Can I Deduct My Home Office Expenses

This is perhaps one of the most frequent questions people who have a home office have.

The answer isn't quite simple but I'll try my best to answer it.

The first criteria in determining whether you can deduct your home office expense is if you are:

1. an employee with a workspace in your home, or
2. if you are run a business and have a workspace in your home.

Employee

I'll first discuss the first situation where you are an employee and have a home office. In order to deduct your home office expenses you must meet one of the following criteria:

• The work space is where you mainly (more than 50% of the time) do your work.
• You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

Do note that you will need to get a T2200 that has been signed by your employer.

What can I deduct?

You can deduct a reasonable proportion of your home expenses that relate to your work space (i.e. square footage of space used for work over total square footage). Home expenses that can be deducted include electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance (depreciation on your home). If you rent, simply deduct the portion of your rent.

How much can you deduct?

The amount you can deduct is limited to the amount of employment income remaining after all other employment expenses have been deducted. This means that you cannot use work space expenses to create or increase a loss from employment.

Run a Home Business

I'll now discuss the second situation where you run a business and have a home office. You will need to meet the following criteria if to deduct home business expenses

1. the principal place of the business of the individual, or
2. used exclusively to earn business income and on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business.

What can you deduct?

You can deduct the same expenses discussed above for an employee with one exception. You can also deduct your Mortgage Interest and Capital Cost Allowance. A word of caution. If you deduct CCA, you may be subject to recapture (income inclusion) when you sell your house in the future.

How much can you deduct?

Similar to the situation if you are an employee, you cannot create a loss as a result of your home office expenses.