“I have heard from my real estate investor friends that I can deduct part of my home as home office expenses. What’s the real story behind this?” This is a common question from our clients.
Generally speaking home office expenses are deductible if you can demonstrate that they directly relate to the rental operation. The ideal situation is where you have one room in the house dedicated exclusively to the home office. In that case, if the room represents say 10% of the total usable square footage of the house, then you can deduct 10% of the house maintenance costs (e.g. heat, taxes, electricity, etc.) plus any direct expenses, such as a dedicated phone line, fax machine, etc.
At the other end of the spectrum if you just work at the kitchen table, then the CRA will not likely allow any house-related expenses.
Revenue Canada traditionally expects home office expenses to be deducted against a business instead of strictly investments. You’ll notice on the personal tax forms for rental statements that there is no area to record home office expenses, in contrast to other business statements. It’s subjective as to what expenses are necessary for the purpose of earning income. While there is no official threshold, the more properties you have, or using a corporation, makes it easier to claim home office expenses.
CRA has a two-part test to determine if you have a home office. You can deduct expenses for the business use of a workspace in your home as long as you meet one of the following conditions:
- it is your principal place of business
or
- you use the space exclusively to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients
We work with our clients to position them so that there are home office expenses that they can deduct. But normally this isn’t an issue as most of our clients use a corporation.
George E. Dube, CPA, CA, LPA
gdube@bdo.ca
Tags: corporate taxes, home office, personal taxes
