is how Monique would do her calculation:

10 divided by 24 hours multiplied by 35 divided by 100 metres multiplied by $5,800 expenses which equals $845.83

The business operates five days a week, so Monique has to do another calculation:

$845.83 multiplied by 5 divided by 7 days which equals $604.16

Monique can deduct a total of $604.16 for household expenses.

Host: What if I use my garage to store all of my supplies and it is not used for anything else?

Subject matter expert: Let's use an example of a building contractor. He stores all his business-related supplies and equipment in the garage. It is so full that the contractor cannot use it for anything else. In that case the entire space is deductible. You would not have to do the time calculation that Monique did in the previous example.

Host: What if I have a den that I use only for business, and when I am finished working for the day I lock the den up so no one can go in there?

Subject matter expert: Again, if the space is used only for business use, then you deduct expenses based on the area calculation only. For example, if the house is 1,000 square metres and the den is 50 square metres, then 50 divided by 1,000 or 5% of the household expenses are deductible against the business income.

For more information go to the CRA's webpage on Business-use-of home expenses. The link is included in the Related links for this segment.

Host: Thank you Linda.

This concludes the segment called, Business-use-of-home expenses part of the CRA's Reporting Business Income and Expenses video.

Thank you for watching.

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